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Fight Over Mobile Payments Heats Up

Could an open standard for NFC weaken mobile operators' ability to control the digital wallet?

An intense battle is taking place between mobile carriers and virtually all the other players in the emerging mobile payment space (including Visa, MasterCard, device manufacturers and banks) over how mobile payment technology should work and who should control it. The Wall Street Journal this morning characterized this as a battle between RIM and the mobile operators, but RIM is not alone.

Most everyone agrees that near-field communication technology (NFC), which allows information to be transmitted between devices less than 10 centimeters apart and lets users "wave and pay" or "tap and pay," sending payment information wireless from their device to a merchant terminal, terminal or kiosk, will be a prominent channel for mobile payments.

But there are many flavors of NFC, and the technology particulars, especially the question of where user account data should be stored, are a matter of intense debate.

In one corner, MasterCard, Visa and banks (including Bank of America, Chase, U.S. Bank and Wells Fargo) have been testing mobile payments using a memory card containing near-field communication technology, DeviceFidelity's In2Pay microSD chip, which works with BlackBerry, Android and iPhone devices. In this version of mobile payments, banks distribute the memory chips containing cardholder data out to customers they way they send out new debit and credit cards. This scheme preserves the current roles of banks and card networks in payments.

In the opposite corner, mobile carriers would like to control near-field communication and mobile payment fees by having control over the memory card containing cardholder credentials, according to Nick Holland, senior analyst at Yankee Group, who spoke to us in an interview this morning. "There was an assumption made, wrongly, that mobile operators would control the SIM card and therefore NFC," he says.

A new development has shaken up both sides of the field, Holland says. That's Inside Secure's introduction of an OpenNFC standard that can allow third parties to access NFC capabilities on phones, effectively bypassing mobile-operator-led initiatives such as Isis and not requiring that NFC technology be embedded in a chip. Card issuers and networks could send out virtual cards wirelessly to the phones without having to mail out specialized chips.

"It's potentially a big fight," Holland says. "The operators are running scared. This is a monopoly they thought they had, the connection between the NFC and the SIM card." What needs to happen, he says, is what's going on in France, where there's an equitable split of who owns what. France Telecom rents out the SIM cards to card issuers but does not collect mobile payment fees.

Who's in charge here and will have the final say on which NFC mechanism will become the universal standard? "Mobile operators still get signoff on devices, but if new a iPhone comes out with a secure element that works with OpenNFC, the carriers can't say no, we won't support that," Holland says. He believes the traditional payment networks will have the ultimate say over the format of mobile payment technology. [Visa, MasterCard and Bank of America representatives declined requests for comment.] "Mobile payments are not going to radically change the payment landscape," he says. "The traditional roles of card issuer and wallet won't change much."

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