Carriers cut back on plans to create mobile payments network

Three prominent wireless carriers are apparently scaling back a joint mobile payments initiative known as Isis.

Created by AT&T Inc., Verizon Wireless and T-Mobile USA, Isis was originally meant to be a payment network where users could make payments directly from their phone.

With each transaction, the carrier companies would have received a cut of the transaction, as customers  maintained an account with their wireless carrier, rather than a credit card company.

Ditching its initial idea for a separate payment network, the Isis group has now adopted a less ambitious strategy to create a “mobile wallet” that can be used to make payments via Visa, MasterCard and other major credit cards.

The idea is to attract as many users as possible, which is why Isis is now in talks with both credit card companies.

“The carriers have to include MasterCard and Visa,” explained Drew Sievers, cofounder and chief executive of mFoundry, a mobile banking company.

“Not including the 800 pound gorillas of the industry will make it very hard to succeed.”

Isis, which partnered with Barclays PLC, is now slated to launch in early to mid-2012. A pilot program managed by Utah’s Transit Authority will allow users to pay their fare by tapping Isis-enabled phones on an electronic reader using near field communications (NFC) technology.

Still, without their own network, it’s unclear how mobile carriers will make money from mobile payments. Those familiar with the matter said there might be a “pay-to-play” charge that will bill financial institutions a fee for using the technology.

Another option is to offer coupon-style deals, allowing carriers to take a cut of the revenue from special mobile offers or perhaps a portion of the transaction fees.

It should also be noted that Isis is facing competition from the likes of Google and BlackBerry maker RIM who are quickly moving forward with their own mobile payment plans. The race is somewhat frenetic right now, mostly because every company wants to be the first to establish a mobile payment protocol.

Indeed, Google is currently working on a mobile payment system with MasterCard and Citigroup to embed NFC technology into its smartphones, much like the Nexus S, which already has the NFC chip but has failed to pick up much traction as far as mobile payments go.

Meanwhile, RIM recently kicked off a trial program with MasterCard that allows Bank of America customers to make mobile payments. The company has affirmed that most of its new smartphobes will have NFC chips in them by later this year.

[Via WSJ