Yankee Group: Why the operator m-payment play could and should win

Nick Holland

Two years after Isis was announced and after multiple setbacks, the operator mobile payments initiative has finally launched. Isis has been the subject of much criticism as a result of numerous delays, adherence to NFC--despite considerably momentum towards other, more available technologies--and its U-turn from an original strategy of taking on the card companies directly. There have been many naysayers for Isis (myself included), but in this column I give Isis the benefit of the doubt and lay the case for what could possibly go right.

• Reach. Mobile payments are still very much at a nascent stage of development, with Yankee Group tracking consumer usage of current solutions in low single digit percentages (see chart below). With three of the four largest mobile operators in the US forming the backbone for the initiative, Isis has the opportunity to steer the m-payments market by driving NFC handsets and their own brand directly into the palms of end-users. With OEM installation of its software, direct training of consumers to use Isis by retail staff at the point of purchase and the inbuilt scale of national marketing by recognized mobile operator brands, Isis could be the mobile payment strategy for the masses.
  
  

• Superior Technology. NFC is arguably the best physical world mobile interface technology today. The value proposition of speed, convenience and security could viably displace less eloquent solutions using QR Codes, SMS or other technologies designed for purposes other than physical world transactions. NFC is a round peg for a round hole--designed specifically for the task that Isis intends to use it for-- connecting mobile devices to the physical world. It should also be extremely intuitive, even for the less tech-savvy--tap the phone, stuff happens. Again, mobile payments for the masses.

• Objectivity. Taking a step back from m-payments deployments over the last 18 months should have had some advantages for Isis. Isis could learn some lessons from early adopters such as Square, Google and LevelUp and produce a 'best of breed' payment offering. For instance, Isis could issue low cost NFC handsets with card reading dongles to merchants to use as mobile POS devices, with merchant transaction fees for card payments subsidized by third-party advertising. Even without subsidizing fees, with a device- based wallet at the hub of the Isis value proposition, merchants do not pay for Card Not Present transactions--a significant advantage over cloud-based competitors. Isis could even take the radical step of enabling direct to carrier billing for NFC transactions made via Isis, reverting to their original, ballsier model of a truly alternative payment network to Visa and MasterCard. Merchants clearly want this, hence MCX. Could a partnership be in the works?

• Longevity. Unlike so many mobile money ventures that are chasing the gold rush via myopic VC funding, Isis has the backing of three of the largest mobile operators in the U.S. Presumably, these companies are planning to be around for the foreseeable future and have the staying power and vision to understand the long term play for m-payments where others may suffer from investor volatility and shorter term ROI demands.

Expectations for Isis are extremely high, and time is probably not on their side. Indeed, their backers may have the stamina to hold the course, but the window of opportunity for defining the de-facto payment technology for mobile and the Isis name in the market will close as competitive initiatives from Google, MCX, PayPal and Apple gather steam.

As outlined above, Isis has winning components, but the initiative needs to execute flawlessly and move from pilot to commercial deployment within months rather than years. Mobile payments are for Isis to win or lose--the tortoise could still win this race (but should really consider a Redbull right about now).

Nick Holland is a principal analyst leading Yankee Group's Mobile Money research. His research examines the development of technologies enabling mobile transactions in both the digital and physical domains.