With Isis scaling back its goals today to offer a mobile wallet, as opposed to a full-fledged digital payments system, the reality of competition in this nascent segment of the banking innovation market should hit home. I expect that mobile wallets will start propagating like, well, you know. The fact is mobile wallets most likely won’t include the “closed loop” some expected. In other words, there will be more interoperability between mobile wallets — which is good for consumers, but less so for payments service providers.
I have to give props to the Federal Reserve Bank of Atlanta, which foretold this in a report it issued back in April.
So now that the wallet appears to become nothing more than an agnostic database, where’s the money for telcos? Here’s how The Wall Street Journal put it:
Instead of sparring with the payment networks, the phone companies are now locking horns with device makers and mobile software providers over the control of the “secure element” on a cellphone. The secure element, now stored on the magnetic strip on a credit or debit card, contains a person’s secret information that allows credit-card payments to be possible.
The phone companies want to store the credentials in the phone’s SIM card, the small chips placed in the back of phones to activate access to mobile networks. Device makers such as RIM and software providers such as Google want to store the credentials on an NFC chip or the phone itself, potentially cutting carriers out of the loop. The company that controls the technology would have access to information about consumers that could be used to tailor special offers.
Control, indeed. The focus has shifted from taking pennies off each transaction to taking pennies off each offer. Credit Google with changing this target to the offers. There’s good in this change, however. I have been concerned about one or a few enterprises controlling digital currency for a whole host of reasons. With the currency itself appears as though it will remain as free-flowing as paper dollars, the value extraction from the payments infrastructure can return to the services that truly provided added value — and not just provide the actual currency. We’re heading in the right direction.
See MasterCard’s commentary on its Isis deal here.