Carriers Gazing Hungrily At Mobile Payment Pie

According to a Monday report from Bloomberg, the carriers are testing a contactless payment system that lets customers purchase goods by waving their mobile device in front of a wireless reader.

Discover, the fourth largest credit card company after Visa, Mastercard and American Express, reportedly is handling payment processing for the joint venture, according to Bloomberg.

Mobile payment systems have been available in other countries for years, but their progress in the U.S. has been molasses-slow due to a lack of technology standards, regulatory issues, and good old-fashioned conflicting business interests.

Major card companies, as well as many tech firms, have stepped up the pace of their mobile payment initiatives as the smartphone marketplace has boomed. But carriers apparently believe that their deep experience in payment processing is a competitive advantage.

In the opinion of some industry experts, carriers may be underestimating the scope of the challenge.

"AT&T and Verizon are in the communications business, not the payment processing business. Although they have vast experience processing payments for their customers, one has to wonder how well that will translate to servicing merchant accounts directly as a payment service provider," said Joe Bardwell, president and chief scientist of Connect802, a wireless solution provider in San Ramon, Calif.

The slow integration of mobile devices into the contactless payment processing industry has been due in part to the entrenched infrastructure of Visa and Mastercard, said Bardwell. "The number of card swipe payment locations across the country is astronomical. The card swipe machines aren’t going to simply go away overnight," he said.

Security has been another issue holding back the mobile payment market. But unlike credit cards, mobile devices eventually could be equipped with additional security measures. This has already proven effective in Europe, where smart cards come equipped with beefed-up authentication and identification.

With a smartphone, "It wouldn't be a big deal to add a component to the device that allows a second factor of identity verification that's unique to that device owner," said Peter Bybee, president and CEO of San Diego-based solution provider Network Vigilance.

Of course, device makers won't be thrilled by the prospect of adding cost and complexity to smartphone designs that already have been well-honed, so this could take awhile to develop. What's more, consumers that already don't care for carriers' business practices probably won't be rushing to avail themselves of the new services.

Still, there's a decent chance that the prospect of carriers getting into mobile payments will speed things up in the market as a whole. There's not much that scares credit card companies, but one thing they can definitely understand is the implications of another oligopoly moving into their turf.