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Telco payment venture targets Visa and MasterCard

NEW YORK (Reuters) - Three of the top four U.S. mobile service providers -- Verizon Wireless, AT&T Inc T.N and T-Mobile USA -- are working together to build a network that would let consumers pay for goods with their phones.

Their Isis joint venture, which was formally announced on Tuesday, plans to take market share from dominant payment networks Visa Inc V.N and MasterCard Inc MA.N, which currently process most U.S. credit and debit card payments. Sources told Reuters on Monday that an announcement was imminent.

Isis said the network would use Discover Financial Services' DFS.N national payment network at its roughly 7 million U.S. merchant partners and that Barclaycard U.S., a unit of Barclays Plc BARC.L is expected to be the first lender on the network to offer mobile payment products.

“We’re a competitive alternative” to Visa and MasterCard, Isis CEO Michael Abbott told Reuters in an interview on Tuesday. Abbott, a former GE Capital credit cards executive, was named chief executive of the venture on Tuesday.

Major banks, mobile phone companies and card processing networks are vying to enter the emerging U.S. market for mobile payments, which some say could eventually replace credit and debit cards as a primary means of payment.

The idea behind mobile payments is for consumers to be able to wave their phone at a machine to pay for items such as train tickets, potentially eliminating the need to carry a wallet.

But while such services are popular in places such as Japan, they have been slow to take off in the United States. Only about 150,000 U.S. merchants accept contactless payments, which allow consumers to wave a credit card -- or a phone -- close to a payment terminal instead of swiping it through a machine.

WATCHING THE COMPETITION

After kicking off its service with just Discover and Barclays, Isis plans to become available to other merchants, banks and mobile operators, the company said.

The venture is a coup for Discover, the fourth-place U.S. processing network, which is trying to take market share after long lagging Visa, MasterCard and American Express Co AXP.N.

“This is going to be a significant opportunity for us” to gain network volume, Discover payments services head Diane Offereins told Reuters in an interview. She would not provide more specifics about how much business Discover expects to gain from its participation in the venture.

Isis said the venture would introduce its product in certain areas in the next 18 months.

In the meantime, both Visa and MasterCard have been working with major U.S. banks to test their own versions of mobile payments. Visa, which has been testing smartphone payments with Bank of America Corp BAC.N, JPMorgan Chase & Co JPM.N and Wells Fargo & Co WFC.N, plans to make them more widely available to consumers by mid-2011.

Visa executives downplayed the possibility of increased competition from the mobile carriers on Tuesday. But “we’re watching it,” Visa President of the Americas William Sheedy told Reuters in an interview.

Isis said it will use a short-range wireless technology known as near-field communication (NFC), which enables an encrypted exchange of information between devices that are placed at a short distance to each other.

Consumers would need to upgrade their phone to a device that has an embedded NFC chip before they could use Isis.

Abbott would not name handset partners for the venture, but he has already had talks with “nearly everybody” and expects the technology eventually to be added to all phones.

He said the large customer base of the three carriers involved in the venture would be essential to its success.

Between them the operators have about 200 million customers, roughly half of which replace their phone in a given year, he said.

“There’s a lot of science experiments out there that don’t have the scale,” he said, referring to the large customer base.

Abbott also said the company would add more banking partners to the venture.

“We fully anticipate we’ll have a number of banking partners involved over the next several quarters,” he said.

He refused to discuss the ownership structure of the venture or the amount of money each of its partners are investing.

Verizon Wireless is a venture of Verizon Communications Inc VZ.N and Vodafone Group Plc VOD.L. T-Mobile USA is owned by Deutsche Telekom AG DTEGn.DE.

Additional reporting by Joe Rauch; editing by Maureen Bavdek and Andre Grenon

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