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Paying by cell phone on the way

"We did some research last year and consumers consistently tell us that the cell phone is the form factor that they are most interested in having PayPass in, in addition to their existing card," he says. "So we've been working for some time with cell phone manufacturers to make this happen."

Cell-phone manufacturers Nokia and Motorola have been working with the credit card companies to develop new wireless payment features. Steeley says Motorola plans to introduce a payment-enabled shell for its 3220 model this spring.

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Several factors would seem to portend rapid adoption of contactless payment in the United States:

  • It works with existing mag stripe payment infrastructure. Merchants can inexpensively add on a wireless receiver or upgrade to the new point-of-service terminals that are already integrating near-field communications. Consumers will simply have a broader choice of form factors with which to pay (under consideration: pens and even earrings).
  • There are few security issues. Your device must touch or pass within a couple inches of the reader to complete a transaction. The process might even be more secure than your credit card.
  • It's an open architecture. The card companies have agreed to standardize the protocols for radio-frequency identification in the payment arena (impress your geek friends: it's called ISO 14443), much as they did with the mag stripe. That means that one day, your phone, like your wallet, will contain a variety of credit accounts from which to choose; you won't need a separate handset for each card brand.

Just how all of this will work in your phone is still being worked out. In Visa's as-yet-unnamed contactless program, there would be no air minutes involved; you would power on your phone solely to enter a password or PIN number to initiate the transaction.

"We strongly recommend password protection so that, if I drop my phone, you can't pick it up and conduct payment," says Gordon-Lathrop. "This may be sacrilegious to the card world, but that is more secure than a card transaction because if I drop my card on the ground, you could go under the floor limit (buy less-expensive items that wouldn't flag the fraud prevention system) and still conduct payment."

Steeley says MasterCard has been exploring ways to integrate contactless payment with other cell phone functions in an effort to boost the business case for handset manufacturers to integrate near-field communications chips into their phones. Because this would enable the phone to operate as both an radio-frequency tag and a reader, it could be used for unlimited promotional opportunities. For instance, in PayPass pilots with the Seattle Seahawks, Philadelphia Eagles and Baltimore Ravens, your phone might access an embedded URL in a poster that would take you to a Web site where you could enter a contest for tickets.

"In the commercial model, banks don't buy cell phones, the carriers do. So there needs to be something in it for the cell phone carrier, otherwise why are they going to buy a more expensive handset that helps the banks but doesn't make them any money?" says Steeley.

Added plus for card issuers: They could load account information directly onto the handset.

"In the U.S. last year, MasterCard banks sent out around 60 million credit cards through the mail. You save 20 cents postage on that alone and that's about $12 million," Steeley adds.

Moving beyond the saturation point
Coincidentally, the three driving industries have all been struggling with the same issue: saturation.

Simply put, everyone has a credit card who wants one, everyone has a cell phone who wants one, and quick-serve restaurants (QSRs) and other fast-service businesses are moving as fast as they can with the present payment systems. Credit card issuers now look to cash spending, not other credit cards, as their chief competition. New functionality is the holy grail for cellular providers, and fast-moving merchants need a way to put more customers through the registers.

"If you take QSRs for example, 86 percent of those transactions are under $25 and the mean is about $12, and yet we probably get less than 10 percent of those transactions paid by card today," says Steeley. "If we can shift that from 10 to 20 percent, we will double our volume in a huge sector. And for McDonald's, even if all we do is shave two seconds of fumbling in the line per transaction, two seconds for somebody like McDonald's is a huge productivity improvement."

Bottom line: Ka-ching! Contactless payments are coming your way soon. Recharge your phone battery and prepare to pay.

Jay MacDonald is a contributing editor based in Mississippi.

-- Posted: March 28, 2005




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