Isis, it's not you; it's your business model

Aug. 10, 2012 | by Cherian Abraham

It’s good to be back. Quick update, in case you missed it in three different places: I am now focusing on Mobile Payments and Banking as part of Experian’s Global Consulting Practice, which offers me myriad opportunities to see up close why banking and payments in particular remain spectacularly oblivious of the creeping threats of disruption. But today, I couldn’t have found a more better topic to wet my parched throat than the story of the comeback kid: Google Wallet.  

If you ask me, it's a smart play on behalf of Google. In one fell swoop, they have removed the long held association that existed, which was always one-to-one, between the cards on secure element and the cards on a mobile wallet. This frustrated Google to no end, and even in the case of Citi — a trusted launch partner (as I described elsewhere) — Google found that it had no transaction level visibility, which negatively impacted Google’s ability to add transactional context to its wallet experience and the resulting customer experience as well. Many times after I had used my Citi card to fund my GW transaction, I would curse myself for the lack of any apparent benefit for having opted to pay by mobile — as the transaction information remained cryptic: "Paypass Merchant" instead of "McDonalds," and "Sent" instead of "$5.54."

Quite obvious why Google set out to fix what was broken. I believed right from the beginning that Google will be forced (or dragged kicking and screaming) to the cloud by the insistence of carriers who stalled any of its attempts to control non-Sprint device secure elements, or issuers who neither wished to share the transactional data with Google nor saw the benefit in partnership. It got around both by largely removing these supply side barriers and focusing on a direct-to-consumer strategy where it knows it can rely on the good will and brand loyalty that has remained largely unshaken even through the privacy snafus that plagued Google in the past.

Yet, I doubt if Google can convince Bank of America, Wells Fargo, Chase and CapitalOne to offer what is effectively a tacit endorsement for Google Wallet by providing them "Card Art"and encouraging their customers to adopt GW. Each of the top six are heavily invested (or in the process) in mobile and are well aware of the threat posed by Google’s pivot. The top four U.S. credit card issuers account for approx 80 percent of active accounts and are about to see a steady trickle jump ship as Google shows more of its hand. Google Wallet has swiftly moved to capture the same customer segment that qualify for the early adopter label that are essential to mobile payment success. A well thought out direct-to-consumer strategy, and a Google Wallet decoupled from its NFC moorings (or bypassing the traditional carrier distribution model that is the accepted norm for mobile payments), can even slip under Apple’s watchful eyes (think the lidless, great eye of Sauron) to permeate an ecosystem that has so far been beyond Google’s reach. Further, for small and medium issuers who may only focus on the incremental interchange this may bring, GoogleWallet 2.0 offers a quick and painless way to enable mobile payments, without having to fork over a considerable sum to a TSM only to hurry up and wait endlessly for Isis hoping the phone will ring one day.

So what about Isis? I have harped on carriers before, and though "The one who enrolls, controls' is true and all, control is really not a sustainable value proposition. The complexity inherent in Isis’s model, along with the myriad costs imposed on an issuer mulling a partnership, is at times enough to stop enthusiasm dead in its tracks. The complex orchestration necessary to pull this off, with multiple TSM’s — one on each side — can be harrowing if an issuer wades in with little consideration. With the complexity that is the mainstay of NFC-enabled payments, I am not surprised that Google opted to do away with it and nearly eliminated the barrier for entry for issuers to trial mobile payments. They have managed to limit the scope of their conversation with issuers, largely around the upside to the issuer (e.g. incremental interchange, CNP rates, co-branding with Google) and effectively did away with the uncomfortable technology integration that once required heavy lifting on the issuers part — an easier conversation, unless you considered Google as your mortal enemy. But then, soon enough, your customers will be tempted by Google irrespective of whether they have an NFC-compliant device or not. How sure are you that they will know the subtle differences between using your plastic or Google’s? Or will they even care?

That is not to say that NFC stickers will become ubiquitous now that Google has embraced it. There are enough folks out there who would rather not publicly display that their phone is now a payment instrument as well. There are aesthetic reasons as to why the iPhone-touting crowd may not quickly embrace the idea of an adhesive sticker as well. But whether it is an NFC sticker or a simple Google branded plastic card (a la Paypal), if Google manages to marry these two with a compelling mobile experience, customers may end up being too focused on the Google experience inside the phone to worry about whether its still a swipe or a wave. Further, a Google branded plastic can still manage to offer an optimal customer experience, if it allows you to leave all your other cards behind.

Where does all this leave Isis? Newcomers, at least those who are successful, deliver because they improve upon what already was present. Gmail improved upon Hotmail and Yahoo. Google’s search engine wiped the floor with Yahoo and numerous others whose names are long forgotten. Google maps destroyed the marketshare owned by Garmin and TomTom combined. In the case of Isis, and a full year later, it is rolling out an exactly similar NFC payment service, and the only difference is it has three additional issuers and ten times the devices (maybe). Everything else remains the same: the prohibitive issuer costs to scaling beyond the initial launch, complexities of an SP-TSM-to-SE-TSM relationship, monolithic business models — they all stay the same. And could it be that its indicative of the thought process from a sustaining market leader(s) (i.e the three carriers) who accept complexity and overhead as a way of doing business and does not simply go after eradicating both with the same intensity that new entrants are known for. It is inconceivable that with Google quickly pivoting from a model that has failed to serve it well, Isis is managing to land on the exact same spot.

Insanity is doing the same thing over and expecting different results.

Topics: Carriers / Operators , Contactless / NFC , Retail , Trends / Statistics

Cherian Abraham / Cherian is a Mobile Payments Advisor with Experian Global Consulting. He is also an advisor to ModoPayments. As a mobile payments veteran and founder of Drop Labs, Cherian has worked with leading banks, retailers, mobile platform providers and startups in this space. Opinions expressed here are strictly his own, not that of Experian.
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