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Mobile payments in U.S.: Creative chaos or just chaos?

Ellen Messmer | March 21, 2011
The day is nearing, many say, when your smartphone will be your wallet, letting you make purchases as stored cash or credit that will be wirelessly accepted by stores or soda machines.

"They want that transaction revenue," says Yankee group analyst Nick Holland about Isis and its NFC-based mobile-payment network plans. "They are currently working on getting merchants to sign up, but they'll have a hard time."

The obstacle, he says, is likely that Isis presents too closed of a system. "The assumption with Isis is it assumes they own the SIM card and own the transaction," says Holland. But Isis "now seems to be back-peddling" and "talking about more open systems" with a proposal called Open NFC from InsideSecure.

Dave Wentker, head of the mobile product development group at Visa, calls mobile payments "an incredibly important and strategic channel for the future" for Visa's bank and merchant customers. "It's the marriage of card-payment systems and mobile."

Bank of America, Chase, Wells Fargo and US Bank are testing out one type of mobile payment based on MicroSD card functionality, but with "NFC, you need a new phone," Wentker points out. "Banks are not hardware companies," he says, and "banks were never going to start selling phones to people."

Nevertheless, enormous work behind the scenes has already produced payment-card terminals that support both NFC and MicroSD cards, he says. Visa points out 10,000 New York City cabs can accept NFC-based mobile payments and that 200,000 retailers in the U.S. -- still a small percentage to be sure -- have changed their terminals to accept mobile payments.

Last week, a Bloomberg report based on anonymous sources said Google would start testing an NFC-based mobile payment service at stores in New York and San Francisco, paying for the installation of specialized cash registers from VeriFone Systems to accept payments from NFC-based mobile phones.

According to Gartner analyst Avivah Litan, the only mobile-payment system of any magnitude in the U.S. today is the one undertaken by Starbucks in its coffeehouses. It doesn't depend on NFC but a prepaid card for mobile phones based on a barcode system. However, the banking industry is eyeing a day that NFC will be widely used for mobile-payment processing, with Bank of America, JP Morgan, Chase and US Bancorp today all testing terminals supporting NFC.

You know there's got to be a lot of money at stake when CEOs at two firms explode into public feuds, angrily denouncing each other's technology and remarks.

And that's what happened earlier this month when payment-terminal manufacturer VeriFone's CEO Douglas Bergeron lobbed insults at the Square credit-card reader for smartphones which is manufactured by the company Square founded by CEO Jack Dorsey, also the inventor of Twitter.

In an open letter, Bergeron criticized the security in the Square, said to be used by hundreds of thousands of merchants, saying it's "poorly constructed and lacks all ability to encrypt consumers' data, creating a window for criminals to turn the device into a skimming machine in a matter of minutes." He added, "Consumers who hand their plastic to merchants using Square devices are unwittingly putting themselves in danger."


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