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Mobile payments looking at turbulent times

Partnerships may be necessary for the long-term success of mobile payments, but there's going to be a lot of jockeying for position over the next few years.

American Express executives talks about the need for more partnerships in mobile payments at the CTIA show today.
Roger Cheng/CNET

SAN DIEGO--While the mobile-payment players acknowledge that partnerships are necessary for long-term viability, many are gearing up for some chaotic times.

The idea of a digital wallet and the opportunities that come from moving payments onto the smartphone were major themes at the CTIA Enterprise & Application show. American Express executive Dan Schulman used his keynote address to call for more alliances, noting that, "no single company can do this alone." The prospect of mobile payments was also the focus of one of the more prominent panel discussions today.

It's not hard to see why. Beyond getting a piece of the financial transaction, companies are starting to see the opportunities that come from wedding a digital wallet with reward cards, discounts, and promotions and more targeted advertising; walk into a store and get a coupon for a product that you've previously purchased before.

That potential has drawn in heavy hitters such as Google, which has made its Wallet initiative a major priority and has the partnership of Sprint Nextel and MasterCard. The other three major wireless carriers--which can barely agree on anything--have struck a joint venture called Isis to roll out a mobile-payments system next year. Visa, the world's largest payment network, has set out to build its own digital wallet.

Other players have made their own individual moves. PayPal recently introduced its own in-store payment system, which for now involves the use of a card but could eventually move to the phone. The sheer number of players--and their differing perspectives--means a shake-up is almost inevitable, as well as new partnerships and alliances.

"In this chess game we're playing, we're looking at almost anyone and we're looking several moves ahead," Schulman said in an interview with CNET.

Looking to NFC
The lynchpin for where mobile payments is heading lies with a technology called near-field communication, which allows you to wave your phone or card in front of newer checkout terminals to make a purchase. NFC has slowly moved into credit cards and a few handsets, and the technology is slowly making its way into new point-of-sale terminals.

But there are differing views on how quickly NFC will hit critical mass, informing a different range of strategies.

Schulman, who is the head of enterprise growth for American Express, believes that it will take two to four years before it becomes widely adopted. As a result, the company has opted to focus on its own Serve digital wallet and partnered with Verizon Wireless to offer services such as payments made by entering a user's phone number rather than a separate account.

Schulman said the first phase of its partnership with Verizon Wireless is set to launch in November, with an expanded set up capabilities to launch next year.

Laura Chambers, senior director of PayPal's mobile division, is even more skeptical about NFC. She notes that the current usage remains low, and that NFC could replace cards three to five years from now. In the meantime, she said, another technology could usurp its position.

"It's the smoothest technology, but the most complicated to implement," Chambers said in an interview.

PayPal plans to launch a payment system with 20 national retailers next year following a pilot program this year. Unlike the other carriers, it won't be using NFC initially.

PayPal is also focusing on transactions made on all mobile devices, as well as mobile person-to-person money transfers, an extension of how PayPal grew into prominence. The eBay unit recently released a survey that found that consumers who owned both a tablet and a smartphone were significantly likely to make mobile purchases than individuals who just owned a smartphone.

Google driving adoption
Google, meanwhile, is hoping the adoption of NFC comes sooner rather than later. The company has already launched its Wallet program, which relies on a single NFC-enabled phone, the Nexus S, and a single carrier partner in Sprint. It's expected to release expanded capabilities beyond the simple tap-to-pay function soon and is working to expand the number retailers that have NFC-enabled. It is also pushing its handset partners to release more Android smartphones with NFC chips.

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Executives from the various players describe the mobile payments world as "the wild, wild west" because the field is wide open for any competitor to dominate. Chambers said she expects a number of different trials from various companies, and a fair bit of customer confusion.

In order for consumers to embrace mobile payments, the players will also have to address concerns about the security of the various payment systems, as well as ensure a consistent experience that could be threatened by so many different options.

Ed McLaughlin, MasterCard's chief emerging payments officer, said he saw a similar chaotic environment a few years ago overseas. Much of the conflict came down to companies assuming other industries had it much easier than they did, leading to conflicts over how to share the revenue.

Despite being a competitor to American Express, MasterCard's actions fall in lockstep with Schulman's call for more alliances. MasterCard has partnered with Google and Isis, providing a foundation for the other companies to add new mobile-payment services.

McLaughlin didn't provide his forecast for when NFC would go mainstream, but he did note that technology adoption has gotten quicker than ever.

"We see the cycle getting shorter," he said.

Despite the different views, many expect the divergent camps to eventually converge. Chambers, for instance, believes only one to two digital wallets will win out in the end. It's a sentiment shared by others.

"Various ecosystems will flop," Schulman said. "We're keeping our options open."