The alliance—which will reportedly include banker Barclays and payment network Discover Financial Services and will "kick off soon with a pilot program at retailers in four selected cities, including Atlanta," according to The New York Post—does bring together some key players in an attempt to challenge Visa and other card brands. But this deal has all the markings of something that five executives sketched out--five people who will never get within 5,000 yards of the conference rooms where the hard details will be worked out.
Please don't get me wrong. Mobile payment is a huge issue and some major players will need to jump in, but retail is the key. More precisely, retailers are the key. The issue of mobile payments comes down to sharing revenue, and it will require lots of trust. Now there's a word not typically associated with AT&T. Asking retailers "Who do you trust more, Visa or AT&T?" is like giving parents of 3-year-old twins a babysitting choice of Jeffrey Dahmer, Idi Amin or Osama bin Laden.
Todd Ablowitz, president of payment consulting firm Double Diamond Group, put it well when explaining the financial issues that are behind—and that might ultimately derail—this deal.
"It's widely known that the limiting factor to NFC/contactless adoption has been that the very large players have not been able to agree on how the proceeds from this new payment type should be shared. Actually, they don’t even agree that it should be shared," Ablowitz said. "Each of the major players is looking to make sure they can extract maximum value from this inevitable new paradigm. The major card brands and banks say, 'It’s our consumer. We have the trusted financial relationship and we shouldn't have to share interchange.' The carriers say, 'No, it's our customer. We are the ones who supply and support the phone, so we deserve a (big) piece of the pie.' The retailers then turn around and say, 'This is just payment. The whole reason our customer is paying for something is because they’re loyal to our store. We pay too much already for payments and this new technology should lower our costs substantially. And, by the way, we're fresh off a victory in Congress, and we’re going to get this whole interchange thing fixed there.'"
Another powerful take on this issue came from Nick Holland, an unusually plugged-in analyst at the Yankee Group. He compares the move to a 2003 European alliance effort called Simpay that featured Vodafone, Orange and T-Mobile. (T-Mobile. Always the bridesmaid and, well, I guess always the bride, too. It's just that the marriages seem to fail.) In 2005, the plug was pulled.
Holland argues that this alliance has a somewhat better shot because the technology is more mature and the geographic target is more limited. But he still fears the worst. "One issue remains, however. Consortium. Not to suggest that the triumvirate of AT&T, Verizon and T-Mobile can’t come to some equitable agreement on forming a mobile payments network, but it didn’t work before. And, all it took for Simpay to implode was for one of the players to drop out. Lesson learned?"
Several players are well positioned to handle mobile payments, and they have a much better chance of playing well with the largest retailers.
Apple generally engenders very good feelings among its customers, and it has yet to alienate retail leaders. Yes, the Cupertino consumer electronics giant does have a knack for strongly infuriating business partners, but at least it starts off with a clean plate.
Apple knows mobile intimately, directly controlling the hottest mobile brand today: the iPhone. And iTunes has mastered mobile payment. Indeed, most players judge their own efforts against the ease and convenience of iTunes.
PayPal has been the innovative—and respected—leader of alternative payments for years. And its eBay corporate parent gives it a good feel for what retailers care about. PayPal arguably has the best combo position here, a comfortable partner for any major chain and world-renowned payment expertise in non-traditional environments.
Don't forget that this is not merely a popularity contest among retailers. Consumers have a huge say, as well. Consumer comfort with PayPal could be a critical factor here.
This huge credit card giant in Japan and throughout Asia is a rarely referenced candidate, but look at what it has to offer. In terms of payment processing experience and global reach, JCB is a powerful player. It has little penetration in the U.S., which means it has relatively few enemies here. If the boards of some chains would rather have a plastic payment veteran handling mobile transactions, bringing in JCB—which has been looking for a way to boost its U.S. presence for years—might be a face-saving approach.