Comparing Isis, Google, and Paypal
By David Dorf on Jun 11, 2012
Back in 2010 I was sure NFC would make great strides, but here we are two years later and NFC doesn't seem to be sticking. The obvious reason being the chicken-and-egg problem. Retailers don't want to install the terminals until the phones support NFC, and vice-versa. So consumers continue to sit on the sidelines waiting for either side to blink and make the necessary investment. In the meantime, EMV is looking for a way to sneak into the US with the help of the card brands.
There are currently three major solutions that are battling in the marketplace. All three know that replacing mag-stripe alone is not sufficient to move consumers. Long-term it's the offers and loyalty programs combined with tendering that make NFC attractive.
NFC solutions cross lots of barriers, so a strong partner system is required. The solutions need to include the carriers, card brands, banks, handset manufacturers, POS terminals, and most of all lots of merchants. Lots of coordination is necessary to make the solution seamless to the consumer.
Google's problem has always been that only the Nexus phone has an NFC chip that supports their wallet. There are a couple of additional phones out there now, but adoption is still slow. They acquired Zavers a while back to incorporate digital coupons, but the the bulk of their users continue to be non-NFC. They have taken an open approach by not specifying particular payment brands. Google is piloting in San Francisco and New York, supporting both MasterCard PayPass and stored value. I suppose the other card brands may eventually follow. There's no cost for consumers or merchants -- Google will make money via targeted ads.
Not long after Google announced its wallet, AT&T, Verizon, and T-Mobile announced a joint venture called Isis. They are in the unique position of owning the SIM in the phones they issue. At first it seemed Isis was a vehicle for the carriers to compete with the existing card brands, but Isis later switched to a generic wallet that supports the major card brands. Isis reportedly charges issuers a $5 fee per customer per year. Isis will pilot this summer in Salt Lake City and Austin.
PayPal, the clear winner in the online payment space beyond traditional credit cards, is trying to move into physical stores. After negotiations with Google to provide a wallet broke off, PayPal decided to avoid NFC altogether, at least for now, and focus on payments without any physical card or phone. By avoiding NFC, consumers don't need an NFC-enabled phone and merchants don't need a new reader. Consumers must enter their phone number and PIN in the merchant's existing device, or they can enter their PIN in the PayPal inStore app running on their phone, then show the merchant a unique barcode which authorizes payment.
Paypal is free for consumers and charges a fee for merchants. Its not clear, at least to me, how PayPal handles fraudulent transactions and whether the consumer is protected.
The wildcard is, of course, Apple. Their mobile technologies set the standard, so incorporating NFC chips would certainly accelerate adoption of many payment solutions. Their announcement today of the iOS Passbook is a step in the right direction, but stops short of handling payments.
For those retailers that have invested in modern terminals, it seems the best strategy is to support all the emerging solutions and let the consumers choose the winner.