Big names in the payments and technology sectors are teaming up in the cause of interoperability and good business sense, as Charles Orton-Jones reports
What’s afoot in the payments industry? Over the last year there has been a rush to form partnerships. All sorts of firms are taking part in this alliance-building. We have banks, handset makers, credit card brands, payment specialists and mobile networks all rushing to sign agreements.
Take Visa. It has partnered with Samsung. The new Samsung Galaxy S4 has Visa’s contactless payment technology and app pre-installed. Soon Visa will be inside Samsung’s entire smartphone range. Visa also has official tie-ups with Vodafone, Telefonica and peer-to-peer (P2P) payment provider Monitise.
Naturally, Visa’s rival MasterCard is putting together its own grand alliance. In the UK, MasterCard has a five-year deal with EE – the brand that sprung from T-Mobile and Orange. And it has close relationships with high street retailers Boots and Argos, and banks such as BNP Paribas, Citi and Santander.
And the three UK mobile networks have their own arrangement. O2, EE and Vodafone have a joint venture, called Weve, which will offer a mobile wallet, among other things.
In fact, partnerships are springing up across the global payment industry. So what’s going on?
One interpretation is that war is brewing. The rival alliances will face-off in a war for supremacy.
The casualty in this war would be consumers, who would be presented with a variety of incompatible payment methods. Merchants too would suffer. Each alliance would use its own payments technology, requiring new investment each time by retailers.
But is this right? “Absolutely not,” says Mary Carol Harris, Visa’s head of mobile strategic alliances, who explains that these alliances would never threaten the industry’s golden rule of interoperability. “Payment technology has to be open and inclusive,” she says. “We need to include everybody. So, although Visa competes fiercely with MasterCard, JCB and American Express, we work together closely on developing technical standards.”
This principle holds true even for the Samsung deal. “It is not about excluding anybody,” says Ms Harris. “We recognise that Samsung will want to work with other payment schemes as well. There is nothing to stop contactless MasterCard payments being made on a Galaxy S4. The deal gives us first-move advantage. But the contactless technology used by the phones and by retailers will work for both Visa and MasterCard. That interoperability is essential.”
There is no point trying to own the customer. Try and limit them to one payment type and they won’t respond well
So what is Visa’s motivation in signing all these partnership deals? “Our grand plan is to enable 50 per cent of transactions by a mobile device by 2020,” says Ms Harris. “To make this happen we need to make progress in three areas. We see the mobile phone replace contactless cards for payments in the real world. We see phones replacing laptops and PCs for online payments. And we need to offer P2P payments on phones. When you owe a friend £20 for lunch, you can use a P2P app to transfer money to them, just as you might do online. To develop these three areas, Visa is working with partners to make sure the technology is right.”
The trickiest bit of this jigsaw is contactless payments via a mobile phone. The logic behind using a phone for contactless payments is obvious: phones can be loaded with dozens of payment cards and loyalty cards, so the bulky, physical versions can be dispensed with; and phones are more secure than cards, for example, the contactless payment capability can be turned off on a phone, but not on a card. But mobile contactless payments are not easy for Visa to develop on its own. “We have to work with mobile network operators and the handset operators to make it work,” says Ms Harris.
The other deals are about technology, too. “In P2P we have a close relationship with Monitise. We are leveraging their expertise as a small, nimble company. Payments is not renowned as a fast-moving industry, but we are aligning with companies that move fast.”
But what about the network operators? Why are they forging alliances? Consumers might think it odd that bitter rivals, such as O2, Vodafone and EE, have come together to create the joint venture Weve, which will offer mobile payments. Shouldn’t they be competing?
In fact, Weve is pretty new. It only got clearance from the EU competition commission late last year, and there’s a lot of misinformation about it. Marketing boss Tony Moretta is eager to explain what Weve is and is not.
“Let me emphasise, we at Weve are not developing our own new payment product. Our role is to help existing payment service providers integrate on to handsets,” he says. “Before Weve, they needed to talk to each mobile operator separately. The time and expense of that was significant. With Weve a bank can work with us and we have a single place to access all the handset makers and network operators. We give them a common platform to work with. And our service will give consumers consistency too.”
Again, the message is about interoperability. Weve is designed to harmonise standards across mobile network operators. Far from being a cabal, designed to put O2, Vodafone and EE at the forefront of the payment chain, it enables third parties to offer services. Even other mobile networks are welcome to join the Weve platform.
“The way we’ve set up Weve is that any operator or MVNO [mobile virtual network operator] can come up and set up on the same terms as the founding networks,” says Mr Moretta. Are any others, such as 3, close to signing? Mr Moretta drops a big hint: “We hope to announce something in the near future,” he says.
It all sounds very altruistic. Open standards, interoperability, customer-centric approach, but is there a darker side to it all? Surely someone wants to dominate the payments eco-system and shaft their rivals?
Mark Hale, head of payments at KPMG, and former director of payments and settlements at Barclays, says such a selfish approach would be futile. “There is no point trying to own the customer. The only person who owns the customer is the customer. Try and limit them to one payment type and they won’t respond well. The answer is to be open, which is why digital wallets are so appealing. Customers can use different payment options when they want,” he says.
All evidence supports this. In fact, it is hard, if not impossible, to find a closed-loop system which is prospering. Barclays Pingit is open to customers of any bank. Google Wallet can be paired with any payment system. This is also true of PayPal.
Mobile handset makers and network operators are bending over backwards to work with anyone who wants to be part of the payments eco-system. At the forefront of this are Visa, MasterCard and American Express, who have an admirable track record of creating compatible industry standards.
Adam Smith warned in The Wealth of Nations: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.” Yet for once, it seems, the reverse is true.
A collaboration between O2, Vodafone and EE, Weve is designed to offer businesses and payment providers a one-stop way to liaise with the networks. A mobile wallet will be launched shortly. But Weve is already showing what co-operation between the networks can achieve. Another Weve product is a unified marketing portal, which allows businesses to target the customers of O2, Vodafone and EE. For example, a shop could send a text to any customer walking ten meters from their store. Opt-in only and anonymised, Weve has 17 million customers who can be targeted.
The reigning king of online escrow payments, PayPal is now stretching out into the offline world with PayPal inStore. Users install a smartphone app, which displays a barcode to be read by the merchant’s till scanner to facilitate payment. Even cleverer, a new GPS-based variant allows customers to pay simply by walking into a shop and checking in via an app – a type of proximity payment. “We are working in partnership with retailers, such as Pizza Express, Oasis and Karen Millen, to develop these services,” says PayPal’s Rob Skinner. PayPal relies on partners to test, advise and refine such ground-breaking new products.
End-users don’t get to hear much about Gemalto, but it is the firm payment service providers are desperate to talk to. Headquartered in Amsterdam, with revenue of more than two billion euros, Gemalto provides the technology behind contactless payments, and chip-and-pin credit and debit cards. And what does Gemalto foresee as the big trend? Senior vice-president Howard Berg says he sees an excess of payment solutions. “The customer is confused for choice. But it is like Betamax versus VHS. The customers will soon decide which payment solutions are the best and the number will reduce,” he says.
A joint venture between AT&T, T-Mobile USA and Verizon, Isis is a payment platform being trialled in the United States. To pay with Isis, consumers receive an enabled SIM card for use with a contactless-payment-capable phone, then download an app, which is linked to an American Express, Capital One or Chase credit card. The phone can then be used to pay for goods at enabled tills across the US. The goal is to give banks, consumers and retailers a single platform for making contactless payments via mobile phone. Loyalty cards are integrated into the app, creating new opportunities for retailers to develop offers for consumers.
Rival to Isis, Google Wallet does pretty much what Isis does, but with a few tweaks. It allows Android phone users to make contactless payments and e-mail money to friends. But Google has failed to build partnerships. AT&T, T-Mobile USA and Verizon have blocked the Google Wallet, leaving only Sprint customers. Bloomberg condemned the project a “money pit” and some analysts are saying the Google Wallet is dead in the water. Problem with that? This is Google. And Android customers already have payment linked to the Google Play store. Do not rule out a turnaround.
Proof of the dazzling diversity of payment offerings, Dunkin’ Donuts launched an app last year allowing customers to pay for coffee and donuts using a mobile phone on-screen bar code. The Dunkin’ Donuts app is linked to a credit card or PayPal account to load it with cash. Users can also send gift vouchers to each other via Facebook, e-mail or text. The goal is to gather user data, as well as facilitating social media marketing. Reflecting its US roots, the app is also available in Spanish from the App Store and Google Play.