Dec 2, 2005

NTT DoCoMo launches a payment acceptance brand to compete with Visa and MasterCard

Japan’s top mobile operator, NTT DoCoMo, has just launched a payment acceptance brand, called “iD”. In the same that the Visa and MasterCard brands tell cardholders where they can use their cards to pay, the “iD” brand will enable DoCoMo subscribers to make credit purchases by tapping their phones at stores, restaurants and other merchant locations that display the iD brand.

DoCoMo has invited Japanese credit card companies to offer their payment services on the handsets and seeks to earn revenue by charging fees to both merchants and the credit card companies. DoCoMo hopes to get all major issuers on board as soon as possible.

"Credit card payments accounted for only about 9 percent of total payments for shopping in Japan in a 2003 survey, which is less compared to other countries," said Manabu Moriya, director of credit service and credit brand at Docomo. “Credit card payments in the United States accounted for 24 percent of the total. If Japanese consumers used credit cards more often, like in the United States, credit card payments would increase by about 50 trillion yen [nearly $423 billion]. Assuming that the charge for the credit card service is about 2 percent, that's a charge market of about 1 trillion yen [more than $8 billion]."

Not surprisingly, other credit card companies aren’t too happy. JCB, Japan’s largest credit card company, has formed what looks to be a rival mobile payment alliance that includes several other credit card companies and DoCoMo’s chief competitor, mobile operator KDDI. And there is yet a third contactless mobile platform planned for launch next year in Japan, called “Smartplus.” All this sets the stage for competing acceptance brands and confusion among consumers over where they can use their handsets to pay.

Welcome’s bank customers are familiar with the need for new acceptance brands placed next to the Visa and MasterCard brands, on cards and in stores, which show customers where they can enjoy a superior payment experience. Some examples are the Axess acceptance brand in Turkey, WOW! in the United Arab Emirates, and Vida Bancomer in Mexico. In the same way, if DoCoMo succeeds, the iD brand will come to indicate mobile payment, and will co-exist next to the Visa and MasterCard brands. The traditional payment brands could end up representing the most basic, commoditized payment experience, while the new generation acceptance brands could come to represent a new, exciting payment experience.

Chip technology in plastic cards and mobile phones is fueling the development of new payment features which would not have been possible using magstripe payment technology. These new features in turn create branding opportunities for newcomers, like NTT DoCoMo. A number of banks are likely to sign on to new brands like iD, and pay the additional fees on top of what they pay to Visa and MasterCard. However, if the traditional Visa and MasterCard acceptance brands evolve to evoke not only the basic, commoditized payment experience, but also the new features which are currently giving rise to new acceptance brands, then there will no longer be a need for newcomers to create new brands. When the core MasterCard brand truly evokes a “Priceless Payment Experience”, banks will have no need to adopt other, limited payment brands which don’t enjoy massive acceptance. Until that happens, there will be more and more room for new payment brands.

Mobile phone becomes credit card
Japan’s DoCoMo Launches Mobile Credit Brand
NTT turns mobile into credit card
NTT DoCoMo to offer credit-card payments by handset

Related posts:
Payment brand commoditization and re-birth cycles
Accelerating card acceptance at cash-heavy retailers
Competing for debit card market share

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