In layman’s terms, physicists use the term "event horizon" to describe a point of no return, the point in which the gravitational pull becomes so great that it makes escaping impossible. 2012 will be seen as the event horizon for NFC (Near Field Communication). Not quite the year in which the technology became a success in the payments world, but the point at which consumers and/or merchants realized that sooner or later, they would have to incorporate the technology into their everyday lives. It may also be the year in which it became clear that, at least in the United States, either Isis or Google Wallet would become the undisputed leader in the technology. Think VHS vs. Beta or Blue Ray vs. HD DVD.
As to the details of each one, Google Wallet is already a commercial solution launched in partnership with Citi (MasterCard) and Sprint in 2011. In order for any consumer to use the solution, he or she must buy a Nexus 4S phone with Sprint and open a Citi PayPass credit card or a Citi prepaid card. Focusing on the prepaid card, it is a virtual account - meaning that it requires no plastic and it is downloaded directly into the phone. The prepaid card can be funded from other existing credit cards. Currently, Google Wallet users can also receive mobile coupon offers from 14 merchants the service has partnered with.
A joint venture between AT&T, Verizon Wireless, and T-Mobile, Isis announced partnerships with all four major payment networks in 2011: Visa, MasterCard, American Express, and Discover. As per the company’s press releases, Isis will be available commercially in two test markets: Austin, Texas and Salt Lake City in "mid-2012." On February 27, 2012, Isis announced new partnerships with Chase, Capital One, and BarclayCard that will enable cardholders to load their accounts to the Isis mobile wallet for use at participating merchants. At present, Isis has not announced any exclusive partnerships with merchants to support any mobile couponing functionality. The solution will be offered on a variety of handsets, including HTC, Motorola, LG, RIM, Samsung, and Sony.
Compare and Contrast
Google Wallet comes out ahead in this category. Their commercial solution has been in the market for quite some time now, and in the meantime, Isis is a few months away from launching their solution and this will be done at a local and not at a national level. However, Google Wallet has suffered a black eye recently due to security breaches in its solution. These were severe enough to warrant suspending the program for a few days and attracted the attention of mainstream media including Time Magazine. It must be said though that it is too early to tell if this will affect Google Wallet only, or if the breach will also carry over to Isis.
Another factor to consider is that Isis has, perhaps unintentionally, created massive expectations in the payments industry with repeated announcements that its solution will soon be launched in the summer of 2012. Any security breach or disappointments in the solution’s value proposition may be amplified by reporting in mainstream media. As with any emerging technology, the real story is when these new solutions fail at any level as opposed to when they are a success. In addition, anecdotal reports from February 2012’s GSMA conference in Barcelona point to a lack of a “wow” factor in the Isis demo unveiled at the conference. Isis needs to address this if it is to become the future de facto NFC product of choice in the market.
In this category, Isis is the undisputed winner. As a matter of fact, Google is shockingly falling behind in building up its ecosystem, not announcing any new significant partnerships since the solution was launched in September 2011, including no new relationships with other operators, issuers, payment networks, and even handset developers. Google has been effectively shut out from directly working with other major operators in the United States due to their involvement with Isis. The alternatives for expansion are also starting to look meek. Google Wallet can take the option of working through merchants and their terminal infrastructure, but with only 300,000 NFC-enabled terminals in the United States at present, this option looks costly and time consuming. Another option is for Google Wallet to aggressively pursue Apple and become an exclusive partner to a future iPhone release that incorporates the NFC chip. However, this is a high risk approach and Apple knows all too well that their negotiation power will continue to tip in their favor the longer they wait to incorporate the technology into their best-in-class handset.
It is fairly straight forward as to who comes up on top in this category. Big thumbs up to Google Wallet. The brand generates a lot of excitement and merging the iconic Google colors, the letter W, and the contactless wave design is a masterful example of graphic design. The exact opposite can be said about Isis. The monochromatic color scheme is less eye catching and the “stars” do not instantly link one’s thoughts to the product’s purpose – perhaps branding will change once Isis is rolled out commercially?
Both companies can count amongst their ranks management teams with in-depth experience in NFC and mobile payments. Any business analyst will tell you that Google is the giant that it has become today primarily due to its top notch employees. In the case of Isis, with $100 million committed by their stakeholders, one can also bet that much of this money has been apportioned to attract top talent to the company. The key difference is really how both companies are structured operationally. Google Wallet is a division within Google, Inc. while Isis is a joint venture of three large mobile operator companies. A slight edge must be given to Google Wallet as their management structure should allow it to respond with better efficacy to constantly changing market demands and even more marked changes to the technology used in NFC payments. Although Isis is designed to operate as an independent company, eventual disagreements amongst the three major stakeholders may result in delays in operational execution.
So Who Comes Out on Top with NFC?
Indeed, that is the million-dollar question and the answer is that it is too early to tell. There are still too many factors left unresolved and too many stones left unturned in the NFC game. With Isis having rescheduled their launch numerous times, it is evident that the business model is still in the process of being defined, and, as witnessed with Google Wallet’s security breach, technology kinks are still being ironed out. Also, the much coveted "tipping point" has still not occurred. Sure, every day more media outlets report on NFC, and the involvement of Google, all major operators, all major payments networks, and major issuers in the United States are a strong testament to the future opportunity that the solution holds for stakeholders.
Conversely, if today you were to go to a movieplex in the middle of Manhattan on a Saturday night, go ahead and conduct an informal survey with the box office attendant. Ask him or her how many NFC transactions have occurred that evening and you should be surprised if the answer is more than three. However, if you go back to the same movie theatre by the end of the year, do not be surprised if the answer is more than 30. At that point the event horizon will have clearly occurred, and in all likelihood either Isis or Google Wallet will have already become the VHS or Blue Ray of NFC.
Joe is Senior Consultant for Insight Consultancy, an electronic payments consultancy headquartered in the U.K. His focus is on mobile payments and prepaid products specializing in Latin America, the U.S. Hispanic market and the unbanked.