Will your phone be your wallet?

The technology for using cell phones as wallets is spreading

Michael Fitzgerald By Michael Fitzgerald

Just a generation ago, phones sat on desks and hung on walls, and we used them for talking. Touch tone was cutting edge technology. Now, we’re using them as wallets, though not as much as phone companies and banks would like.

Phone companies and banks can afford to batter at consumer sentiment for years, iterating and iterating and iterating some more. They may be having success after years of trying. Mobile payments are expected to hit $900 billion by 2015, three short years from now. Making such transactions requires a small processing fee, and everyone – banks, carriers, Google – wants a slice of that fee.

German Chancellor Angela Merkel texts circa 2009 (Reuters Tobias Schwartz)

German Chancellor Angela Merkel still had a wallet as of March 2012. (Reuters/Tobias Schwarz)

No wonder this piece in the UK’s Telecoms mentioned 10 mobile payments rollouts going on across the globe. Those are just from carriers, not counting banks, or things like Google Wallet, considered an early leader in the field.

The projects mentioned don’t include what’s happening in Canada, where phone makers intend to vie with banks (and Google) to win consumer affections. Also missing were train commuters in Auckland, New Zealand, who can as of May 1 pay for their fares via their phones, a common trial step for mobile payment systems.

Nor does it count this big push in China to create a national standard for mobile payments before year end. Even without such a standard, China saw 247 million purchases made via cell phone wallets last year, up more than 100 percent from the year earlier (but on average, less than two transactions were made per registered user ).

The standard in China, like most mobile payment technology, is based around NFC (near-field communications), a wireless way to send data. NFC chips can be put in phones, but also in credit cards.

No Gold Medal at the Olympics

There is another way to pay by phone: send money via a text message. O2, a big mobile phone carrier in the UK, last week launched a mobile wallet service  that will let consumers use text messages to transfer money, as well as make payments with their mobile phones. It’s the largest such effort by a UK carrier to encourage the use of texting to make payments.

Separately, O2 has teamed with UK rivals Vodafone and Everything Everywhere (the combined Orange and T-Mobile brands in the UK) to push mobile wallets at the London Olympics, something they called Project Oscar. But the European Commission has likely scotched that, at least for the Olympics, by hauling the three in to discuss anti-competitive behavior (a fourth wireless company had complained).

Death to the ATM?

Let’s just stop for a second and ask, what’s wrong with debit and credit cards that mobile phones will fix?

Here’s the hype: if you’re the phone company, it’s because phones are easier, and ATMs will go the way of pay phones (yeah, banks, see how it feels when you lose your iconic machines). That’s what Almis Ledas, COO of EnStream, a mobile payments consortium backed by Canada’s biggest cell phone carriers, told the Vancouver Sun.

Going the way of the payphone? (Reuters)

Banks might not mind the ATM going away, as long as they’re seeing the revenues from phone transactions. But the banks are trying multiple methods to make credit cards more mobile. The Independent wrote that Barclays Bank is trying multiple methods to get customers to use their phones as wallets, including Paytag, a stick-on credit card that you can put on a phone (or for that matter, a shoe).

Hype doesn’t necessarily translate into success. As the newspaper duly noted, mobile payment technology has been widespread but  not widely used in Japan for years. It wrote that “Consumers haven’t taken the bait, at least in part because the phone offerings are no better than those from competing card plans.” It also noted that U.S. consumers will have to upgrade their phones en masse before the technology underlying mobile payments can even begin to catch on.

Where mobile payments have worked, the phone brought banking services to people who couldn’t get in the door of the bank, noted  BBC technology analyst Rory Cellan-Jones.

The good news is, the technology works. The bad news is, it may not work any better than wallets, so why bother?

We’d love to hear your answers.

  • oldfogey

    Perhaps this makes me a fuddy duddy, but the banks have my funds until I spend them. Why am I supposed to pay them to get at them? Why would I allow payments on my mobile, which is at least as vulnerable to theft as my ATM card, but not protected? Yes, I can have the cell phone company shut down the phone, but as far as I know, any payments made by the thief would be valid, and not subject to the $50 maximum loss that the ATM/credit cards have.