If there's one thing major mobile carriers don't like to do, it's work together. But that appears to be what they're doing in the mobile payment space. Considering how tight the market is, that's a move credit card companies might not be too happy about. Because while credit card companies may need carriers to get into mobile payments, they may also soon learn those same carriers don't need them.
Verizon, T-Mobile and AT&T are entering into an agreement to let customers pay for products with their smartphones.
Interestingly, they are not working with Visa, MasterCard, or American Express on this venture. They're not working alone either, but instead partnering with Discover and Barclays on this venture. But it's interesting that they are going with a smaller credit card company and a non-US based bank.
Discover is the fourth-ranked payment processer in the U.S., and this is sure to be a coup for the company. In fact, contactless mobile payments could change the whole credit card market. An industry consultant, Richard Crone of San Carlos of California-based Crone Consulting LLC, tells Bloomberg:
“This is definitely a game-changer"... The mobile carriers “are the biggest recurring billers in every market. They are experts at processing payments."
Especially considering the tight fee structure in mobile payments, this could spell trouble for credit card companies going forward.
More and more companies are getting into mobile payments every day. But brands that use such products aren't willing to pay any more than they're already paying in credit fees. In fact, they want to pay less. But if you're adding new layers of connectivity it can get more expensive fast.
Payment apps usually rely on credit card companies or PayPal to take payments. But if the carriers can just take payments themselves, they can eliminate a middle man (the credit card companies) and cut costs (or retain a bit more themselves).
Conrad Sheehan, founder and CEO of mPayy, tells Econsultancy:
"If you're going to introduce a mobile carrier into that value chain without raising the price, something's gotta give. You have to lower the price to the merchant."
AmEx or Visa might be able to initiate mobile payments without carrier help. But third party apps or swipe stickers attached to phones are workaround solutions. If mobile carriers start offering direct payment options, they could easily blow such things out of the water.
The details remain scarce on this plan, and implementation is key. But if phone companies can work out an agreement directly with banks going forward, it could spell trouble for other payment companies.
Phone carriers have already passed the trust hurdle with consumers. They have a mass consumer base, and strong marketing arms. They talk to their customers every day. Furthermore, they have technology on their side. The one advantage of keeping a low fi credit card around is that it can't run out of batteries.
Every party involved in mobile payments wants to get paid. But it's hard to imagine that credit card companies aren't paying attention to this fact: the easiest way to lower payment costs is to remove one of the parties involved.