Discover involved in purchase-by-mobile-phone project

AT&T Inc. and Verizon Wireless, the biggest U.S. mobile carriers, hired former General Electric Co. executive Michael J. Abbott to head a venture that would let people make purchases with their mobile phones.

Abbott, 43, previously chief marketing officer for GE's retail consumer finance business in the U.S., was named chief executive officer of the New York-based mobile payments company that also includes Deutsche Telekom AG unit T-Mobile USA as a partner, the carriers said today in a statement. He will help build a national payments network called Isis that will be available to all banks, merchants and wireless providers, the statement said.

The phone companies are working with Riverwoods-based Discover Financial Services and Barclays Plc to let consumers pay retailers with the contactless wave of a smartphone, potentially supplanting plastic credit and debit cards. That may pose a threat to Visa Inc., MasterCard Inc. and New York-based American Express Co., the biggest card networks, which have been testing mobile payments worldwide.

“We plan to create a mobile wallet that ultimately eliminates the need for consumers to carry cash, credit and debit cards, reward cards, coupons, tickets and transit passes,” Abbott said in the statement.

The service, similar to those already available in Japan, Turkey and the U.K., would use contactless technology to let consumers pay for purchases and is expected to be introduced “in key geographic markets during the next 18 months,” the company said in the statement. People familiar with the plan said in August that the carriers were considering pilots in Minneapolis, Salt Lake City, Atlanta and Austin, Texas.

Transactions would be run through Discover's network, currently the fourth-biggest by payments volume behind Visa, Purchase, New York-based MasterCard and American Express. Barclays, based in London, would be the bank helping to manage the accounts and is “expected to be the first issuer on the network,” the statement said.

Verizon Wireless, based in Basking Ridge, New Jersey, is a joint venture of Verizon Communications Inc. and Vodafone Group Plc.

Abbott joined GE in 2002 to build its strategy of issuing store-brand cards that can be used elsewhere as they also carry the MasterCard, Visa or Discover logos. Fairfield, Connecticut- based GE, the world's biggest private-label card issuer, has portfolios including Wal-Mart Stores Inc. and Dillard's Inc. Abbott previously was senior vice president of card services at FleetBoston Financial, now owned by Bank of America Corp.

Fighting Transaction Fees

A consumer using the mobile service would be able to pay a merchant by holding a smartphone with an embedded radio microchip near a reader at checkout. The technology may allow people to forgo plastic cards and enable retailers to send customers electronic receipts and rewards in real-time.

Retailers may want to help another network after fighting for years to win lower transaction fees. Last month, Visa and MasterCard settled a U.S. antitrust lawsuit that said the companies' contracts unfairly bar retailers from steering customers to other brands. Merchants filed a 2005 antitrust lawsuit that is still pending and earlier this year persuaded Congress to approve caps on fees for debit transactions.

Visa and MasterCard handled $2.45 trillion, or 82 percent, of U.S. consumer spending on all-purpose cards last year, according to the Nilson Report, an industry newsletter. That dominance has helped fuel profit growth for both firms. Visa's annual operating income has grown almost eightfold since fiscal 2005 to $4.54 billion in the year ended Sept. 30. MasterCard's surged more than fivefold to $2.27 billion in 2009.

Seeking a Bridge

Card networks and banks aren't waiting for the U.S. carriers to offer payment-enabled devices. They're working to develop their own technology that works with mobile phones on the market today, seeking a bridge until embedded chips are standard.

Visa has introduced U.S. consumers to products that can transform most smartphones, including Apple Inc.'s iPhone, into payment devices able to store multiple card accounts in an e- wallet. U.S. Bancorp employees will begin testing the technology in multiple states this month and plans to offer it to “select” customers next year, the Minneapolis-based lender said today in a statement.

“The ability to link an existing payment account to a mobile phone is transforming how consumers pay and how merchants get paid,” said Bill Gajda, head of mobile innovation at San Francisco-based Visa, in the statement.

Bank of America, the biggest U.S. lender, started testing the technology in September while New York-based JPMorgan Chase & Co. and Wells Fargo & Co., based in San Franciscso, are preparing similar pilots, according to Visa.