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Hold the phone: retailers eye payments via smartphone

Maria Korolov | March 27, 2012
An emerging technology called Near Field Communication will soon give new meaning to the phrase "tapped out."

In fact, mobile NFC payments are more secure than the card-based alternative, says Calvin Grimes, manager of mobile solutions at financial technology vendor Fiserv.

"With PayPass and PayWave you can tap and go, but they're not actually secured with a PIN the way that your phone might be," he says. "Moving it over digitally to your mobile device, you have the opportunity to provide an additional layer of security."

In addition, cell phone users can turn off the NFC functionality, just like they can turn off WiFi or Bluetooth, says NXP Semiconductors' Miles.

But it will take some effort to convince the actual users, says Soumen Ganguly, a director at Boston-based strategy consulting firm Altman Vilandrie & Co.

"Consumers tend to be a lot more conservative about trying new financial tools," he says. "People look at their phones, and say, is this as safe as my credit card?"

To overcome ingrained habits and worries, merchants and mobile payment providers will have to give customers good reasons to switch over. "The industry has to do a lot better job on coming up with a value proposition and educating customers," he says.

As a result, he says, he doesn't expect NFC mobile payments to become mass market until 2014 or 2015. "I think we'll see some early activity in 2013," he says. "But five years from now, I hope to not be carrying my wallet around anymore."

Non-NFC alternatives

A cellphone doesn't have to be NFC enabled in order to do payments. For example, many phones allow their users to do mobile banking. There are apps that let you buy movie tickets. And Amazon will happily take your money whether you order from a computer - or from a phone.

Starbucks has apps for iPhone and Android phones that allow customers to make payments and earn loyalty points - the company said it processed more than 26 million mobile payments last year. The app shows a bar code on the phone screen that can be read at the checkout counter.

Many Starbucks customers use PayPal to top off their mobile wallets. And they're not alone - PayPal has reported nearly $4 billion worth of mobile payments in 2011, up from $750 million in 2010 and just $141 million in 2009.

There are a couple of advantages to non-NFC payments, or "payments in the cloud."

One is that consumers don't have to be next to the payment terminal to make a payment. For example, you can pay your parking meter while standing next to it, but it would also be nice to top it up from wherever you are if you're running late getting back.


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