Article

At first blush, Isis looks appealing to retailers

A National Retail Federation exec sees competition, tech changes arising from the new mobile payments network.

November 21, 2010

The announcement last week by three major telecom carriers that they have created a joint venture to promote payment via mobile phone may have attracted an important ally.

The National Retail Federation is looking closely at the announcement by AT&T, T-Mobile and Verizon that they are building "Isis," a payment network that would allow consumers to make purchases with their mobile phones at brick-and-mortar stores (see "Telcos launch 'Isis' mobile payments system," Nov. 16).

The joint venture partners, who say they collectively provide wireless services to more than 200 million consumers, reported that Isis will be launched in several unnamed markets in the next 18 months.

An executive with the NRF believes that Isis has the potential to break open the payments field by lowering costs and by upgrading today’s widely-accepted technology.

“We think mobile at checkout is one of the next big things,” said Richard Mader, executive director of the NRF group Association for Retail Technology Standards (ARTS).

“We think this is a huge announcement. Isis is a new network and represents competition. Everyone is looking for business. That means competition, and competition normally produces better rates,” Mader said.

The NRF has long sought to lower interchange rates, the fees that credit and debit card issuers charge merchants when a consumer uses plastic to make a purchase. The NRF says that MasterCard- and Visa-branded credit cards cost retailers an average of 2 percent of the purchase; a debit card carrying the MasterCard or Visa brand costs an average of 1 percent of the purchase. The NRF estimates that retailers pay about $48 billion each year in interchange fees to the two brands.

The Isis announcement didn't address interchange but focused on the "big picture" of the partnership, the creation of a network, and the potential growth of mobile payments. However, Discover Financial Services, issuer of the Discover credit card, joined the partners as an early contributor. Discover operates the fourth largest payments network in the United States and has typically offered merchants an interchange rate of about 1.5 percent of the purchase price.

The NRF also operates the Mobile Retail Initiative which has been developing standards for mobile payments technology. 

One method that has garnered much press but little practical application is Near Field Communication (NFC), a technology that the telcos say Isis will adopt. 

NFC is a short-range, high-frequency wireless technology that allows for communication between a consumer's smart phone and the point-of-sale device at the merchant's counter. Both the phone and the POS device must also have installed NFC-capable chips. When the consumer waves his smart phone near the POS device, payment account information is shared, and the purchase is completed.

There have been sporadic but generally unsuccessful attempts to spread NFC technology at the merchant counter. By one estimate only about 140,000 payment terminals in the United States can accept mobile payments out of the 4 million to 5 million devices nationwide.

Mader notes that the Isis announcement came the same week that Google reported its new Android phone will use NFC technology (see “New Android phone could replace your wallet: Google CEO,” Nov. 19).

“There’s been no real rollout on NFC for a long time. Google’s CEO, (Eric) Schmidt, said its new phone will support NFC. That doesn’t put a chip in the phone (now), but he committed Google to move in that direction,” Mader said.

And that comes shortly after the purchase by PayPal parent eBay of Red Laser, a firm whose technology allows for the scanning of bar codes into the iPhone, says Mader. “So we get competition in payments, and we get two major firms saying we must get NFC in handsets and mobile operating systems.”

The NRF hasn’t announced its official response to Isis, though its members will gather for the organization’s annual “BIG Show” convention in New York City in January to celebrate its 100th anniversary. The NRF calls itself the world’s largest retail trade association. Mader’s ARTS is one of four divisions.

(Photo by Yutaka Tsutano).