Judging by the breathy press reports yesterday of the new, sort of, kind of, maybe joint venture between mobile behemoths AT&T and Verizon (with T-Mobile in the mix too) MasterCard and Visa are sitting around conference tables today white-knuckle-gripping their blackberries and iPhones. Bloomberg first broke the story that these carriers were teaming up with card network laggard Discover and Barclay’s, a big worldwide bank with a small US footprint, to take on the big guys. The plan is to turn the smart phone into a contactless debit and credit card killer. Discover would run the transactions over its network and Barclay’s would manage the accounts.
Details were sketchy so we will need to wait for more of them to really know what this is all about. Based on what I know, I have two observations. First, as I have been saying for about the last 18 months I’m a firm believer that smart phones will eventually become the main way to pay at the point of sale. Second, that we’ll see a lot of shipwrecks on the way to this destination. This purported match up sounds destined for the ocean floor to me. Here’s why.
Most joint ventures fail because the partners can’t agree on things. If they actually get to signing on the dotted line—the article suggests they have since they are in search for a CEO—they will have gotten farther than Simpay, the proposed mobile carrier payment JV that cratered in Europe in 2005. Starting a new payment system is hard enough without having to get AT&T, Verizon and Discover to agree with each other.
Then there’s the contactless smart phone angle which who knows how many wet-behind-the-ear entrepreneurs assume is the path to payments Nirvana. In the near term it does not seem likely that pursuing this approach could ignite a new payment system.
The first problem involves the smart phone, the very form factor that this new network has embraced. You, me, and our circle of friends probably all have smart phones and because of that we have a tendency to think most people do. They don’t. This is still is very expensive technology that has a small share of mobile phone subscribers.
The second problem is that merchants just haven’t been interested in installing contactless terminals. One of the articles on the new JV emphasized that there were 140,000 merchant locations that have contactless readers. Wow—140,000. Of course anyone who knows this business knows, to use a highly technical economic term, that represents just about bubkus.