Once a Power in M-Payments, Carriers Now Play a Lesser Role As New Wallets Emerge

By John Stewart

With Google Inc.’s Sept. 10 launch of Android Pay, competition in the mobile-payments market heated up to an even higher temperature. But in all the talk about tech companies, handset makers, and banks ushering in services like Android Pay, Apple Pay, and Samsung Electronics Co. Ltd.’s Samsung Pay, one seemingly obvious set of players seems to be missing in action: the mobile network operators (MNOs).

In the earliest U.S. trials of near-field communication (NFC) for payments, the carriers played a crucial role in provisioning phones and promoting usage. Until this winter, three of the nation’s largest network operators were nurturing an NFC-based mobile-payments entry of their own called Softcard, but that 4-year-old effort collapsed and Google ended up buying the assets in a deal that included an agreement for the operators to preload Android Pay on Android-powered phones they sell.

Now, many observers say the balance of power in mobile payments has shifted away from the mobile networks. “That’s been wrested out of their hands,” says Tim Sloane, vice president of payment innovation at Mercator Advisory Group Inc., a Maynard, Mass.-based payments consultancy. Adds Rick Oglesby, senior analyst at Double Diamond Payments Research, Centennial, Colo.: “At least in the U.S., they’re definitively out of it.” Sloane, Oglesby, and others spoke to Digital Transactions magazine for a story on the mobile network operators’ role in payments set to appear in the upcoming October issue.

To be sure, the carriers still exercise some power in the payments market, as Verizon Wireless has demonstrated in recent weeks in holding out on endorsing Samsung Pay, which is set to launch commercially in the U.S. later this month. But this is widely seen as a negotiating ploy before the huge carrier gets what it wants and falls into line. “It may seem like unfriendly value extraction, but right now that seems to be their opportunity and they’re taking it,” notes Ted Fifelski, president and co-founder of Austin, Texas-based SimplyTapp, developer of an NFC variant called host card emulation

It may be an opportunity, but one cast in a negative light. “It’s rather sad if the operator role is to be defined as an inhibiting factor on service provision rather than an enabler, but all that will achieve is customer churn,” says Windsor Holden, head of forecasting and consultancy at Juniper Research in the United Kingdom, in an email message.

Contacted by Digital Transactions, representatives for Verizon as well as AT&T Mobility and T-Mobile International AG, the three carriers behind Softcard, did not respond with comment for this story.

Theories abound on what went wrong with Softcard, and with the carriers’ position in payments generally. Some speculate that the advent of Apple Pay, a more potent exponent of NFC based on a secure element in the phone, darkened Softcard’s prospects. Other factors may have played a role, including the introduction of host card emulation, which weakened the case for the secure element as a carrier-controlled vault for payment credentials.

Also, the MNOs recently weathered a price war in their core business, which may have made it harder to justify further investment in a service that, while it might have helped sell phones, was unrelated to the basic business of mobile network communications.

Still, the operators might not be done in payments. Observers see a role for the companies in critical businesses such as transaction security and user authentication, for example. The carriers can determine whether the owner of the phone is the one who is trying to do a transaction, for example. “They know a lot about the consumer,” says Oglesby. “If you can authenticate the device and authenticate the user, you can get a lot closer to a secure transaction.”

And this is an opportunity, some say, that remains a largely virgin field for the MNOs. “They’re sitting on a pretty sizable opportunity in identity fraud, which they haven’t really done anything with,” observes Cherian Abraham, global consulting practice analyst at Experian Decision Analytics.