The news that ISIS--the mobile payments network set up by the AT&T, T-Mobile and Verizon--has partnered with the top card companies was hardly a surprise. A few months ago, the ballyhooed consortium switched gears and said it was no longer interested in setting up a radically new payment system that would challenge the hegemony of Visa and MasterCard at the processing network level. That was lamentable in some ways, as such a network would have marked a supremely aggressive challenge. But ISIS decided that it needed to work within the existing card payments eco-system, and that meant inking partnership with Visa, MasterCard and American Express, which it has now done. 

Most people are interpreting the news as a another strike against Google's Digital Wallet program, which as of now only has MasterCard in the truck. That's an understandable way to frame the rise of NFC mobile-phone based systems. Certainly having the big four card networks in its camp is a plus for ISIS. (Discover was one of the original ISIS partners). And when both systems are up and running, we would expect a lot of competition between Google and ISIS for customers, via Groupon-like special offers.

But before we can truly sort out the winner, the NFC market needs to take off. ISIS understands that proprietary networks may not be the way to go. It wisely appears bent on creating interoperability in its new system. The key to success may be its ability to create a system that all so-called trusted service managers can connect to. ISIS intends to generate revenue by inking banks directly to its trusted service network business, but it needs to entice other TSM to connect as well. Banks already have strong TSM relationships and ISIS would be crazy to try to force the banks into an either-or situation. They do not want a direct confrontation with the likes of powerful First Data, which is aligned with Google at the moment. At some point, we would expect other TSMs to connect to ISIS if that's what enough consumers want. 

The success of the NFC market also depends on the successful resolution of hardware issue at two levels: the handset level and the merchant POS terminal level. 

NFC-enabled handsets will likely become more widely available fairly soon. But that doesn't mean the owner will be suddenly empowered to transact over NFC networks. A transaction depends on the merchant having the right hardware, and right now most of them don't. About 98 percent of all merchant with a card reading terminal currently not equipped to handle NFC-based tap payments. 

Google has suggested that one third of U.S. point-of-sale terminals would accept contact-less payment within a year, a penetration rate that might or might not be sufficient for rapid adoption of NFC transactions. But such predictions may be wishful thinking. That would be quite expensive, though we fully expect the likes of First Data to market their FD-20 or FD-30 contact-less readers, both of which easily integrate into existing First Data terminal systems. We'll have to see how fast merchants embrace the idea of paying for more hardware in Utah and in other trials. Discounts may be necessary to draw out the would-be early adopters. Heck, they might have to consider giving some away. - Jim