In a major shift, Isis, the mobile payments venture headed by AT&T, Verizon Wireless and T-Mobile (News - Alert) USA, which originally intended to compete with card issuers, now appears to have abandoned that tack, opting instead for a scaled-back effort that essentially amounts to data mining and correlation.
There are huge implications for potential business models. For starters, the original plan would have created direct transaction revenue, primarily based on per-transaction fees. That would have required Isis to create a mobile equivalent of the credit card or debit card role, but provided a clear revenue model.
It still is possible that Visa and MasterCard (News - Alert) might agree to share some part of transaction revenue with Isis in exchange for support Isis might provide, but that remains to be seen.
In abandoning the actual payments role, Isis now must create an alternative revenue model of some sort based on data mining and data sharing. In a sense, the new approach is similar to that adopted by Google (News - Alert), which has eschewed the "payment transaction" role. Google instead wants to work with card issuers and payment networks, focusing not on the payment transaction revenue stream, but instead seeeking to grow a location-based local advertising and promotions revenue stream.
In other words, Isis no longer sees itself as providing a mobile replacement for the credit card or debit card. Instead, Isis will hope to create a new revenue model based on loyalty programs or perhaps even local advertising and promotions, positioning Isis to compete with Google, not Visa or MasterCard. That is a huge change.
The change also throws into question the future roles for original partners Barclays Bank and Discover Financial Services. Under the original plan, which would have required Isis to create its own functional equivalent of the branded credit or debit card, Barclays would have been an obvious brand to use. Likewise, Discover Financial would have provided the payments clearinghouse functions.
Under the new plan, it isn't clear what role Barclays or Discover Financial might play. The Wall Street Journal reports that Isis concluded that creating a new branded payment network would take too long, given the level of competition in the market. The Journal also reports that retailers were not keen on adding yet one more provider.
Obvious candidates for creating a revenue model is some sort of partner fee for card-issuing financial institutions to provide the actual mobile payment solution. The perhaps-harder role is to create some sort of local advertising and promotion service that works like Groupon. But that is arguably a different effort entirely.
Groupon is a local advertising business. It does not need to be involved in mobile payments in any direct way. So one might predict that Isis now faces a more-experimental future than might once have been the case. As hard as it would have been to create a rival payments processing brand, the problem now is that it isn't so obvious what Isis actually might become.
If a social shopping service is what Isis is, it doesn't need to be involved in mobile payments at all. The change in focus, though, is probably very good news for other providers in the payments ecosystem that won't have Isis to contend with. Google might be more directly challenged, of course, but some will note that taking on Google in advertising will prove an enormous challenge as well.
Perhaps most intriguingly, the shift of Isis' strategy means other players in the ecosystem, especially the many smaller providers plumbing some specific roles within the broader "payments" ecosystem, gain attention. If Isis has to look for new roles and revenue streams, the many smaller providers of various solutions will become more valuable, at least potentially, if they can provide distinct features and revenue streams.
Isis isn't planning to launch its first payments trial until 2012, as a provider of mobile payment for transit services in Salt Lake City. What isn't so clear now is how relevant that experiment will be for Isis, long term. It still remains possible that Isis will get some small share of transaction revenue, but some will argue that never will be enough to justify Isis as a business proposition.
To a suddenly new degree, Isis is a "beta." Nobody can know for sure what services and features it might ultimately provide, what revenue streams it might produce or what other firms it will compete with. It is pretty clear Visa and Mastercard will not be those competitors.
The shift of strategy probably is wise, given the time and capital Isis would have to have invested in creating a new retail payments brand. But it also might be argued that the potential revenue streams are scaled back to what would have been obvious before. Lots of thinking now is going into ways mobile data and back office capabilities, such as billing, location and other details about devices, operating systems and so forth might be exposed to third parties.
It likely will now take some time to explore those avenues. Some might point out that the business Isis originally hoped to gain share in represents $5 billion worth of annual activity. Some would say it is more. So investing to gain perhaps $1 billion in annual revenue was sort of a reasonable way to look at matters.
What also seems clear is that there is a time to market issue. Irrespective of the question of how much investment can be justified, to create a new $1 billion revenue stream, there is the simple matter of other contestants moving faster to claim some new roles in the developing ecosystem.
What does seem abundantly clear is that the new revenues in the mobile payments ecosystem--from an Isis perspective, might not primarily come from the payments function. That isn't to say other specialists might not be able to create attractive roles directly from payments. Square comes to mind.
But most of the other attractive opportunities probably come from the "wrap around" associated with mobile payments. Isis has made a big shift. But the shift creates many more questions. Isis really is a "beta."
Read more here: Wireless Carriers Scrap Plans for Their Own Mobile-Payment Network, Look to Big Credit Card Companies - WSJ.com (subscription required)
Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.
Edited by Rich Steeves