Mobile Instant Payments: An Opening For Chains To Truly Avoid Interchange?

The Holy Grail of mobile payments is the instant payment, something similar to Amazon's one-click or Apple's iTunes, perhaps enhanced by a short, memorized PIN. But no credit card numbers, street addresses or anything else cumbersome is required. That idea has prompted many to suggest this will be the direct-payment-to-carrier play. Why not have software loaded—or a chip inserted–into the hardware?

This payment might be made to the handset manufacturer, but more likely it would go toward a pre-arranged credit or debit card. Let's take this approach one step further. Why not buy from Wal-Mart a Wal-Mart phone—or from McDonald's a McDonald's phone—that allows one-click purchases for anything at all?

The consumer would then receive a monthly bill with everything itemized. That's one way to get around interchange and to build some wonderfully deep CRM databases—with lots of your rivals' sales—at the same time.

An American Banker piece this month suggested such a move could hit first on Android, mostly because Apple's tight control would, in theory, scare off a lot of developers. It's a distinct possibility.

But the story also said these instant-pay plans would be extra attractive for small purchases and that smaller buys—such as paying for a downloadable game—are "little threat to card issuers' interchange revenue." Au contraire! It's precisely these tiny purchases that should scare the barcodes off the card brands.

First, as consumers get used to the small payments, they will likely get comfortable with much larger payments. In mobile speed, that learning curve might be barely a few months.

Even if smaller payments end up not scaling—which is an absurd assumption—the number of such payments could quickly make that market's domination quite worthwhile.

Indeed, if instant transactions get adopted by mobile, why not extend it to the Web? After all, any software that can be downloaded to—or any chip that can be inserted into—a mobile phone should work even easier on a laptop, desktop or tablet.

From there, is in-store such a reach? Imagine walking into a Walgreens and zapping each barcode with your phone. After clicking a purchase button, the store's POS is automatically updated with your in-store purchases. The chain's system matches your phone's system, and you walk right out the door. This approach is essentially the equivalent of the once common, "Thanks! Just put it on my tab."

Don't forget about the fringe benefits. With fewer cards being stored, PCI efforts could become much less onerous.

Verizon has already started to make direct-payment moves, but it may not be enough. Instead of trusting their phone company with more control, would most consumers rather trust their favorite retail chain? Especially if those instant payments could cover any retailers accepting that payment?

Ahhhh, there's the controversial part: "retailers accepting that payment." This is the point where the chains' distrust (OK, hatred) of the card brands comes up. How serious are they? What if they passed much of those interchange savings to all retailers that cooperate? Done properly, this approach could actually work, assuming the largest chains can set aside short-term greed and focus on the bigger picture: immense long-term profiteering.