Smart Card Talk : July 2011 : Executive Director’s Letter

Executive Director’s Letter

Dear members and friends of the Alliance,

Rarely has there ever been a time in history when someone could sit in a room of less than 30 people and watch an entire multi-billion dollar industry ecosystem unfold and reveal its inner secrets and uncertainties in an open forum. But that is exactly what happened this week at the Federal Reserve Bank in Boston, at perhaps the final meeting of the Mobile Payments Industry Workgroup (MPIW).

The MPIW included about 25 leaders from organizations involved in the mobile payments industry who were handpicked by a joint team from the Federal Reserve Bank of Boston and Atlanta (from the research side of the Fed, not the regulatory side that was so prominent in the news about the Durbin Amendment regulations recently). Over the last 18 months, this adhoc committee has met six times for a series of discussions about the emerging mobile payments market. These sessions encouraged industry stakeholders to talk about their unique roles and positions in the market and helped participants form a greater understanding of the shared challenges and opportunities ahead in the coming mash-up of technologies and business interests among mobile operators, financial institutions, and merchants in implementing NFC mobile payments. The MPIW included senior managers and CEOs from the payments brands, financial institutions, mobile network operators, payments processors, and mobile technology and services providers, along with industry associations like the Smart Card Alliance, CTIA (wireless industry), NACHA (payments industry), and Merchant Advisor Group (merchants). This collaboration led to the publication of the Federal Reserve research paper, “Mobile Payments in the United States: Mapping Out the Road Ahead,” on March 25, 2011.

On July 27th-28th, the Fed called the group together again for what might be the final time. On this occasion, they extended invitations to some additional industry representatives who were not represented in the MPIW to discuss the findings about the anticipated mobile payments roadmap that the MPIW white paper captured. Some of new participants at the table included: Google and Isis, two groups that didn’t have a commercial mobile payments solution when the MPIW started; the GSM Association; the National Association of Convenience Stores (NACS); the newly formed Consumer Financial Protection Bureau (CFPB); Microsoft; and three major U.S. merchants who had strong views on the changing payments landscape–Walmart, Best Buy, and Kroger Foods. As with all previous meetings, the Fed team, led by Richard Oliver and Cynthia Merritt (Atlanta) and Marianne Crowe, Jim Cunha, and Darin Contini (Boston), did a masterful job of shaping the framework of the discussion and then turning the meeting over to the industry to discuss and often challenge perceptions about what consumers want and need and what the industry can deliver–all with a keen eye focused on the business model that is needed to support the growth of NFC mobile payments.

As is expected when such a diverse group of interests is represented, the meeting had many more questions raised than answers given. My takeaway from this meeting was that the unbridled enthusiasm for NFC that permeates the industry needs to be tempered with a realization that the current problems that exist in the U.S. market for contactless payments, EMV, and fraud mitigation are going to be the same problems facing NFC mobile payments unless radical changes occur. It was made clear from the small sampling of merchants present that merchant acceptance of mobile payments, as envisioned by banks and mobile operators, is not guaranteed. The industry needs a rational dialog among merchants, payment brands, card issuers, and the new NFC payments providers (e.g., Google, Isis, PayPal and other new entrants to come) on the roadmap for both card-based and mobile payments technology and on the cost structures for processing those payments, the cost associated with PCI compliance, and the benefits to merchants. The possibility of having that dialog is greatly increased with a neutral party like the Federal Reserve calling everyone to the table; however, it remains to be seen whether people from all sides are really interested in defining a new mobile payments model or in trying to defend the status quo. The next few months are going to be critical. Industry groups like the Smart Card Alliance, the Merchant Advisory Group (MAG), NACHA, and the GSM Association are essential to bringing all sides together. We need to pick up the ball from the Fed, who started with the MPIW, and keep everyone talking and participating on the same playing field. If the Federal Reserve steps back from its role as neutral industry research facilitator and steps back in as the Federal Reserve, the regulator, then I believe that everyone will lose.

As we move into the last month of the summer, I encourage you all to get involved in Alliance activities in the fall. We have a full agenda for the final months of 2011, with our 10th Annual Smart Cards in Government Conference, November 2nd-4th, in Washington, DC, and many Council projects and activities.

Randy Vanderhoof
Executive Director