Wireless payments have recently hit a major milestone as the first NFC enabled mobile payment in Canada occurred just last month. In fact, many of the major North American wireless carriers have formed joint ventures to make mobile payments a reality. Isis is the joint venture by AT&T (T), Verizon (VZ), and T-mobile (OTCQX:DTEGY) in the US and Enstream is the Canadian version backed by Telus (TU), Rogers (RCI), and Bell (BCE).
Roll-outs appear coordinated with the arrival of a slew of NFC enabled phones including Windows 8 (MSFT), Android (GOOG) and BlackBerry 10 phones (RIMM). The carriers have expended tremendous energy in getting all parties needed at the table including the financial institutions, credit card companies, phone manufacturers, point of sale device manufactures, and the merchants.
For OEMs, the truth is that their devices and services are dependent on a carrier's wireless network. If that isn't enough, carriers also control the sales channel of these devices. So, if one or two OEMs become too powerful, carriers can always move their phones to the back of the shelf. These toll booth businesses like to promote a fragmented mix of devices using their infrastructure.
A prime example of this power struggle is the NFC enabled mobile wallet. Carriers want the secure element (payments chip) in the SIM card and device manufacturers prefer it in the device so that they can profit from it. Google believes that a dominant Android ensures that they will triumph over the carriers. Just ask RIM how that worked out for them in March 2011.
Mobile wallets will soon be the carrot that carriers use to sell the next several billion phones. But before they can do that there is one significant problem, as Michael Abbott, the CEO of Isis, puts it:
"Our belief is you have to first get people comfortable with making payments with the phone. A big part of that is security. The research will tell you that people fundamentally believe that paying on the mobile phone, at least right now, is not secure. So part of what we need to do is make sure that people have a sense of security, that they know this is secure, that it's not just a sticker on the back of a phone--some open, software-based protocol. It's a hardware-based, secured, locked-down payment system they can trust."
Carriers know that hockey stick growth in mobile payments will only occur if the security questions go away. Previous mobility convergences provide the reasons for this belief. Each added mobility function only stuck when it was executed at an exceptionally high level; Nokia's (NOK) camera phone was super convenient, Blackberry mobile email was and still is the best, and Apple (AAPL) defined the multimedia experience on a phone. Only a very strong sense of security can overcome consumer's inherent distrust in mobile payments.
The joint ventures use a solution in which they control the software, hardware and the enhanced security network from end to end. The enhanced network I'm referring to in Canada is RIM's secure element solution. No surprise here, as RIM's network has been sending compressed and encrypted BBM messages over carrier networks for years. The only difference is that now they will be doing the same for financial machine to machine data. What a great way to add value to the carrier's existing network, as well as providing the joint ventures with a powerful differentiator against less integrated and secure solutions.
Now that you know who I think will help the carriers sell more phones, some hard questions need to be asked. The questions that Google shareholders need to ask is will North American carriers continue pushing Android once there are other data hungry options available such as BlackBerry 10 in February, or Windows 8 for Christmas? More importantly, will they continue to promote phones with a competing service like Google Wallet?
Apple shareholders should be wondering why their company doesn't think that NFC solves any current problem when the rest of the world seems to be ramping up for mobile payments. Tim Cook better hope that this is just another false start for NFC because if not, a lot of iPhone owners are going to feel pretty silly when everyone around them is doing mobile payments and they can't. RIMM shareholders should be trying to figure out just how big this global 'secure element solution' business is going to be anyways.