AT&T Inc. and Verizon Wireless, the two biggest U.S. mobile carriers, picked cities in Texas, Minnesota and Utah to test a smartphone payments system that may one day supplant plastic debit and credit cards, according to two people with direct knowledge of the plan.
The venture, which includes Deutsche Telekom AG unit T- Mobile USA as a minority partner, chose Austin, Minneapolis and Salt Lake City for the project, code-named Mercury, the people said. A pilot is set to start in the middle of next year, the people said, speaking anonymously because they are subject to confidentiality agreements. Atlanta may be a fourth city, other people have said.
“It’s heartening to see,” said Samee Zafar, who leads the advanced payments practice at consulting firm Edgar, Dunn & Co., in a telephone interview from London today. “The U.S. has been lagging behind many parts of the world.”
The trial would be the carriers’ biggest effort to spur mobile payments in the U.S. as they target a market dominated by San Francisco-based Visa Inc. and Purchase, New York-based MasterCard Inc., the world’s biggest card networks. The companies 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.
A consumer participating in the pilot would be able to pay a merchant with the contactless wave of a smartphone equipped with a radio microchip that communicates with a reader at checkout. The technology may allow people to forgo plastic cards and enable retailers to send consumers electronic receipts and rewards in real-time.
The phone companies may work with Discover Financial Services, based in Riverwoods, Illinois, and London-based Barclays Plc. The transactions would be processed through Discover’s payments network, the fourth-biggest behind No. 1 Visa, MasterCard and New York-based American Express Co. Barclays would be the bank helping to manage the accounts, people with knowledge of the project have said.
The people didn’t say why the carriers chose to name the project Mercury, the Roman god of commerce and travel, among other things.
Visa, MasterCard and American Express aren’t waiting for the U.S. carriers to offer customers 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.
This year, Visa plans to introduce 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.
“Visa has made significant progress advancing mobile payments both in the United States and internationally, with 23 programs already deployed in 19 countries around the world,” said Jim McCarthy, the company’s global head of product, in an e-mail.
American Express is conducting about 50 tests of mobile- payments worldwide, Chief Executive Officer Kenneth I. Chenault told investors Aug. 4. So is Mastercard, whose CEO, Ajay Banga, said on an Aug. 3 conference call with analysts, “We’ve got close to 20 pilot and commercial rollouts around the globe.”
AT&T and Verizon Wireless, are equal partners in the project and Bellevue, Washington-based T-Mobile has a smaller stake, one person has said. Verizon Wireless, based in Basking Ridge, New Jersey, is a joint venture of Verizon Communications Inc. and Vodafone Group Plc.
Retailers may be eager to help another network after years of fighting over transaction fees set by Visa and MasterCard. Merchants persuaded Congress last month to approve caps on interchange, or “swipe” fees, for debit transactions and filed a 2005 federal antitrust lawsuit that is still pending.
The venture has been searching for a chief executive officer to lead the pilot.