Paying by cell phone on the way
Cell phones have revolutionized the way we live. In
addition to enabling us to stay in touch with family and friends
while on the go, our mobile phones also play music, download sports
scores, send text messages, receive GPS directions and snap photographs.
What's next? Soon your cell phone will very likely
replace your wallet for making payments on the fly.
It's just part of the growing "contactless"
or proximity payment movement. The stars have finally aligned among
telecommunications service providers, credit card issuers, cell
phone manufacturers, merchants and busy consumers to make such payment
methods the next logical step to streamline everyday commerce.
Cellular carriers view payments as a way to boost
user minutes and instill customer loyalty. For credit card issuers,
cell phones offer a golden opportunity to cop a share of the lucrative
cash payments market. Cell phone makers need new functionality to
sell more units. Merchants speed up the payment cycle without expensive
equipment changes. And busy consumers save time standing in line
for their lunch or latte.
This year, McDonald's plans to expand its pilot with
MasterCard's PayPass proximity payment program into a national rollout
to its 13,500 quick-serve restaurants in the United States. Major
drug store chain CVS is going national as well with American Express's
ExpressPay contactless system at all 5,000 of its U.S. locations.
"This year, you're going to see lots of trials,
both in contactless cards and cell phones," predicts Erik Michielsen,
director of radio-frequency identification (RFID) and ubiquitous
wireless research for ABI Research of Oyster Bay, N.Y. "You're
going to see these companies really hammer the small-payments space
for a while; they don't want to cannibalize their existing card
business. We really see this taking off and gaining momentum in
2006 and full speed ahead in 2007 and 2008."
Flash instead of cash
Contactless payments rely on radio-frequency identification and
near-field communications to carry account information from a chip
embedded in a form factor (credit card, key-chain fob, cell phone,
wristwatch, etc.) to a merchant's point-of-sale terminal. Once the
two connect via wireless network, a credit or debit transaction
can be completed within seconds.
No more fumbling for a credit card or cash, no more
swiping a card and waiting for the green light, no more signing
a receipt. Just flash your phone within inches of the merchant's
receiver and you're outta there.
Cards won't disappear, of course; your phone, after
all, won't fit in an ATM or be usable at nonwireless merchants.
But don't be surprised if you receive a radio-frequency-enabled
card, minicard or fob from your credit card company in the next
two years. The thinking is that contactless cards will catch hold
first, with cell phones to follow.
Americans have used proximity payments for several
years, sometimes without knowing it. The most visible contactless
payment systems enable commuters to whisk through tollbooths in
the tri-state New York area, Florida, California, Washington, D.C.,
and elsewhere. The most ubiquitous consumer program to date has
been the ExxonMobil SpeedPass, which enables participants to gas
up and go by waving their fob at the pump. You may even use an RFID
card to gain entry to your office building.
The good news from the card issuer's perspective is
that American merchants and consumers generally like what they've
seen of contactless technology so far. There's none of the negative
baggage or technical mumbo-jumbo that hampered, say, smart cards.
"Merchants lose money by having customers stand
in line," says Sue Gordon-Lathrop, vice president of consumer
products platforms for Visa International. "Waving your card
or your phone really does speed things up. I watch people and, while
the [smart card] chip is nice, how do you orient your card with
the chip? Does it face me or the terminal? There's a fumble factor
there. With magnetic stripes, how many times have you seen someone
swipe their card and it didn't pick up the read? So there were a
lot of merchant drivers toward faster consumer experience."
The card companies found another pleasant surprise
during pilot testing: Contactless buyers spend more.
"Our studies show that the length of time for
an ExpressPay transaction is less than both cash and credit card
transactions, and customers using ExpressPay increase their average
transaction size 20 to 30 percent compared to cash spending,"
according to American Express spokeswoman Judy Tenzer.
Ah, sweet words to the card companies and bank card
issuers; they've been trying for years to figure a way to tap the
lucrative small-payments space where busy Americans tend to spend
cash instead of digging out their credit card. Discover card and
other issuers even invested in mini-cards
such as Discover2Go in an attempt to get that mag stripe out of
your pocket and onto your key ring where you'll use it for small
Dialing for dollars
And what do we tend to have in our hands most often these days?
You guessed it.
"When you start talking to people, they'll say,
'You know what? When I leave home, I may not have my wallet, but
I do know I have my cell phone,'" says Gordon-Lathrop.
Oliver Steeley, vice president of wireless payment
devices for MasterCard International, agrees.