I just received a new Diners Club card when my last one expired, and this is my first EMV “smart card.”  There are several interesting things about this little package that just arrived, and it leads me to more questions than answers. Many issuers are distributing these EMV cards to their international travelers to relieve potential challenges with acceptance in Europe. I have used my Diners Club card less than five times in the last year, and only for car rentals, so I doubt they issued me this new card because I’m an international traveler, or a premium customer. My card expired so, is Diner’s Club U.S. re-issuing Chip + PIN cards only upon expiration, or are they reissuing to all of their customers?

I find it very interesting as well that Diner’s Club U.S. is issued by BMO Harris Bank, which is a Canadian-owned institution. They have a great deal of recent experience with Chip + PIN, so does that mean they are an outlier? It also looks like contactless is not included. Why not?  Is a dual-interface (contactless + contact EMV) card much more expensive? I thought there was only a small difference in the price.

Despite all the questions, it does show that the U.S. market is going the same direction as the rest of the world. We’re in the early days of an EMV migration, but I do believe it’s real this time – although with the complexity and expense of upgrading the U.S. market to Chip + PIN, it will take a long, long time.

Technorati Tags: Chip + PIN, EMV, credit card, debit card, contactless payments, Debit Transactions, Issuing Bank,  payment technology,  payments industry,  Smart Card Alliance 

Here’s what I considered to be the most important developments in 2011 and some thoughts on how they will impact the industry in the year ahead:

Square: Making inroads and finding funds

Contrary to what some were expecting, not all of 2011’s big moves were with applications that involved NFC (near field communication) technology. Instead, one of the year’s most important stories was about Square reaching one million merchants in just a little over a year’s time.  This is not only monumental in terms of numbers, but it’s impressive in that Square has opened the market to a whole new segment of merchants representing micro-businesses, including those who may have never accepted card payments previously.  This success will surely continue into 2012, accelerated by the vast infusion of capital they landed last year.

Google Wallet versus Isis: Battle of the Behemoths

Second only to Square’s phenomenal growth story, Google Wallet ranks high in terms of mobile payments news in 2011.  When Google launched the wallet in the spring, it already had an impressive list of merchants on board, and Google Wallet payments now can be accepted at hundreds of retail locations around the country, making it the broadest commercial roll-out of NFC mobile payments in the U.S.

Not to be outdone by Google, Isis, the consortium of the country’s leading mobile carriers, announced its decision to move from a proprietary card network using only Discover, to an “open” card network that allows all four card brands (Discover, Master Card, Visa and American Express) to load their cards and payment applications onto the Isis mobile wallet.

Google brings a huge network of merchant relationships to the table, which along with their proven marketing skill gives them a head start in the NFC game.  However, the carriers own Isis, and that gives them control over the secure element of the smartphone. It’s an issue of access, and this battle will continue to make news in 2012 as Google and Isis jockey for position in the U.S. mobile payment market. When Google announced that the new Galaxy Nexus smartphone wouldn’t include Google Wallet at Verizon’s request, due to Verizon’s concerns about security, it was a sure sign that things are going to get interesting.

We can expect to see this type of wrangling to escalate in 2012 as Google and Isis duke it out.  In the meantime, the widespread availability of NFC payments will be delayed and it will be difficult for the other mobile payments ecosystem players such as banks, card brands and merchants to know how to play or who to play with. Some are trying to play it safe and work with both sides, while also developing their own mobile payments applications. Ultimately, it will come down to picking sides and it’s uncertain how that will sort out, though perhaps this year will bring greater clarity.

PayPal: A new player?

PayPal threw a possible wrench into the adoption of NFC as the primary mobile payment technology. In 2011, PayPal launched its mobile payments application for face-to-face point of sale payments. Instead of relying on contactless technology and card information stored via phone, PayPal utilizes the cloud for both card data storage and security. PayPal says that their mobile payment transaction numbers over the 2011 Thanksgiving weekend increased by more than 500% over the prior year, and they ended 2011 with more than $4 billion in mobile payments volume. Though very few of those transactions were at the physical point of sale, the data suggests that PayPal has made significant inroads in adoption, so look for PayPal to become a notable player in the market in 2012.

Apple: No news is big news

Finally, the lack of news from Apple in 2011 about plans for mobile payments, created its own news buzz.  There was great anticipation about the possibility of the iPad 2 and iPhone 4S including NFC for payments, but there were no such announcements.  This leaves room for a great deal of speculation in 2012 about what Apple plans to do.  With more than 200 million iTunes accounts tied to credit cards and the ability to make one click purchases, Apple is certainly well positioned to create a stir and possibly completely change the mobile payments landscape.

The surprising emergence of Square, the ongoing battle between Google and Isis, the introduction of a PayPal at the point-of-sale, and the enigmatic silence of Apple meant that 2011 was a year of transition for the mobile payment industry. Will retailers adopt NFC and the new hardware that comes along with it, or will PayPal provide a viable alternative? Will Square become an easily adoptable solution for larger businesses? Can Google’s might and head start give them the advantage over the mobile carries and their hold on handset security technology? Will Apple integrate NFC in new releases, or are they positioning themselves for something different? All these questions set the stage for some major movement in the industry this year.

Technorati Tags: mobile payments trends, Google Wallet, Isis, Square, PayPal, Apple, NFC payments, POS, point-of-sale

Numerous reports have been released about the iPad 2, the iPhone 5 and the inevitablity of NFC and the wonders of mobile payments all that will bring.  On Wall Street, expectations like these can be devastating when companies fail to live up. While I”m not worried about Apple’s future, and certainly not their stock price, what about NFC?  What if the iPad 2 does not come out with NFC this coming Wednesday?  Have the pundits pushed up the NFC expectations so high that there’s going to be a crash in expectations?

The truth is that no one outside of Apple really knows if there will be NFC (or anything else) in the new iPad 2.  When Apple rolls out an NFC system, as I believe they ultimately will, it’s bound to change things substantially.  Is it realistic to think they could make such a big announcement without any tangible evidence a couple days ahead of time?  Maybe so, but it seems hard to imagine.  We’ll know if the iPad 2 has NFC soon.  But if it doesn’t have NFC, what will happen to the NFC market?

Technorati Tags: Apple,  Contactless Payments,  iPad 2,  iPad 5,  Merchant Services,  Mobile Payments,  NFC Payments,  Payment Systems, NFC

1.  The Fed gutted interchange by setting prices at least 80% lower than today.  They proposed two choices for interchange prices, which amount to a giant win for retailers and a commensurate loss for issuers:  Either a flat $0.12 cap, or a $0.12 cap with a $0.07 safe harbor.  This means that each bank would have to justify their fees if over $0.07, and they’d still have a hard cap of $0.12.

2.  They have delayed any decision on fraud prevention.  They aptly pointed out that there are a number of approaches that could lead to improved fraud prevention, and they’re signaling their willingness to give incentives for fraud prevention.  It’s not clear whether the Fed will prescribe certain approaches like EMV, but they leave room for that, and I think signal in their proposal an interest in going that direction.

3.  They punted the big decision on network exclusivity.  The Fed issued two competing proposals for comment and has reserved their judgment on which way to go.  Choice One would require two unaffiliated networks for each card, without regard for whether the two networks are Signature or PIN.  Choice 2 would require two unaffiliated PIN networks AND two unaffiliated Signature networks.  This choice would lead to a big change in the way cards are processed in the US.

There is no doubt that this ruling is heavily weighted towards the retailers side of the argument.  Future posts will explore what the secondary and tertiary effects will be including what will happen to alternative payments, and mobile payments in particular.

Technorati Tags: Chip and Pin, debit cards, Debit Transactions,  Double Diamond Group,  Durbin,  Durbin Amendment,  EMV,  Federal Reserve,  interchange,  interchange fees,  Issuing Bank,  payment technology,  payments industry,  Smart Card Alliance,  US House,  US Senate,  Walmart

I’ve been saying that this mobile payments company has an excellent shot, despite what some pundits say, because it is built from enormous consumer brands who are excellent at gaining consumer adoption of mobile technologies. They have to navigate the merchant community effectively, and to do so need a leader who will have instant credibility with retailers.  Michael Abbott has the reputation to be just that guy.  We’ll see how well he can pull it off.

Although Afghanistan is the poorest nation in the world outside of Africa (36% of the population is under the poverty line), mobile phones are still prolific - 40% of the population has one.  Mobile is a natural medium to use for a payment scheme.  Of course, a couple of mobile phones does not a payment system make.  Critical to the success of M-paisa (like M-pesa before it) is that retailers are the liaison between paper and mobile money.  In a real sense, retailers in Kenya and Afghanistan are now the banks for the previously unbanked.  Without this critical link between the physical (paper) and mobile (electronic) world, the system loses it’s meaning.  After all, being able to get money to my phone is only as valuable as where I can use it or where I can convert it to “real” money.  This service will invevitably end up at the point of sale – in fact just last week, M-PESA announced POS acceptance at two Kenyan grocery stores, and plans to bring on gas stations, pharmacies, restaurants and hotels.

You can expect to see many more mobile money initiatives across the third world, albeit limited by the regulatory hurdles of frictionless movement of money… no small consideration in person to person payments.  But, that discussion is for another day.

[tags] text message, sms payment, mobile money, money transfer, p2p, person to person payments, mobile payments, global mobile payents, double diamond group, mobile carrier, text to pay, text payment, gsma, m-pesa, m-paisa, remote mobile payments, bill gates, bill & melinda gates foundation /[tags]

There are at least 3 distinct methods for NFC Mobile Phone enablement:

1) Tags are stickers that include an RF chip can add a basic NFC capability to a phone. Examples include RFinity’s mobile payment sticker, Bling Nation’s Bling Tags, First Data’s Go-Tag, Discover’s Zip, Oberthur’s “Fly-Buy”, and many others. Some of these tags use a memory card like a MiFare or DesFire chip, commonly used in transit applications around the world, while others use a microprocessor based chip like an Inside Contactless MicroPass chip, which are required for solutions that are branded with Visa, MasterCard, Discover or American Express. These are simple and relatively inexpensive, and they work with any phone, but lack integration into the phone. Some of these providers have added some SMS or application features that are designed to create the illusion of integration, but ultimately what makes this group distinct is that there is no connectivity between the phone and the sticker.

2) Add-on devices can upgrade a phone to be an NFC phone. These include products by Device Fidelity and Tyfone, who make Micro-SD add-ons to upgrade any phone with a Micro-SD slot into an NFC phone. Device Fidelity also has an attachment “sleeve” that adds the Micro-SD slot to an iPhone (which doesn’t otherwise have a Micro-SD slot). There are SIM based solutions with antenna add-ons, such as Gemalto’s Upteq N-Flex and other approaches like the Twinlinx MyMax which uses Bluetooth to interface with the phone. These add-on devices all provide connectivity and typically deeper integration into the phone’s software, allowing the consumer to operate a wallet in the phone, which interacts with the add-on device. These solutions also work with many different phones – according to Device Fidelity, there are Micro-SD slots on approximately 65% of phones in use worldwide. The downside of an add-on device is the additional hardware cost, which is substantially more expensive than a sticker, as well as the installation, which in some cases can be challenging.

3) Embedded NFC phones are manufactured with NFC fully integrated into the phone, like the recently launched C7 smartphone from Nokia. For more examples of phone models, there is a self-proclaimed definitive list of embedded NFC Phones on the NFC World blog. Phone with embedded NFC have taken multiple approaches, but they typically have an embedded antenna, and they use the SIM card or a dedicated chip as a secure element to store card data. These phones integrate NFC capabilities right into the phone’s operating system, and offer the highest level of integration at a relatively low incremental cost. The downside of embedded NFC phones is that there are not yet very many on the market and to get one, a consumer must buy a new phone.

There are many reasons that different stakeholders would choose one or another of the above options, but all are viable solutions in the marketplace. In a future post, I’ll explain some of the nuances on why stakeholders might choose one or another.

Technorati Tags: mobile payments, global mobile payments, payment trends, payments industry forecast, nfc payments, nfc, at&t, verizon, t-mobile, discover, discover network, visa, mastercard, card network, mobile carrier,  near field communications,  device fidelity, tyfone, rfinity, bling nation, gemalto, oberthur, first data, go-tag, mifare, desfire, nokia, american express, inside contactless, micropass, twinlinx, mymax, double diamond group 

Technorati Tags: mobile payments, global mobile payments, payment trends, payments industry forecast, nfc payments, nfc, at&t, verizon, t-mobile, barclays, barclaycard, discover, discover network, visa, mastercard, card network, mobile carrier, bloomberg, near field communications, interchange, interchange legislation, durbin amendment 

Technorati Tags: mobile payments, global mobile payments, payment trends, payments industry forecast, nfc payments, nfc, at&t, verizon, t-mobile, barclays, barclaycard, discover, discover network, visa, mastercard, card network, mobile carrier, bloomberg, near field communications, interchange, interchange legislation, durbin amendment

AT&T, Verizon and T-Mobile made big news Monday when Bloomberg reported the three of them joining in a mobile payments venture to bring Near Field Communications (NFC) payments to US consumers and merchants.  Adding to the frenzy of excitement, the deal reportedly includes Barclays as the banking and account management entity and Discover Network as the payment “rails”.  For those of us who have been involved in and seen results of consumer NFC trials, this is welcome news and has been a long time coming.  In the trials I’ve seen, consumers absolutely loved using the phone as a contactless payment device, and gave the experience outstanding ratings.  But, as has happened so far, greed and fear will govern the future of NFC, and how those dynamics play out will determine what happens in this market.

Much has been made of why NFC has not yet come to market, and the consensus has been a euphemism, “lack of business model”.  Translated into our fear and greed filter, it’s simply greed.  It’s widely known that the limiting factor to NFC 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.  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’re the trusted financial relationship and we shouldn’t have to share interchange.”  The carriers say, “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 victory in Congress, and we’re going to get this whole interchange thing fixed there.”

The banks and card brands have been working on and piloting various forms of NFC payments for some time, and we’ve seen plenty of activity around their attempts to add NFC to a phone without carrier involvement.  This new venture appears to be their response to the major card brands approach, which have reportedly refused to share interchange.  The real question becomes how will greed play into the negotiations on pricing vs. adoption, and what will that mean for the market?  I’ve said that I believe these are very smart players who have been trialing and studying this market for years, and they undoubtedly know what we all do:  price of acceptance is critical to retailers.  I don’t know what kind of pricing has been proposed in those closed-door meetings, but reports have already come back that the large retailers were underwhelmed at best.  To be successful, this new entity must recognize retailers’ strong motivation for lower cost payments and factor that concern into its pricing.  But, it’s equally important to recognize that the retailers who are undoubtedly planning to drive a hard bargain should make sure that greed doesn’t blind them to the possible benefits of a successful rollout.  Competition in the new mobile payments realm will take a very strong consumer outreach with an enormous amount of education.  The carriers have the background of educating consumers on new ways to use their phone, and as consumers get more comfortable making payments with their phone, they’ll also be open to much more seamless interaction with the mobile offers they will get from retailers.  Equally, the launch of NFC based mobile payments from the carriers will instill fear in the banks and card brands ONLY if it is successful.  In that event, this venture could set off an intense competition to drive adoption by the card brands, benefitting retailers and consumers alike.

If retailers want to drive cost of payments down, they should engage in the competitive process as mobile payments rolls out.  This could mean that retailers drive their own payment type on the mobile phone.  To do that, you need the technology to be adopted – the sooner the better.  If carriers want a piece of mobile payments revenue they need to engage in a reasonable way with retailers.  As for the lowly consumers, they get to sit and wait as usual.

For more on NFC, and other mobile payments and payments industry topics, check out www.doublediamondgroup.net.  For more on mobile payments, including a breakdown of the types of remote mobile payments generating interest and revenue today, check out my column in Transaction Trends magazine : Remote Mobile Payments. 

Technorati Tags: mobile payments, global mobile payments, payment trends, payments industry forecast, nfc payments, nfc, at&t, verizon, t-mobile, barclays, barclaycard, discover, discover network, visa, mastercard, card network, mobile carrier, bloomberg, near field communications, interchange, interchange legislation, durbin amendment