NICHE

ISIS is a joint venture between wireless carriers AT&T Mobility, T-Mobile USA and Verizon Wireless. Started in 2010, the collaboration hopes to expand the use of NFC technology and spur on contactless payments. From a consumer’s point of view, ISIS is simply a smartphone app that allows users to store credit and debit card information. This app then works in tandem with special hardware installed on the phone, allowing users to pay merchants by simply tapping their device on an NFC enabled terminal. The back-end, however, is much more complicated and requires a more thorough explanation of NFC which will be given below as well as in next week’s post.

CEME Presents: ISIS, part of the ABCs of Payments Series. CC-BY-NC

CEME Presents: ISIS, part of the ABCs of Payments Series. CC-BY-NC

Today, acquirers are pushing merchants to adopt NFC hardware at all point of sale terminals from 2015 on. ISIS is designed to bring existing credit, debit and prepaid cards forward into the NFC era, allowing customers to use their phones as their digital wallets. What is ISIS’s specific role in NFC? Like its closest competitor GoogleWallet, ISIS a platform for making NFC payments. These platforms can be thought of as the software that allows the NFC hardware to operate. For a transaction to take place between customer and merchant, both must have working NFC hardware as well as software platforms that can communicate with one another. Analogously, two people might both have computers, but if one is using Google Chat and the other Skype, they will not be able to communicate to each other. ISIS, in this case, is like Google Chat or Skype – and their goal, then, is to make sure that as many NFC payments as possible communicate through ISIS “software”. If the joint venture can manage this, they will have many ways of monetizing their role in the NFC transaction when it comes time to finally sit down and determine a specific revenue model. It is for this reason that GoogleWallet and ISIS have been waging a virtual war with the expansion of their platforms; both have been struggling against the other to gain market share as fast as possible, mostly through competing for partnerships with businesses, banks, credit cards, and merchant service providers. Actual use of NFC (as well as the Google Wallet and ISIS platforms) still remains limited – only about 3% of merchants with credit card terminals also accept contactless payments; less than 9% of consumers in America have an NFC device. Today, ISIS is accepted by merchants in Salt Lake City Utah, and Austin Texas, and has around 200 employees.

BUSINESS MODEL

Originally, the goal of ISIS was to displace credit card companies completely – if consumers were more interested in paying for transactions by waving a phone than swiping a card, they could maintain payment accounts directly with carriers rather than deal with credit card companies. However, this ambition was quickly scaled back prior to launch because of merchant demands. ISIS eventually partnered with Discover and Barclaycard upon launch, and on July 2011, announced additional partnerships with Visa, Mastercard and American Express.

ISIS has been slow to launch – while GoogleWallet has been used at NFC terminals for a little over a year, ISIS test ran its first markets, Austin, TX and Salt Lake City, UT in November of 2012. Still-nascent ISIS is focused on market share rather than profits. Four revenue sources are possible paths to profitability: acquiring fees, consumer data profiles, loyalty marketing, and rental fees on POS hardware. The joint venture’s most likely model is to have credit cards companies to use their platform, thereby extracting part of the interchange fees. However, alternate ideas have been proposed. For instance, TMCNet reports that ISIS might ditch the per-transaction fee model entirely and generate revenues from data mining and data sharing, similar to Google Wallet. Payments consulting firm Luciano Group mentioned that loyalty marketing could be opened up as an alternative revenue stream. Finally, NFC Times noted that ISIS will be using a rental model, charging credit card issuers about $5 per consumer per year in order to use their platform.

VALUE PROPOSITION

For consumers, using the ISIS app and paying at a contactless terminal offers the following three perks. First, users have the added convenience of being able to tap their phones over an NFC enabled device rather than swiping. Next, since ISIS allows users to store multiple cards and loyalty cards on their phone, this can reduce physical clutter. Lastly, users have easier access to discounts and coupons now that they are digital, saving them money.

Merchants get very few direct benefits from adopting the new technology. Primarily, NFC improves the security and convenience of payment card transactions. ISIS also allows merchants to send coupons to their customers electronically. However, the costs may outweigh the benefits; merchants would have to upgrade their existing credit card terminals to accept NFC payments, and since this system is built completely on top of the existing credit card systems, interchange rates would at best stay the same.

Regardless of merchant input, NFC will likely be implemented throughout most of America by 2015. This is because VeriFone, the leading point of sale terminal producer, will only offer NFC compliant technology from now on. These terminals will have the ability to accept any customer side NFC platform. Furthermore, that credit card companies have changed their policies to stop protecting merchants from fraud if they are using the old terminals will provide additional impetus to upgrade to contactless payment quickly.

NETWORK SPECIFICS

NFC is an acronym for near field communication; it is a new technology that allows smartphones and other devices to communicate to each other by establishing close proximity radio relays. It is very similar to, and in fact some would say a direct evolution from, RFID. Whereas RFID (a technology commonly used by mass transit lines on metro cards) allows for only one-way communication, NFC allows two enabled devices to communicate to each other, exchanging information back and forth. This two-way communication allows for advancements such as mobile wallets and peer to peer transactions.

NFC technology can be deployed in phones in one of three ways: in the handset hardware, on the SIM card, and on the removable SD flash memory card. Mobile network operators (MNO) prefer to have the NFC on the SIM card, so that it becomes linked to the user’s profile on the telecom network. SD cards offer the greatest backward compatibility, since it would allow any smartphone with an SD slot to be NFC compliant.

Presently, it seems that MNOs have been losing the battle, as most NFC chips are embedded within the phone itself. The company chosen to partner with ISIS to actually create the NFC software platform is C-Sam.

FINANCIAL DETAILS


#4 in the Series ABCs of Payments. The ABCs of Payments will examine a new company or innovation in mobile payments each week.
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