Commentary

CrISIS at ISIS

OK, I have to say that the news yesterday about ISIS did not come as a great surprise to me. We were pretty gloomy (even for us) on its prospects at the jump. This piece pretty much summed up our point of view on the joint venture and provided our initial take on the implications of the news.

As everyone now knows, ISIS has adjusted its mobile network strategy in favor of a mobile wallet strategy. ISIS now wants to play with all the existing networks and their issuers, not just Discover and Barclaycard with whom it joined initially. And we will all live happily ever after, right? Well, I’m not so sure it’s that simple.

The “wallet” it seems is now pretty much sacred ground with carriers facing off over who “owns” it – with camps divided over whether the wallet should be secured via the SIM card or in the handset via a chip. This has led to the emergence of an entirely new set of players who want to position themselves as trusted service managers to provision the NFC capabilities and take on the risk/security mantle for these wallets. Each of these players will want, of course, “their” own standard to become the standard, which is likely to lead to even more fragmentation, indecision and delay. Boy, if we thought that the business model was confusing before, just wait until all this tries to get sorted, and we burn through another swath of the Amazon rain forest in printed out PowerPoint decks to figure out how this will get monetized. By then, we ought to be able to beam money with brain waves.

As these intersecting turf wars escalate, the doors open even wider for entirely new ways of doing business at the point of sale, with mobile phones to emerge that offer more extraordinary value for both merchants and consumers. The players that we see doing really interesting things in this space are not fighting over chips versus SIM cards. Yet making the assumption that the wallet lives in the cloud—at the discretion of the consumer since it is they who own it—the business and technical problem is connecting the cloud-based wallet to the merchant POS, which will probably be cloud enabled pretty soon, too. Sure, this is tricky but getting increasingly easier to imagine with appliance strategies that leverage tablets and other devices that will only make that prospect more palatable for all all in the short and long term.

So, in my mind, the big news on ISIS is that we are left with a big question: what value can they add at all (other than connectivity), and how do they propose to make money from the JV? Certainly not by taking a piece of the transaction revenue. That would be like Comcast asking every e-tailer to pony up each time a sale was made on those sites. They say that they’ll serve coupons or offers maybe, but that space is already really, really crowded. In the NFC space, it is looking more likely that Google could emerge as the big dog, given their success with Android. As discussed in an earlier post, they don’t necessarily need transaction revs to ring their register. Google’s possible mobile payments strategy of subsidized merchant NFC terminals + Android + advertising + trials in merchant locations in 2011 seems a more plausible strategy than much of what we’ve heard. And players, like Facebook, PayPal, Foursquare, shopkick, Apple and even Amazon, are all coming into the physical payments space with an entirely different set of assets that already live in the cloud – accounts that people use online that are already linked to payments and data that enables targeted offers directed to those “wallet” holders BEFORE the consumer walks into the store. Look at it this way, how many millions of mobile transactions will Starbucks have made—using barcodes!—by the time ISIS launches its Utah State Transit Authority trial in mid-2012.

ISIS, in its piece this morning, confirmed what we all know to be true: payments is a scale businesses, whether you are doing payments via mobile handsets or via POS terminals in physical stores. But, it  is still a head-scratcher that they would bet  the success of the JV on a strategy that involved solving the biggest chicken-and-egg issue in payments—getting adoption of an entirely new payments network with a new technology and the costs associated with it—was ever blessed to begin with. As we’ve said before, mobile is where the industry is moving, but so far, it is a concept without a clear path to ignition just yet.


Karen Webster is the President of Market Platform Dynamics (MPD), a consulting firm that helps companies find, implement and monetize innovation. She serves as an advisor and member of the board for a number of companies operating in the payment, technology and digital media industries. More info here.


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