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Innovations and Payment Systems

Cellphone + contactless credit card = Yak, wave, buy


What do you get when you add contactless credit capabilities to your cellphone? A single device for making calls and credit card purchases. You yak, you wave, you buy

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What do you get when you add credit abilities to your cellphone? A single device for making calls and credit card purchases. You yak, you wave, you buy.

Credit cards that use contactless technology are already becoming familiar to consumers through devices such as the Mobil Speedpass. You make purchases simply by waving such devices in front of contactless readers wherever you find them. Credit issuers want to add the technology to your mobile phone, so you can scan it, too.

Credit-enabled phones, while years away in the United States, are already in widespread use elsewhere. In Korea, for example, cellphone users can wave phones at a machine and authorize a transaction of a few Korean wons for a bottle of soda.

In the U.S., neither the wireless system nor merchant acceptance is up to the task yet. “I don’t expect the industry to have that infrastructure rolled out for at least five years,” says Bruce Cundiff, research director, Javelin Strategy and Research.  It will probably be 10 years before the majority of credit card transactions are contactless, not to mention phone transactions, he adds. But the list of interested parties includes the industry heavyweights: Visa and MasterCard have held contactless phone trials in major cities such as Atlanta and New York with partners such as Citi, Cingular and Nokia, says Manuel Albers, a director with NXP, co-creator of the contactless phone chip and partner in contactless trials.

With 2.7 billion cellphones in circulation globally, credit issuers have plenty of motive for turning the gadgets into contactless credit devices, says Richard Crone, founder, Crone Consulting LLC, an electronic payments consultant.

But what’s in it for you?

Less contact is more

According to the report “Market Opportunities in Telecom-Based Payments” from NXP, you could use the contactless credit card/cellphone combo to:

  • Purchase electronic tickets, store them and exchange them at live events.
  • Pay for gas.
  • Pay tollgate fees without fumbling for change.
  • Purchase and exchange electronic mass transit tickets, including bus and subway fares. This gives you the convenience to simply tap the reader with your phone and get on board, Albers says. “Your entry and exit are confirmed on the phone’s display while the travel details are saved on the phone, allowing you to check information such as your most recent journeys.”
  • Use your contactless phone to pay people phone-to-phone whom you would normally pay in cash, like the kid who mows your lawn, for example.

Contactless phones make possible some more-exotic payment paradigms, such as scanning signs and billboards with embedded computer chips. Do you absolutely have to have that trip to Aruba you see on the billboard? Scan in the information into your phone, buy the ticket on the spot via the mobile Internet and you’re on your way to vacation paradise.

Security concerns

With these conveniences comes risk. As mobile commerce develops, consumers are concerned whether someone who steals their phone could immediately access their accounts and make illicit transactions,  Cundiff says. “But  consumers are not liable for these transactions, whether they are made by phone or by credit card.”

Consumers should be more concerned about the personal information banks and credit institutions could have stored on the phone, Cundiff says. One way card issuers address the issue is by taking care that phones retain only a minimal amount of personal information, and doing their best to make it inaccessible to other parties.

Visa and MasterCard now have rules in place to ensure that credit card issuers store only the minimum amount of personal information necessary to complete transactions, Cundiff says. This wasn’t the case with contactless transactions at the start. The card networks have since improved their information security, due to the increasing threat of fraud, Cundiff notes.

If security concerns are conquered, banks and credit issuers could entice consumers by bundling the credit-enabled phones with companion features such as electronic coupons, rewards and promotional banking offers, says Red Gillen, senior analyst with Celent LLC, a global financial services research and consulting firm.

Your bank could send you ads about certificates of deposit they’re offering with special interest rates, for example.Or consumers could opt in on the Internet to receive discount ads on their phones from their favorite shops, Gillen says. He expects a need for consumer controls on the type of ads and their frequency, or phones will end up being junk mail conduits.

The main attraction

The main reason you’ll want to use contactless on your phone is so you can carry multiple accounts on one device,  Cundiff says. “But this is only of value if you can use it to make all your transactions everywhere you go.” There isn’t yet a critical mass of contactless readers and terminals to make go-anywhere, buy-anything transacting possible via contactless cellphones. “That’s where the value to the consumer breaks down,” he says.

Adoption in the United States is likely to be incremental. Banks and credit card companies have begun the process by introducing limited financial services on existing phones as part of an increasing push toward mobile banking. These include the ability to check your account balances and transaction histories, find ATMs and branch locations, and to flag suspicious account activity. Bank of America, for example, delivers user-defined alerts through text messaging, Crone says. The bank enables customers to immediately access their accounts via the mobile Internet to investigate these alerts.

In some cases, you may be able to transfer funds between accounts. Some banks are holding off on offerings that enable you to move money out of your account (such as bill pay or sending money to another customer in the same bank) until consumers are more comfortable with mobile banking, Gillen says. These banks include Wells Fargo and Chase.

Making the move to mobile

Some consumers are already making mobile transactions. Ten percent of Bank of America’s 500,000 mobile banking customers have made account transfers and 5 percent have paid a bill as of October, says George Tubin, senior analyst at TowerGroup, an independent research firm owned by MasterCard.

If you’re accustomed to banking online, you’re likely to warm up quickly to mobile banking. Some people who don’t bank online will be immediately comfortable with mobile banking, too. These are the members of Generation Y, typically aged 18 to 25, according to Gillen. “They don’t go into branches, they don’t write checks, but they have their debit card and phone and that is enough to get them by,” Gillen says.

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