Could Merchants Use POS Readers, M-Wallet to Skirt Interchange?

In building out a network of point-of-sale readers to accept their contactless cards and tokens, banks and their card associations could be creating an infrastructure that will also support payments based on new mobile-payment technologies like Motorola Corp.'s M-Wallet software that could bypass the lucrative credit card interchange system, one expert argues. Thomas Miezejeski, vice president of research at The Pelorus Group, a Raritan, N.J.-based firm that analyzes financial services and telecommunications, says M-Wallet, which Motorola announced this week (Digital Transactions News, Feb. 8), could benefit merchants seeking alternatives to high-cost card payments, since the handset-based software supports stored-value accounts as well as online-banking access, including checking-account debits. Since mobile phones feature M-Wallet are expected later on to work on the same standard as that supported by the installed base of contactless readers, says Miezejeski, banks “have opened up a very big crack in the tight hold they have on the payments infrastructure.” Led by JPMorgan Chase & Co., banks have over the past year or so rolled out millions of cards and other tokens equipped with chip-and-antenna inlays to allow radio transmission of card data to replace conventional card swipes in payment transactions. Fast-food, convenience-store, and other merchants have begun deploying the transceivers necessary to accept these contactless devices, which are seen a way to allow high-throughput, cash-heavy merchants to accept card payments without slowing down service. Most recently, Visa USA and several technology companies, as well as cell-phone maker Nokia and the wireless network Cingular, launched a test of near-field communication (NFC) chips for contactless POS transactions as well as downloads of digital content (Digital Transactions News, Dec. 14, 2005). More such pilots are expected throughout 2006. “The credit card companies are getting their acceptors to spend millions of dollars to get readers out there, and the motivation is faster transactions and uplift [in average tickets],” says Miezejeski. “But M-Wallet could allow a bypass of Visa and MasterCard.” Motorola officials told Digital Transactions earlier this week the company planned to introduce NFC chips in at least some of its phones by year's end and is in talks with the card companies about the possibility of participating in these pilots, but wouldn't comment further on these discussions or on the NFC tests. For now, the Schaumburg, Ill.-based technology giant is primarily aiming M-Wallet at wireless carriers, rather than the bank card networks, as a means of building up subscriber revenue. “That's the people they know, the carriers,” says Miezejeski.