Citigroup to Offer Branded Phone for Payments

Many apologies for not writing much this week.

I did see one interesting story concerning one form of mobile payments - Near Field Communication (NFC). NFC has taken hold in Asia, and there are convenient stores and other brick and mortar locations where shoppers can simply swipe their phones within a certain range of a Point of Sale system, and the system will debit some sort of stored value. That could be hooked up to a credit card, a bank account, or there could be value pre-charged onto the chip like a Gift Card.

NFC payments requires the payment company to put a chip into the device, since it is the device's proximity to the Point of Sale system that results in the payment. NFC is a much more realistic option for mobile payments in Japan, where ITT DoCoMo has upwards of 80% market share, and can effectively make changes across the board for all of its customers. In the United States, this is a less realistic option because of the fragmentation among device makers and the networks.

Getting "designed in", that is having a new version of an existing device or a new device created with your chip in it is a multi-year process even after the deal has been reached. The ability for a startup to work with Original Design and Original Equipment Makers (ODM, OEM) is very difficult without significant backing. Further, beyond the chip in a device, the system has to be compatible with hardware in stores, though that is simpler as everyone from Gas Stations to Fast Food joints have created keychain swipe tools.



Easier for a Bank

CardForum is reporting that Citigroup is going to offer a branded mobile device with its own NFC chip built in. Citigroup is a multi-billion dollar institution with huge credit card and other consumer banking operations. Credit card companies typically fight for "share of wallet" or "top of wallet" positioning, meaning to be the card of first resort for any given shopper who is making a purchase. The beauty of the mobile device is that people often carry their phones in places they don't bring their wallet or their credit cards. If Citigroup can own the device, they can take a greater share of the wallet, and possibly extract rents for other payment options.

Citigroup, like Visa, MasterCard and others has conducted many tests of NFC around the world, but CardForum indicates that this device is targeted primarily at the US market, and complies with FCC rules for NFC transactions. Further, being a massive card issuer, has much significant power to persuade merchants to adopt new card reader functionality.

An interesting question is what does this say about Citigroup's association with Obopay, a mobile-to-mobile payment provider. Further, if the banks begin moving into the mobile space, what does it say for mobile wallet solutions like Firethorn and mFoundry? Stay tuned.