U.S. operators take on credit cards with contactless payment trial

AT&T (NYSE:T), Verizon Wireless (NYSE:VZ) and T-Mobile USA are reportedly teaming on a contactless payment system enabling consumers to make retail purchases via smartphone, a move that could pose a serious threat to traditional credit and debit service providers like Visa and MasterCard. Citing multiple sources close to the initiative, Bloomberg reports the three operators will trial the m-payment solution in Atlanta and three other U.S. cities, with Discover Financial Services' payment network processing all in-store transactions and global financial firm Barclays helping manage the accounts. Bloomberg states that AT&T and Verizon Wireless are equal partners in the venture, with T-Mobile controlling a smaller stake--the operators are presently seeking a chief executive to oversee the service. Representatives from all three carriers, Discover and Barclays all declined to comment.

"This is definitely a game-changer," industry consultant Richard Crone of financial advisory firm Crone Consulting LLC tells Bloomberg, explaining wireless carriers "are the biggest recurring billers in every market. They are experts at processing payments." As of the end of the second quarter of 2010, Verizon Wireless serves 92.1 million subscribers, followed by AT&T at 90.1 million--as of Q1, T-Mobile USA serves 33.7 million customers, with its Q2 earnings scheduled to be announced later this week.

Bloomberg notes that Visa and MasterCard together processed 82 percent of U.S. consumer spending on general-purpose cards in 2009, translating to $2.45 trillion. Interchange fees on credit and debit cards exceed $40 billion a year and average between 1 percent and 2 percent of each transaction--retailers are presently petitioning Congress to approve caps on interchange fees for debit transactions and in 2005 filed a federal antitrust lawsuit that is still pending. It is unknown how much operators plan to charge merchants for each m-payment transaction--according to a May policy paper issued by the Federal Reserve Bank of Boston, retailers looking to introduce m-payment services in their stores will have to spend an estimated $200 per smartphone reader device, while updating mobile devices with embedded microchips will boost manufacturing costs by $10 to $15 per handset.

The worldwide mobile payments market--including purchases of digital and physical goods, money transfers and NFC transactions--will grow from $170 billion in 2010 to almost $630 billion in 2014 according to a recent forecast issued by Juniper Research. Citing growing smartphone adoption and increased app store traffic as catalysts behind the increase, Juniper also expects SMS-based ticketing schemes and mobile shopping efforts to boost the m-payments market in developed nations, while in developing regions, SMS-driven money transfers will increase at a rate of 30 percent year-over-year. Juniper adds that the top three regions for mobile payments--the Far East & China, Western Europe and North America--will represent nearly 70 percent of the global mobile payment gross transaction value by 2014.

For more on the m-payments trial:
- read this Bloomberg article

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