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.
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
- 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,"
Moving beyond the saturation
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
"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.