So, we now have some understanding as to how payments are processed using the current payment paradigm – basically by using cash, credit or debit cards. Now, on to the more meaty stuff – mobile payments. I have said this before – with the mobile phone in everyone’s pockets, it’s just a matter of time when the mobile phone is going to be indispensible in other sphere’s of our life. And that includes mobile payments.
Before we delve into this, it is important to understand the key players in this ecosystem. There are at least 7 categories that help constitute this complex ecosystem.
The above categories should be self-explanatory with perhaps the exception of Mobile Payments Pureplays. This category represents those stakeholders who are using existing technology to facilitate mobile payments either via SMS, data-channels, NFC and the like.
Underlying this ecosystem are the various technologies vying for the top spot in the mobile payments world. Some of them are..
- Near Field Communications or NFC
- External dongles
- Bluetooth enabled payment
I’ll hit upon the technologies later. I have covered NFC in detail in my previous posts as I see great promise for this technology to intersect the mobile phone and mobile payments. Ok, now going back to paradigms.
No matter which paradigm will eventually prevail, there are a few things that are quite evident. One clear point is that of all the ecosystem stakeholders mentioned above, each will have a stake in the process but in various degrees of participation depending on the paradigm. I am not entirely sure in what way these stakes will be monetized. Some players will have a clear advantage over the others, while some will just end up being enablers of the process.
That said, let’s look at the first paradigm. This would be a methodology that is driven by MNOs, where everyone else sort of takes a back seat. In shaping such a paradigm, ISIS comes to mind. Just recently (Aug 29th) , it was revealed that MNOs plan to infuse $100M into this project that essentially uses NFC as the underlying technology to facilitate mobile payments. How does this work and what are the pro’s and con’s?
How does it work? Here’s the ISIS promotional video.
If executed right, ISIS has a lot of potential for sure. You’ll note from the video that the mobile phone is used in lieu of the wallet in a lot of places. Pretty cool! But the video varnishes all the complexities that exist in creating such a scenario.
With the MNOs taking the lead role, the bulk of the ‘risk’ is borne by them. Meaning, what they are proposing (among other things) is a ‘One-Bill’ concept. This “One-bill” will consolidate all transactions made using ISIS along with your mobile phone monthly payment. The carrier will then siphon the payments to your respective credit cards providers. Sounds great. But I can already see some complexities. This will add a lot of overhead to MNO’s and increase their financial exposure. On the other hand, if they move away from this ‘One-Bill’ concept, I think that will serve them better. The main reason is because the NFC based ISIS system will co-exist with the current paradigm for a long while and end-users will not change their way(s) just on a whim. Perhaps at some point down the road, ‘One-Bill’ will become reality.
Here are some pro’s/con’s and unanswered questions that come to mind with a MNO led mobile payments paradigm.
One of the good things with ISIS is that the MNO’s and the payment networks have created a consortium – meaning that these key stakeholders are collaborating. Which is a good thing. Further, in the US it is quite evident that there are more credit card issuers than there are MNO’s or payment networks. To me, that means that the systemic ecosystem power is concentrated with these two stakeholders for sure. While there are other payment paradigms that I’ll touch upon in my subsequent posts, I beleive that a paradigm that has the active participation of the MNOs and payment networks has the best chance to succeed and become the dominant mobile payments paradigm.
Would you agree?