No pay-by-phone revolution

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Smartphones and digital tablets will cause major upheaval in how merchants interact with their customers, but changes due specifically to today’s technologies will occur only gradually.

That’s according to Michael Katz, a professor at the University of California, Berkeley.

“Many people have predicted that the use of near-field communications (or NFC), a technology which allows consumers to pay by swiping their phones rather than their credit or debit cards, will revolutionize consumer payments at brick-and-mortar merchants. I disagree. I believe the changes associated with NFC and so-called digital wallets will be evolutionary, not revolutionary,” Katz said in prepared testimony before the U.S. Senate Committee on Banking, Housing and Urban Affairs.

Katz believes change will come slowly because consumers and merchants already have access to cash, checks and various types of plastic to make and receive payments. Consumers also have established relationships with financial institutions, and merchants have made significant investments in equipment, systems and employee training. That means mobile payment services will have to offer more to challenge existing options.

“Cool technology alone will not be enough,” Katz predicted.

Ease of use, trust and privacy aren’t likely to win the day since mobile payments haven’t demonstrated any clear advantages in those areas, he said.

But he added that mobile payments do have one point of differentiation that today’s payment methods can’t match. That is, they allow merchants to collect detailed information about consumers’ purchasing habits, analyze that data to predict behavior, and deliver personalized communication in real time.

“The ability to predict consumer behavior and send such targeted messages is a very powerful marketing tool that will be worth tens of billions of dollars annually to merchants,” he said.

Government regulation will be problematic for the industries involved in mobile payment technologies and may confuse consumers or given them false senses of security or risk. Yet regulation also could foster trust and promote the adoption of mobile payments, Katz said.

Either way, he concluded, public policy concerns about the privacy aspect of these technologies will “loom large for years to come.”

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