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To understand the mobile phone payments gold rush, look at the volumes of the traditional payment networks. Visa processed a total of $5.8tn in payments in the past year; MasterCard had $3.1tn. Even little newcomer PayPal (owned by Ebay) handles well over $100bn a year in transactions. The potential is huge.
Wireless network operators, internet companies and phone manufacturers look at numbers of that magnitude and get excited. If the mobile phone replaces credit or debit cards as the default payment tool for even a small proportion of consumers, and the companies that make this happen capture even a sliver of the value of those transactions, or add just a bit of value to them, the resulting profits will be large indeed. The idea is not to replace existing payment networks such as Visa’s, but to use smartphones on top of those networks, combining payments with coupons, Groupon-style daily deals, and other services.
The first handsets with “near-field communication” chips, enabling payments with a wave of the phone, are appearing now. Every big carrier globally wants in. AT&T, T-Mobile USA and Verizon have formed a US mobile payments joint venture called Isis. Payment start-up Square raised $100m in funding this summer. Google has rolled out its “Wallet” application on Sprint’s network.
There is already friction. Google disclosed on Monday that when Verizon rolls out the Nexus, an NFC-enabled Samsung handset running on Google’s software, it will not support Wallet. Verizon claims there is a hardware integration issue; Google says the Nexus is Wallet-ready. Verizon must tread carefully. The mobile payments war will be won on service quality and on the number of retail outlets at which the payments are accepted. If Verizon appears to be forcing its customers to use its own payments tool it will alienate, not profit from, them.
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