Imagine for a moment that Verizon Wireless (co-owned by Verizon (NYSE:VZ) and Vodafone (NYSE:VOD)) purchased a stake in a convenience store chain. Sounds a bit crazy, right? What on earth could a mobile-phone operator want with a convenience store?
Verizon Wireless hasn't made such a purchase, but NTT DoCoMo (NYSE:DCM) will be doing so in Japan when it takes a 2% stake in Lawson in mid-April. NTT DoCoMo lays out a number of reasons for the deal in a press release on its site, but the initial and most important reason is to get NTT DoCoMo's iD credit card functionality into Lawson stores. The deal with Lawson will initially bring the iD credit card functionality into 100 stores by the end of April and into all 8,300 Lawson stores by the end of March 2007.
The credit card functionality is built into most of the phones that NTT DoCoMo currently sells, via a contactless integrated circuit (IC) card. The IC card allows NTT DoCoMo customers to use their phones as a stored value card and credit card, and in place of membership cards and airline tickets. The company sells the service under the "portable wallet" name (osaifu keitai in Japanese). But the credit card portion of the functionality is the most appealing to investors; that's where NTT DoCoMo has the potential to gain a new revenue stream from credit-card-processing transactions.
The Lawson deal is another significant step for NTT DoCoMo, which is essentially trying to create a new form of payment, and in some ways a new network for payments, from the bottom up. It's not a small task, and building out the network for accepting the portable wallet functionality for payment is just as important as being able to process the transactions. The Lawson deal gets the ball rolling on the acceptance side, and the company has paired up to varying degrees with two of the larger banks in Japan, Mizuho and Mitsui-Sumitomo, on transaction processing and promotion of the iD credit card functionality.
Before my relocation back to the U.S. to work at Fool HQ, a number of convenience stores were near my place in Tokyo, and the closest one was a Lawson. On several occasions, I was short on cash and ended up having to withdraw money from an ATM and pay a fee in order to pick up milk, bread, and a few other last-minute necessities. Being able to quickly pick those items up and pay via the credit card built into my phone would have been extremely convenient and cheaper. NTT DoCoMo has spent a lot of capital in the last year to make this convenience a reality. Now it's time to see whether a large number of consumers will appreciate that level of convenience -- and make NTT DoCoMo's investment pay off.
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Nathan Parmelee owns shares in NTT DoCoMo but has no financial interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.
