With Mobile Money, Does Scale Beat Speed? ISIS Hopes So

ISIS is all about scale. That seems to be the message from the mobile-payments consortium backed by AT&T, Verizon and T-Mobile, which on Tuesday (July 19) announced that it has cut deals with Visa, MasterCard and American Express for its mobile wallet trials next summer in Salt Lake City and Austin. Unfortunately for ISIS, it's up against Google, which starts testing its own mobile wallet this September with a dozen big retailers in five major cities. That's a whole different type of scale. True, having the four biggest U.S. payment-card brands on board (Discover has been with ISIS from the start) should indeed give ISIS all the scale it needs to set up a very large mobile-payments system. Adding lots of card-issuing banks is next on the to-do list, according to an ISIS spokesman. But all that scaled-up payment infrastructure won't do ISIS much good until it can scale up its appeal to retailers and customers—and then convince them that ISIS' coupons-and-loyalty-cards mobile wallet is worth waiting for, especially when Google will have almost a year's head start for something that sounds remarkably similar.

The difference, of course, is that scale. "If you think meaningfully about the scale that ISIS is bringing, overwhelming consumer scale, the ability to touch 75 percent of consumers, with multiple handsets, multiple OEMs, multiple operating systems, with meaningfully multiple issuers, that mix is setting up to be much more of a full commercialization and much less of a beta of an initial product," said Jaymee Johnson, the head of marketing for ISIS.

"I don't know exactly what Google will do. They've announced one handset from one carrier with one payment instrument," he said.

That clash of approaches pretty much sums up ISIS and Google. ISIS is planning for a mobile-payments rollout that will be designed to operate on a massive scale—but won't start its first trial before next summer at the earliest. Google has lined up Sprint (the mobile carrier that decided not to join ISIS), MasterCard, Citi and First Data, stringing together just enough pieces to form a payment loop—but its trial starts in September.

Google has also lined up more than a dozen major retailers, including Macy's, Walgreens, Subway and Guess, along with the four leading POS PIN pad makers. It looks for all the world like Google is starting in the store and working its way out. ISIS, on the other hand, is pretty sure the POS won't be a problem once the payment infrastructure is in place. Any retailer that can currently accept contactless payments will be able to handle ISIS payments. Loyalty cards, mobile coupons and other advanced functions? "That will require a software upgrade," Johnson said.

If these two could somehow meet in the middle, they might actually be able to deliver something.If these two could somehow meet in the middle, they might actually be able to deliver something. But that's not likely. And even with all the major card brands under its belt, ISIS is facing several very large obstacles in its race to beat Google.

Actually, that's ISIS' first obstacle: This is a race, and ISIS has to beat Google—and eventually Apple and PayPal, but Google's mobile-payments approach is the most like ISIS. In fact, from the point of view of consumers, ISIS and Google are indistinguishable—both mobile wallets handle payment cards, loyalty and giftcards and coupons.

From the point of view of retailers, neither one holds out hope of interchange relief and both will require POS upgrades. But retailers aren't going to do this twice. There's only room at the POS for one. Waiting until the end of the race to woo retailers will only work for ISIS if Google fouls up spectacularly.

It doesn't help ISIS that both retailers and consumers know Google and have never heard of ISIS. It doesn't inspire confidence that ISIS plans to deliver a payment system on a massive scale to its first tests in Salt Lake City and Austin next year, while Google has been fielding experiments using near-field communication (NFC) in larger cities for years. (Which type of IT project is most likely to succeed?)

"Consumers will be able to walk into any wireless retailer and choose from multiple NFC handsets running multiple operating systems," points out ISIS' Johnson. But Google makes the most popular of those operating systems—and AT&T and Verizon aren't likely to give up Android just to spite Google Wallet.

ISIS does have a trump card, and it's about scale too: the fact that ISIS owns (or rather, is owned by) the biggest mobile networks. Google's pilot project will use Sprint, the weakest of the U.S. carriers. Google can bring in other payment-card brands and banks, but if AT&T or Verizon mobile customers want to use a mobile wallet, Google is out of luck—right?

Only if Google can't manage to marginalize the mobile operators' role. If Google Wallet turns out to be completely carrier-agnostic, the only way ISIS members could keep it off their phones would be by actively blocking it. Good luck slipping that past federal antitrust enforcers while AT&T is trying to convince them that swallowing T-Mobile won't stifle competition.

Let's be clear: The leading contender for mobile wallets is still None Of The Above. There's a reason contactless POS devices are a tiny fraction of mag-stripe PIN pads: It's hard to convince customers to change, and until customers change retailers don't see the point. Most consumers will still carry a physical wallet for cash, driver's license, insurance cards and all the other items that aren't going into a mobile wallet any time soon.

Hmm—maybe ISIS and Google should try to meet in the middle. Getting scale where it counts—among consumers—looks like it will need all the help it can get.