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Wireless Carriers Band To Overthrow Credit Card Companies

Verizon (VZ), AT&T (T), and T-Mobile will work together to build their own mobile payment system, called ISIS. The idea is for consumers to make payments from their cell phones.

The emphasis on near-field communications, which would let people wave phones at a point-of-sale system in a store to pay, is deceiving. This is about far more than easy transactions. The carriers are out to conquer their new frontier: all credit card payments. And given public sentiment toward credit card companies, the wireless companies have a chance to become massive financial services businesses.

If this announcement had been from only one of the three companies, it would have been another scheme to extract money from consumers that would have fallen flat. However, this plan has some strong features in its favor:

  • The combination of all three carriers starts with a customer base of 200 million, making it impossible for businesses to ignore.
  • Verizon, AT&T, and T-Mobile already know how to bill for goods and services provided and they already have massive amounts of communications and computing resources available.
  • Given the current reputation of financial services companies, the wireless carriers may have found the one industry that it could challenge over perceived customer service.
  • Wireless companies could drastically undersell the credit card companies and still make a killing.
The upside is immense, and there's the real chance that the carriers could undermine significant portions of business of the credit card companies. Even if the carriers didn't become full out replacements, they could easily provide a supplementary payment method that would drain away significant portions of traditional credit card revenue.

As Larry Dignan at our sister site, ZDNet, points out, the US is far behind other parts of the world in mobile payments. But to wonder if the carries can pull it off is unrealistic. The technology exists. The carriers have lots of money to throw at the problems to make things work. And, my, this data from Morgan Stanley analyst Mary Meeker suggests how many people and their money are out there:

The number of smartphones is about to overtake the number of PCs. The carriers will need cooperation from the existing payment networks, which means the very credit cards they threaten. But the card companies can't afford to walk away from the business, because some is better than none, there are too many people on the phone networks to ignore, and the phone companies are good at blocking what they don't want on their networks.

Now combine the idea that smartphones are set to become more numerous than PCs with this data, also from Morgan Stanley, about the growth of e-commerce:

Suddenly, smartphones begin to become the logical choice for e-commerce because they become the constant contact between people and the Internet. Expect downward pressure on financing rates and a new emphasis on designing business sites to facilitate ease of mobile transactions, and the phone companies potentially push the credit card companies largely out of the way in online commerce as well.


Image: user lusi, site standard license.
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