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Visa responds to launch of Isis

“I remain highly confident in Visa’s long-term growth and innovation strategy, including our plans to continue work with our partners to accelerate the adoption and usage of mobile payments,” writes Bill Gajda, the company’s head of global mobile product, in a post on the official Visa blog.

Visa

VISA: Is defense the best form of attack?

In a post on the official Visa blog, Bill Gajda, the company’s head of global mobile product, has responded to the official announcement this week that AT&T Mobility, Verizon Wireless and T-Mobile USA have partnered with Discover Financial Services and the US arm of UK bank Barclays to introduce commercial NFC mobile payments services in the US through a joint venture named Isis.

In the post, entitled ‘Real innovation in mobile payments‘, Gajda refers to a blog post at Forbes.com by veteran mobile industry analyst Bob Egan as well as to a profile in Forbes last month, which NFC World reported on here, in which Gajda explained that Visa is seeking to partner with a wide range of mobile payments innovators.

Here’s what Gajda has to say:

After ISIS was announced on Tuesday, Forbes.com ran a blog post by Bob Egan in which he claimed that current mobile banking offers are “somewhat lackluster,” and that there is an absence of “real innovation in payments.” Respectfully, I must disagree. Mobile payments are — without question — highly innovative, rapidly evolving and, perhaps most importantly, on the threshold of being rolled out broadly across the United States over the next 12 months. But don’t just take our word for it: a recent magazine edition of Forbes also published a feature by Lee Gomes, highlighting Visa’s mobile payments innovation. In the article, Gomes writes:

“It’s… possible for the phone itself to replace a card, with the number that’s ordinarily embedded in a card’s magnetic stripe transferred to a radio-signal-emitting microchip inside the phone. A new breed of “contactless” systems is slowly being introduced, usually in high-volume operations like McDonald’s or part of the New York City subway. You authorize a payment by holding your phone next to the unit; Visa is pushing the new system hard.”

In addition to mobile technology like contactless payments, Visa’s open network has enabled 15,700 financial institutions and tens of millions of merchants around the globe to deliver payment services to consumers. We believe the open network is well-positioned to support secure and globally interoperable mobile payments. As he covers in the feature, during our conversation, Gomes and I discussed the strength of Visa’s network:

“Visa is also selling its bona fides as a partner to insurgents rather than try to compete directly. As Gajda makes the Silicon Valley startup circuit, he emphasizes the size of the Visa network and its decades of experience fighting fraud, the scourge of electronic-payment systems everywhere. ‘This is a train you want to be on board,’ he says.

“His best argument: the sheer complexity involved in moving money from a buyer to a seller electronically. It might be easy to build an iPhone app that lets you enter in the phone number of a co-worker you want to pay back for lunch, a common promise in the new mobile-payments world. But then someone has to do the intricate behind-the-scenes data processing that makes sure the card isn’t stolen, the people involved aren’t scammers, the payer’s account has the necessary funds and the actual money transfer happens quickly and without a glitch.”

Our collaboration with leading financial institutions like US Bank, Bank of America, Wells Fargo & Co, and JP Morgan Chase, and partners DeviceFidelity and Monitise highlight true innovation in mobile payments. Rest assured, the US is about to make a big leap forward in making mobile payments a reality. I remain highly confident in Visa’s long-term growth and innovation strategy, including our plans to continue work with our partners to accelerate the adoption and usage of mobile payments.

• Comments on the Visa blog are turned off, but you are welcome to post your comments below. What do you think? Should Isis have Visa running scared, or will the strength of Visa’s experience in the field win the day?

  • ed

    I do not know how Isis is suppose to work but I’m guessing the telcos will apply a “credit” account that will reconcile with the monthly phone bill.

    There are a lot of problems with this alone. Visa problem is not technology base but business model base as the debit/charge card nature of m-payment model will threaten Visa debit card business. Most m-payments will be done for small transactions under $15 dollar and the real battle ground is whether to create a financial system where people choose to spend it on a revolving credit or a prepaid debit system.

    With that said, Isis is going to have a hard time trying to convince me a unilateral telco company can handle my money transactions better than the Visa global network.

  • http://www.litle.com Tom Pouliot

    Let’s hope for once the associations and infrastructure players get smartphone payments right.

    The last time the payments industry had a chance to take advantage of a technology shift, we blew it with Secure Electronic Transaction (SET). It was too big, too hard and was dependent upon US issuers to take the lead and shift the expense of implementation, infrastructure, and liability to them.

    Talk about a horse designed by a committee and coming out a camel. SET had MasterCard, Visa, Amex, Microsoft, IBM, Netscape and many others. And we (and yes, I was there) missed an opportunity.

    We had the opportunity to create a system that would have safeguarded cardholder information — without requiring PCI — and created a proxy for the cardholder signature. The liability, however, remained with the merchant. On the other hand SET had an electronic signature that shifted liability to the issuer. The scheme had it all, except the ability to gain acceptance in the US. Just like mobile SET had pretty good traction in Asia, Northern Europe, and other little hot spots. But SET never got US issuers excited.

    But don’t blame just the issuers (yes, I am going to defend an issuer). The thing that really killed SET was the technology providers all held out thinking that their link in the chain was key to making it ubiquitous, and they wanted all the revenue. They were right, unless everyone played nicely together then no one made any money on SET and we all settled for liability remaining with the merchant, with SSL and with PCI.

    Since this latest initiative is being led by the for-profit business sector maybe it has a shot. I certainly hope so. Isis seems to be going down a competitive path with telcos and Discover. But let’s face it. Since the 2% cash back in 1985 can anyone tell me an industry wide innovation coming from Discover? In other words, I hope they just don’t go ahead and use the same NFC protocol MasterCard rolled out in Orlando in 2002! Which, by the way, worked OK, but is not protocol independent. Remember: no one under 25 communicates unless it is in a text. Mobile means mobile, not waiting in a line waiting to tap or swipe.

    But let me give Isis my unsolicited advice; remember what Ben Franklin said about advice, “Wise men don’t need it and fools won’t take it” but here goes.

    We need a mobile protocol for mobile that turns the device into a “Trusted Terminal.” The consumer device allows the personal account number (PAN) information to be transmitted in the clear because it is only used for routing the transaction; the trusted terminal creates a dynamic Cryptogram that is produced by device and is the shared secret between the issuer and the device. The protocol needs to handle both face-to-face and non face-to-face transactions. It needs to use the current merchant POS infrastructure and networks in place for real time authorization and verification.

    This would be a game changer, a reason for somebody to excited about payments and give a new platform for merchants and payment professionals to build a business case around. It can and should be done. I just hope Isis “gets it.”

    • Mirek Kula

      Tom’s analogy to SET is right on the mark. SET was thought out very well but it has not gained any adoption. Less complex approaches to e-commerce came along and rest is history.

      I think the Global Platform like approach (http://www.globalplatform.org/) promoted by GSMA/IX companies, Accenture and now ISIS has a lot of potential but unfortunately only applies at best to some 25-30% of US subscribers (addressable constituency) and to just a few percent in short term (2-3 years) – there are no NFC phones in the hands of the consumes and there are very few NFC terminals in the hands of the merchants. It also fails to address remote transactions. The biggest issue however is the lack of sustainable business model – somehow nobody is discussing the ways for all the parties involved to make money. We can all agree that payees (merchants) will not pay more (in fact they will expect to pay less) , while there are multiple more parties that are vying for the revenues. Consumers are certainly not interested in the payer side fees. So we shall see. We hear that the MNOs are resigned not to make money on transactions and will try to develop a marketing based business model. The payment infrastructure will be used as a the leash that keeps customers loyal. Will this work?

      The problem is that in this era of consumer empowerment, ISIS wants to continue with the merchant-centric approach to payment processing. And to a degree that is does not (and that is when they talk about the mobile wallet) they still see themselves using the outdated Issuer/IX/Acq/Merchant revenue breakdown and the IP data network as the only communications channel. There is no innovation in this. Firethorn, m-Foundry, Fundamo, et al will equip you this way in no time. As Bob E said in his post, “extending existing business models into new channel modalities is innovating”.

      The winning proposition is in the payer being in control of the transaction sequence and data. Mobile originated payments need to be freed from the necessity of using IX networks to clear the transactions. VI and MC are but expensive communications networks (switches, exchanges, matrixes…) that connect merchants (via their acquirers) to the banks than issued the consumers cards (or other payments instruments). They managed to manuver themselves into this oligarchy status because in the past when the consumer did not have access to inexpensive and reliable terminals and networks. This all has changed, but the payment industry has not caught up with it yet. We now can connect all payers and payees to the “payment cloud” or server and make it possible for the payer to instruct the server to clear and move funds from payer’s source of funding to the payee indicated account while informing all parties in real time about the transaction completion.

      If there is a need of for (proximity) communication between the payer and the payee, the information will be transferred from the payee to the payer for the payer and the transaction amount identification. The payer side will pick the sequence from there and execute the transaction.

      • http://www.sepharimgroup.com Bob Egan

        Mirek and Tom

        Excellent posts.

        By making mobile devices trust payment devices perhaps the industry can focus more fully on what payments have always been – a two party, peer to peer transaction. That is the starting point in my mind, not retrofitting the existing 4 part system.

        Of course this raises a number of new issues that must be adressed, not the least of which is how the trust device/agent is provisioned. But it seems starting with the fundamental of a 2 party transaction irrespective of modality or access (proximity or remote) would bring a much needed focus and re-engineering of the process not see in 30 years.

  • http://www.sepharimgroup.com Bob Egan

    I appreciate Bill’s comments — and his passion, but he is missing the point.

    How has mobile banking been innovating so far? Answer: Largely the investments in mobile have produced little more than crippled light weight extensions of a banks online channel — with very few exceptions to mobile phones and tablets.

    Bill goes on to cite a conversation of possibility and aspirations editorial, in the hope that somehow it will deflect further notions of provocative thought that VISA and MC could be, or fact or are under siege by upstarts.

    Denial is a tough thing.

    Mobile operators around the world can, and are, mounting challenges to the way VISA, MC and other incumbent payment circles operate today. Some will thrive others will die. The jury is still out on ISIS. But a serious challenge it appears to be.

    More disturbing perhaps is the idea that VISA believes that extending existing business models into new channel modalities is innovating. Not unlike what the banks have done with mobile banking. If that is the case, I’d be very disappointed.

  • http://www.emvx.co.uk/ emv x

    @ Ed

    I’m not sure Isis needs to convince users that a telco is more trustworthy than a bank… let’s face it both receive precious little love from users!

    No, if Isis are sensible they’ll target retailers and they’ll offer them a better deal than they get from Visa… if retailers get a good deal they’ll encourage shoppers to use their phone to pay.

    And if the telcos reward shoppers with free minutes then I can see users liking it; retailers getting a better deal; telcos getting better ARPU… and Visa having to lower their margins to remain competitive.

  • http://www.litle.com Tom Pouliot

    Boy do I wish they would! In fact I wish the telcos would be working with innovative payment providers and financial institutions to try and actually provide value and security to the consumer and the Merchant.

    But my best guess is that they won’t.

    Instead, what they get are a few more subscribers to whom they will sell marginally few more handsets.

    My best guess is that they will claim, as Visa has in the linked post, that putting PAN (Personal Account Number) information on a chip that transmits the information to anyone with a reader is innovation. Something which could have been more easily accomplished by putting a Bar Code on the card and letting the merchant simply scan it. I am not sure if the Contactless Chip roll outs are any more secure than a bar code. Wouldn't it be something if in the Fin REG implementation some Senator got the bright idea that if a scheme comes up with a payment process that the scheme would need to guarantee the security of the transaction and could not rely on the merchant nor the consumer to protect the information? (But I digress)

    What passes for innovation at the payments schemes the rest of the world considers to be an enhancement.

    That said, I agree with Bob Egan in his post.

    That innovation isn't Paypass. Innovation is looking at the potential of the technology and seeing what is possible not what fits into a bank's technology budget. Seeing the adoption of the World Wide Web, PayPal was innovative. Seeing the mass adoption of Personal Digital Assistance (I like this term because I don’t want it to be tied just to smartphones new communication methods and infrastructures (text) and developing a payments solution around it would be innovative. I am just not as optimistic that other players (like the telcos) will "get" it either.

    Yes, I do believe establishing the PDA as a trusted terminal that can do anonymous (without and prior relationship) P to B transactions and friendly P to P transactions. I believe they have two separate process flows and needs. I also believe that consumers are more open to this innovation than ever before. We have a window of opportunity which has not yet started to close and, long-term we have to start thinking of what is good for all the players.

    As I look down at my AT&T Mondex Card I just don’t have any confidence that these guys are going to get it right this time.

  • Mirek Kula

    When I think of innovation, I always start with the problem I am trying to solve. A wide adoption of a service can be only expected when it represents a real solution to a real problem (pet rock success, notwithstanding, :-)).

    So what are the components of the problem that we are trying to solve? Let’s list a few…

    Cash is expensive and limiting

    A large percentage of consumer payment transactions, mostly small and micro payments, represent 50-95% of the total transaction count and are almost entirely served by cash. Cash processing costs, especially when coins are involved, are very high, often as high as 10% of the total amount. Unavailability of funds in cash (and/or the change where necessary) limits the velocity and volume of commerce, inconveniences the payer, and constrains the business of the payee/merchant.

    The poor get poorer with no affordable and reliable access to fundamental financial services

    Many consumers of modest means in markets where the infrastructure is less than perfect, the financial literacy of the consumers and other economic agents is lacking, and the legal and regulatory regime is not fully developed, lack access to simple financial services (i.e. payments, electronic funds storage and transfers and cash withdrawals). This segment of the world’s consumer population, representing approximately 10% of the population in USA, 70% in BRIC countries, and over 90% in most African countries, lives on the other side of the economic divide, is underprivileged, and lacks the means for financial self-improvement.

    Remote payments market is inadequately addressed

    Even though payment cards are used extensively in e-commerce, they represent a risk to all parties involved. Payment cards have not been invented with remote payments in mind and the advent and growth of e-commerce has only magnified their deficiencies. This predicament is especially pertinent in the developing world and is not being solved or even addressed by most of the hot technologies of the day, e.g. contactless systems.

    Currently proposed cash alternatives are inadequate

    Many currently considered alternatives for cash displacement need to wait for or build a sizable population of payers and payees compatible with their offerings (including the hereto created NFC-only solutions). The time, effort, and additional capital required represent significant issues. The need to replace and/or update mobile phones, terminals, OS and application software, and the resulting complexity and intimidation factor result in very slow service adoption.

    This said, cards are here to stay. But cards (with the ecosystem and the business model as we understand them today) are also nowhere near addressing the above pain points. We need to face these pain points in the context of this new, always-on, 1-on-1 hyper-connected, empowered consumer world. It is inevitable that new models will be introduced that dis-intermediate parties that perpetrate inefficiencies in the value chain. The value chain will be collapsed, flattened. E-Schwab did it for the brokerage industry and ebay did for auction world.

  • ed

    From what I reading in the discussion is interesting because I'm reading anti-synergy viewpoints but deep inside the discussion are the true solutions that proves that only a true intermediary can bring into reality.

    The mobile phone companies, including Isis cannot scale as globally as Visa, unless they want to charge roaming for paying with my cell phone in Tokyo or London which I'm not about to co-sign. Visa is not going to cannibalized their existing merchant model with a cheaper,faster model that does not yield a better return than their existing model. And technology providers are nothing more than a vendor table hoping someone important notice them at the conference or buy them out.

    It appears only an independent entity that can create the synergy between the mobile network, the merchant accounts, the banks and the customer is the one that going to make this a reality.

    Tom said something in a little blurb that I feel is the most important aspect no one ever brought before and I had to curl a smile because he figured out the real killer app in this whole picture:

    "It needs to use the current merchant POS infrastructure" – Tom

    Tom, do it really need to use the current merchant POS or do the merchant would really love a NEW POS that can accommodate this form of payment? :)

    • Mirek Kula

      That’s right – the problem will not be solved by MNOs working for themselves. Banks or merchant processors will not build an efficient and scalable system either. I agree that that 3rd party payment intermediary is the model with the best potential for the worldwide adoption. And in fact, I think, that the ISIS effort, from the business relationships perspective has the right underpinnings: multiple organizers/stakeholders working in concert to build and offer a payment service used by the payments service beneficiaries: payers and payees.

      The problems: how the payment transactions are carried out, who is in charge of transaction sequence and data and how does everyone get paid. Apparently some decision makers think that you can grandfather the 70s model right into the 21st century. Does anyone really think that the traditional 4 party payment model would have looked like it does if every person, dog and cat had at least one mobile phone or some other networked device with more memory, processing power, and connectivity options than the contemporary IBM computer? No, it would not. So if we really want to see a paradigm shift, it's time to step back and reconsider the fundamentals. What do I really want to do? What problems am I solving? What are the critical needs? What tools do I have now and in the near future at my disposal?

      And no, innovation does not necessarily have to mean invention. In particular, we do not necessarily have to replace or ad new hardware. We need new ways, not new boxes. The solution(s) will be only as good as their adoption rate. And they will not be adopted unless they are simple, universal and cost efficient. This can be done – we can talk about off line if you’re interested.

      Furthermore…

      Merchant payment terminals are there because technology did not exist in the 70s to equip payers accordingly. And if it existed, nobody would be able to afford the hardware and the necessary network service. Now, merchants still need their terminals but for a fundamentally different reason. They need to know electronically that they got paid. So they need an electronic, networked apparatus to obtain and act on that information. They want the "payment cloud" to let them know that a certain amount had been cleared and is guaranteed to be settled. On the other hand, the payer wants to know who to pay and how much. The payment cloud wants to know who the payee and the payer are; that the payer is who he says he is (aka needs to identify and authenticate the payer); and that a sufficient amount can be reserved in the designed funding account. We are dealing with a pretty flat world here: party A asking party B to move funds from A's designated account to C's designated account.

      Needless to say that there are numerous issues to be resolved before we arrive to a new payment reality. But it would be good to agree where we are going. Or as Dr Doolittle would say: “we had better establish where we are going, so we will know that we have gotten there, when we have arrived”.

  • http://www.sepharimgroup.com Bob Egan

    I think the path of least resistance to scale is to figure out how to leverage the existing rails. So to the extent there is interconnect to the merchant POS.
    But i am not convinced its the MC/Visa Credit/Debit rails – where i think a good amount of the log jam comes originates as per our discussion.

    If for the moment we some assumptions:
    1.The significant majority are cash replacement transactions under, lets say $100 transaction (maybe even under $25) so as to include developed and emerging economies
    2. The resulting structure may feel like a transaction cousin to debt, decoupled debit and open/close pre-pay

    Many questions arise:
    – Are there a number of international and sovereign rails that could tied together as a new switching/routing entity?
    – What in country requirements might the regulators pose?
    – Are the international telco interconnects rails that can be exploited and if so how?
    – is all this futile and large processor rails of MC & Visa going to prevail?

  • Allen

    I had worked with VISA for many years before. I had joined a Secure Protocol in Internet transaction. They had expected the protocol used in internet transactions all over the world. But, NOT. Though VISA was seeking to partner in full effort, I am not sure ISIS will success or not.

  • ed

    Mirek,

    Your comment about cash at November 22, 2010 at 17:58 UTC tells me that you are one of the extremely few that actually "get it" and you wrote the killer post on this whole topic regarding this whole market – this really boils down to the cost of cash handling. I stand up and applaud your post because you said the real world angle.

    Let me explain why you were so on point – the handling of cash in poor and emerging countries are expensive due to poor infrastructure and m-payments/NFC quickly established economic activity in poor areas by lowering the cost of handling financial transactions between all parties.

    The key word is here "unbanked" and it is populations of unbanked high density communities worldwide driving the adoption of m-payments/NFC. Now, let's talk about America and who are the people who are unbanked, living in high-density community and where it is expensive to cash a check at currency exchanges and where retailers cannot afford a merchant account, much less a $2,000 POS system.

    However this same group knows how to use NFC for the transit system, uses alternative payments such as the EBT card and already have a high speed data setup to process lottery tickets. I've stated this before but it appears in America, the powers that be like the telcos, credit card/banks and payment processors have chosen debt-financing middle America to spec NFC requirements towards instead of the market that has the same characteristics of the communities that are making NFC/m-payments a success.

    I do not know the motivation behind these m-payments/NFC efforts but my core motivation is aligned with Mirek's point of making cash cheaper to process to enable economic activity in these urban high-density communities and enable safer shopping/retailer experience both merchant and retailer.

    I'm from a low-income urban high-density area and we grew up using alternative payments and I'm 1000% confident we are the ones who will adopt this and take it to the market faster than any other group in America because quite frankly, we are the ones who really NEED this.

  • Mirek Kula

    Thanks Ed for your kind words. To your points (and mine) there is a very good report on M-PESA, commissioned by the Gates Foundation that examines the history, the present, and the future of the service and itemizes the “lessons learned”. I do not think M-PESA can be extrapolated everywhere but it tells you a lot about the dynamics of the developing countries. If any of you posters are interested look me up on linkedin and I will send you a pdf.

    As far as US is concerned, Chase QuickPay should be watched (http://www.chase.com/QuickPay) on the bank side and whatever Walmart produces next as it evolves its Green Dot prepaid card and introduces the mobile dimension. Walmart is totally revamping its e-commerce/m-commerce worldwide structure and they know their constituency. They have to reinvent themselves and they will.

  • Bea

    Mirek, Bob & Ed,

    I read your posts with great interest but can't help but wonder why none of you touched on the capability that Google and Apple can bring to the table with their own approaches to NFC an m-payments to in effect dis-intermediate banks and telcos?

    Would love to hear your views, particularly around brand association with this business model and the potential for scalability to reach the younger generations that appear to be more attached to their mobiles and their iTunes and Open Market accounts rather than the telcos or the banks.

  • Mirek Kula

    Bea-

    In both cases (Android OS software support for NFC peripherals and Apple iPhone extension to include additional peripherals) the efforts seem to perpetrate the same merchant centric, IX based, 4 party business model. I would not like to be misunderstood: this is good for the business; the more options the better. However, where exactly is the innovation? I will repeat one more time Bob’s succinct but very accurate line: “extending existing business models into new channel modalities” is hardly one. Besides, what about the ~70% of mobile users in US and ~95% of mobile users in, say, Nigeria (the largest market on the African continent) who do not have iPhone, data plans, NFC phones or merchants with NFC transceivers?

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