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Mobile Phones as Electronic WalletsBy Patricia A. Murphy, Adapted by author from story originally published in Stores magazine. With millions of “tap-and-go” cards in consumers’ hands, and tens of thousands of POS devices in place that support the underlying technologies, contactless payment systems are becoming a must-have for many retailing sectors that weren’t previously seen as prime for credit and debit card acceptance. And now a new generation of mobile telephones is available that in effect could obviate the need for people to carry around wallets bulging with plastic. Instead, their mobile telephones function as electronic wallets, making it possible to whip out their Visa or MasterCard with the ease and simplicity of flipping open the phone. To be sure, the trend raises an entirely new set of worries concerning the safety and security of personal financial information. But mobile telephones have become ubiquitous. Ask any adult to whip out their debit card (or credit card, if you prefer) and time how long it takes. Next ask them to show you their mobile, and chances are they’ll have it out at the ready in an instant. But onto the technology and mobile phones are poised to become “electronic wallets.” “What iPod did for music, the mobile phone will do for money,” says Carole L. Realini, CEO of Obopay, an upstart California firm that allows mobile telephone users to exchange payments (known as person-to-person or P2P payments). Mobile phones offer a “comfort factor” that can’t be found with contactless cards or key fobs, adds Sahir Anand, retail analyst at Aberdeen Group, Boston. Ubiquity is another plus. A survey last year by Visa USA revealed that more than half of U.S. consumers carry their mobile telephones at least 75% of the time. Sixty-one percent of those polled who were between the ages of 25 and 34 said they were interested in using their mobile devices to initiate payments. According to market research firm Strategy Analytics, worldwide shipments of mobile phones topped 1 billion last year. This year, the company forecasts a 12% increase in shipments. Most of the major U.S. card brands are testing mobile payments, which like other types of contactless payments incorporate radio frequency identification (RFID) chips to identify the user’s phone and account numbers. MasterCard (arguably the leader in promoting contactless technologies) has a select group of cardholders using Near Field Communications (NFC) enabled mobile phones to make card payments. NFC is a new, short-range wireless technology that is said to slash the time it takes to complete a transaction. NFC-enabled phones (sleek as well as PDA models) use screens large enough to feature a card company logo, with plenty of additional real estate. These “electronic wallets” contain the same “smart card” technology used to store accountholder information in contactless cards and fobs. Instead of tapping the device, the cardholder simply waves their mobile phone in front of an NFC-enabled terminal, which is smaller than a debit card PIN pad. Discover Financial Services is testing NFC-enabled mobile phones from Motorola with about 1,000 cardholders in Chicago and Salt Lake City. Cardholders can download any of their Discover accounts to their phones/wallets. In addition to POS payments, the wallet interface supports account management tasks and functions like coupons, direct marketing and person-to-person transactions. Visa is piloting the technology with about 500 employees at the card company’s California headquarters. “With more than 225 million mobile phone users in the U.S. alone, it’s only natural for consumer payments to extend to the mobile device,” said Elizabeth Buse, executive vice president at Visa. All of the tests build on the successes of programs featuring tap-and-go cards and key fobs. Among retailers in a survey taken last year by Aberdeen Group 58% (across multiple classes of stores) expected to put contactless POS in place within two years. The technology already has proven successful in several niche markets, including quick service markets and sports arenas. “If this technology can be successful in sports arenas, I think we’ll see a lot more awareness and excitement behind these programs,” says Anand. Time savings is a big seller in these establishments, and studies by MasterCard suggest tap-and-go payments take 12.5 seconds less than traditional card transactions. To date, over 13 million contactless payment devices have been put in the hands of American consumers, according to Celent LLC, a Boston-based consultancy. MasterCard counts 46,000 merchant locations where consumers can use mobile telephones and other contactless devices to pay for purchases. Celent projects that at least 8% of revenues in quick service restaurants, movie theaters, and movie and video game rental stores eventually will be collected using mobile phones and other types of contactless devices. Mohommad Khan, president and founder of Vivotech, a Santa Clara, CA company that markets devices and software that support mobile phone-based payments, is optimistic payment-enabled mobile telephones are just the thing for a culture that’s fast adapting to both instant messaging and electronic banking. “Consumers can download [payment functionality] at any time after they purchase phone; they won’t need to go to bank branches,” explains Khan. |
What are Mobile Payments?The use of mobile devices, such as a cellular phones and PDAs, to make payments is increasingly common, particularly in Asia and Europe. Currently, mobile payments in the United States are generally conducted via SMS, or text messaging. In other parts of the world, mobile devices are being equipped with Radio Frequency Identification (RFID) chips that are able to transmit payment information to reading devices. This technology allows consumers to simply wave their mobile device in front of a scanner in order to make a payment. Mobile Payment Facts
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