Commentary and Analysis: Implications of Isis Partnerships with Chase and American Express

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Isis, a joint venture between Verizon, T-Mobile, and AT&T formed in 2010 to provide Near Field Communication (NFC) enabled payments in the United States, announced this past August partnerships with American Express and Chase. This analysis by Paytroniks CEO Joseph Frisz examines how the partnerships may enhance Isis's product offering and future growth prospects.

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The partnerships tackle several segments of the card issuance market, ranging from the unbanked via the Serve product, to ultra high-end users via JP Morgan’s Palladium credit card.

NFC payments in the United States gained momentum last month as Isis announced new partnerships with American Express and Chase. The partnerships follow a press release in July announcing a national roll out by Isis later this year following two pilots in Austin and Salt Lake City.

As per a Isis press release on August 8, 2013, the American Express Serve prepaid card will be offered on every Isis mobile wallet. Along with the Chase partnership announced on a subsequent press release four days later, the American Express collaboration lends increased legitimacy to the Isis wallet as a leader in the U.S. market in NFC enabled mobile payments. It is also clear that this partnership offers enhancements to American Express’s prepaid ambitions for at least two reasons. First, it enables the American Express prepaid card to be used at places where cash is still the mode of payment. One of the key aspects of the Isis pilot in Austin is the ability for pilot participants to make purchases at vending machines. By positioning the American Express Serve card at vending machines, the card is servicing a merchant category that has historically been a late adopter of electronic payments and solves the problem of a customer having to look for loose change in order to make a purchase. Second, at present it appears that American Express has become the de facto prepaid card-of-choice for Isis, creating a potentially strong differentiator for Serve. Noticeably absent from the Chase announcement are any of the bank’s prepaid cards.

The Chase announcement is also relevant as the Isis wallet can now be used with four credit cards: Chase Freedom, Chase Sapphire, Chase Slate, and JPMorgan Palladium. In contrast to the American Express announcement, this partnership is designed to attract higher-end customers to the Isis wallet. Higher-end customers tend to have a greater incidence of smart phone ownership, and therefore, tend to be more comfortable with mobile wallets and applications. In the medium term, the partnership may fuse Isis’s mobile wallet functionalities to that of Chase Mobile’s services. For Isis, this potential fusion represents gaining access to a base of 15 million users. For Chase, adding Isis functionalities to their Chase Mobile service may further enhance and differentiate its product offering, in the process expanding its user base, attracting higher customer engagement, and ultimately continue to shift expenses away from the bank’s costlier legacy systems in their customer service and fraud monitoring operations.

The announcements send a loud and clear message to the market: the Isis wallet is designed for all types of payment cards. With the already announced partnership with Capital One, Isis is now working with 3 of the 5 largest credit card issuers in the United States. The partnerships tackle several segments of the issuance market, ranging from the unbanked via the Serve product, to ultra high-end users via JP Morgan’s Palladium credit card. A debit card announcement could be forthcoming in the next few months as well.

This is a right step for Isis and the use of NFC in the United States, but challenges remain, especially with merchant and Point-of-Sale (POS) adoption. Missing from the partnership announcement with Serve is the fact that Isis cannot be used with American Express’s Bluebird card which also runs on the same prepaid platform as Serve. This is probably due to Bluebird being issued and serviced at Walmart stores. Walmart has partnered with other big box retailers such as Target and Best Buy to offer its own mobile commerce service called MCX which will most likely not use NFC due to resistance by U.S. merchants to invest in POS upgrades that include NFC. Merchants already know that they will have to upgrade their POS systems by 2015 to accommodate EMV standards. EMV standards are new authentication specifications announced by Visa, MasterCard, and American Express to further reduce fraud. The prospect of merchants having to upgrade their POS systems twice in a short time period represents a barrier for NFC adoption.

With recent studies suggesting that over 50% of smart phones in the U.S. may be NFC-enabled by the end of 2014, it seems that Isis is betting on issuers and cardholders driving NFC adoption at the point of interaction with the merchants. It remains to be seen if the merchants will eventually give in.

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Joseph Frisz
Paytroniks
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