Smartphones May Become "Digital Wallets" and Capable of Paying Bills

Your smartphone may soon replace your wallet in terms of paying a restaurant check or grocery store charge. Essentially, by holding your cell phone close to a wireless payment terminal at a participating store, a set amount of money can be withdrawn from your credit card or bank account. At the close of the transaction, your smartphone would display information such as your account balance and maybe even some promotional offers.

AT&T, Verizon Wireless, and T-Mobile USA are all looking into the development of a mobile payment service that would function via cell phone. This mobile payment service would use Discover Financial Services as the payment processor and Barclays PLC as the banking partner.

However, these companies are not alone in pursuing such a technology. Apple, Inc. is also hoping to develop such a technology for its iPhone platform and has been seeking patents for its mobile payment and digital wallet developments. Additionally, Google, Inc. is making a play to become the leader in this technology, via its Android operating system and its Checkout online payment service. Of course, credit card issuers such as Visa, Inc. and MasterCard, Inc. are developing their own versions of mobile payment systems.

Turning a cell phone into a credit card requires the addition of near field communication technology, which can be embedded onto a small computer chip (also known as a radio frequency identification chip, or RFID). This chip then acts like a key card or radio chip, making radio contact with a receiver when held in close proximity to it. This technology is already in place in electronic highway toll systems (Fast Lane Pass), in U.S. passports, and in certain retail stores.

Cell phone radio chips can be inserted into the cell phone, or they can be affixed as a sticker that carries an electronic ID tag. However, the chips are not cheap, averaging $10 to embed into a cell phone. Because consumers have not been demanding digital wallet capability on their smartphones, the process for making and installing these chips has been slow.

Another issue with this technology is security. Many consumers are rightly concerned about wireless payment fraud. Phone companies and other partners will have to prove that digital wallet technology is safe and secure before consumers embrace this new smartphone accessory.

While phone companies in Japan and South Korea have already successfully introduced payment services, phone companies in the U.S. have been plagued with regulatory issues, technology problems, and the difficulty of coordinating large credit card companies and banking firms to work together.

However, there is hope on the horizon. Visa is already testing out near field technology. Together with DeviceFidelity, Inc., Visa is integrating NFC chips into memory cards that can be issued to Visa customers. With these cards, customers can make purchases from a cell phone that is linked to a Visa account. This near field technology is also being tested by select banks. Likewise, MasterCard is collaborating with mobile carriers and testing the technology on cell phones.

References:

1. AT&T, Verizon, T-Mobile Explore Mobile Payment Partnership. http://www.mobiledia.com/news/72256.html
2. AT&T, Verizon and T-Mobile want you to pay with your smartphone. http://www.walletpop.com/blog/2010/08/03/atandt-verizon-and-t-mobile-want-you-to-pay-with-your-smartphone/
3. Your Digital Wallet http://www.technologyreview.com/read_article.aspx?id=17355&a=f
4. DeviceFidelity Announces Mobile Contactless Payment Solution for iPhone http://corporate.visa.com/media-center/press-releases/press1018.jsp