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.

2008 Not the Year of Mobile Payments??? Au Contraire

Four days out from the launch of groundbreaking new payments technology, one finds themselves anxious, nervous, and somewhat conspiratorial, especially when that launch tends to coincide with the immediate wake of the Consumer Electronics Show and Macworld 2008. Both Apple and Google have filed patents over the last 18 months to make mobile phone payments, and the second hand on a clock turns more slowly than possibly conceivable. However, there is much reason to take heart.

NFC - Not (a) Fantastic Choice

David Chamberlain, Principal Analyst for In-Stat/MDR just published a report in December of this year. In it, he notes,

"Using mobile handsets to accomplish financial transactions and
purchases is starting to appear as something inevitable in the
worldwide marketplace. However, we do not believe that 2008 will be the
year of mobile payments. It may not even qualify as the year of trials
of mobile payments;...

The key enabling technology will be near field communications (NFC)
chips deployed into handsets as well as in merchant payment terminals."

I have inquiries into Chamberlain, and it is possible he is referring to paying with your cell phone in the bricks and mortar world. If that is the case, certainly Near Field Communications, or the placement of a chip within the actual device, will be necessary. This will essentially attempt to be a universal version of the Swipe-N-Go cards that gas stations and others issue their customers to go on their keychains.

Whatever chip is added to the phone will need to be universal, as unlike a keychain, the device is not likely to grow. Furthermore, whatever company ultimately decides to provide this option commercially will be forced to deal with all of the phone Operating Systems, mobile devices and the wireless service providers.

Further, there would need to be integration with and proliferation of merchant point of sale systems that can handle this communication and form of payment. As such, this is not likely to be a mobile-to-mobile payment option, and will require huge fixed investments.

Similar problems will continue to plague other companies that have so-called "thick-client" solutions in which users must download software on their phones.

Mpayy provides a secure mobile-to-mobile payment processing system that can be used for person-to-person money transfers. Similarly, purchases occur when the recipient account is a Mobile Merchant account. In other words, the 30 million independent salespeople in the United States doing $85 billion in sales will have secure payment processing systems with their mobile web enabled cell phones.