Tuesday, April 11, 2006

The San Francisco Chronicle reports on mobile payments from CTIA convention

Short of Cash? Buy it with your cell phone.

Las Vegas -- The cell phone is quickly overtaking the functions of a number of everyday tools, including your landline phone, personal computer, MP3 player and television. Next up: your wallet.

Mobile phone makers, cellular operators, financial institutions and other players are working on ways to make your phone a nimble payment device.

The notion is that since the cell phone has evolved to become a device people can't leave home without, like a wallet or keys, why not put it to work as a "smart wallet" and take cash and credit cards to a new mobile realm.

The concept was an important theme at last week's CTIA Wireless 2006 convention in Las Vegas, highlighted by an announcement by PayPal that it was leaping into the space with its PayPal Mobile.

The PayPal announcement illustrates the diverse approaches in the nascent field of mobile payments. In some cases, credit card companies and banks are trying to embed a new form of radio frequency technology into cell phones that will allow customers to wave their cell phones at a point-of-sale reader, which will take the credit card or debit card information that has been electronically inserted into the phone to process the transaction.

Others like PayPal are allowing their subscribers to tap their current payment accounts through text messages with their cell phones.

Some like Palo Alto's Obopay are trying to get consumers to create new mobile-only accounts that will allow them to pay family members or friends. The service will eventually be broadened to cover commercial transactions.

While the approaches differ, the same philosophy applies: take advantage of the ubiquity of cell phones to make payments easier, more secure and, when coupled with electronic coupons or loyalty programs, potentially more rewarding for consumers.

"Mobile commerce is a very powerful idea," said PayPal's president, Jeff Jordan. "For consumers, it puts anytime purchasing at their fingertips."

In the PayPal model, the company's 100 million customers can link their PayPal accounts to their cell phone number. By sending a simple text message to PayPal, they can deliver cash to a friend or purchase a product from a merchant, who will then ship it as if it were a typical online PayPal transaction. The service, said PayPal executives, allows users to move cash around quickly or make impulse purchases. It can also be used to make electronic donations to charities.

While the PayPal initiative garnered attention last week, the most significant work in the field has been in the efforts to link credit and debit cards with cell phones. Though the practice has yet to become reality in the United States, a host of banking and financial institutions are testing the idea and hoping to roll out a product later this year or next year.

Companies like Nokia, Cingular, Chase and Santa Clara's ViVOtech have been working on a trial at Philips Arena in Atlanta in which they allow existing Chase customers to pay for food and other items using a cell phone embedded with a "near field communications" chip.

The NFC chip, embedded in the back cover of the cell phone, transmits a card owner's credit card information when it is placed within several inches of a reader. This sort of "contactless" payment allows people to pay without fishing out a credit card or cash from their wallet or purse.

Tom Zalewski, Nokia's head of payments and ticketing, said the early feedback from the trial, which ends at the conclusion of the current hockey season, has been positive. "People are very receptive to using their handset as a payment device," he said. "They prefer it because they have it with them all the time."

The plan to put credit card data into cell phones follows the path of new chip-embedded smart credit cards like Chase's Blink cards that allow users to pass it in front of a reader for a purchase. Chase has already distributed 7 million cards embedded with radio communications chips.

Thousands of retailers and restaurants like McDonald's, CVS and KFC have already begun installing electronic readers. Currently, however, there is only one phone, the Nokia 3220, that can support the new payment chip. Other companies like Samsung and Motorola are also working on phones with e-wallet capabilities.

Analysts said that by 2010, half of the phones sold will feature such chips. Many of them generally like the concept but maintain that security must meet or exceed what is currently available through traditional credit cards.

"It has potential. If you can tie a quick payment concept to the cell phone and know it's secure and protected, it absolutely becomes a viable platform for digital payments," said Tim Bajarin, an analyst at Creative Strategies. "But the most important thing is to build a secure system that is impenetrable."

Industry leaders said the cell-phone wallet will actually be safer than traditional credit cards because the data will be encrypted when it's transferred without anyone seeing the actual credit card number or holding your phone.

A lost cell phone is also easier to detect than a missing credit card, said advocates, and the devices also offers users the ability lock their phones with a pass code. And in the event of a stolen phone, the payment portion of the phone can be shut down through a call to your bank.

Security isn't the only issue for these new cell phone credit cards. The banks and phone carriers are also still working out how to split any revenue generated by the payment phones.

And for credit card companies used to owning the actual plastic that its customers use, it's a matter of finding a level of comfort in sharing their customers' information with other partners.

But Oliver Steeley, vice president with Mastercard International, recognized the day of mobile payments is fast approaching. He said last week that Mastercard is now allowing its member banks to offer mobile payments through the Nokia 3220 on a trial basis for the next 12 months.

He said offering mobile payments will soon become an important differentiator for banks. "This is about enabling banks to provide cell phone enablement in a cost-effective way," said Steeley. "If you can shave off two seconds from a transaction, that can be essential."

But the proposition of paying through your phone offers more than just speed. Some mobile companies like RocketBux and Mobile Lime are banking that consumers want not only time savings, but rewards as well.

By using the cell phone to deliver alerts about sales, in-store coupons or exclusive loyalty rewards, customers will see the value in using their devices for purchases, said Bob Wesley, CEO of Mobile Lime, a Massachusetts company offering mobile payments.

In one scenario, a customer might be able to wave their phone on an electronic tag at a store, which will send a text message to them about current sales items. Or after completing a transaction, a customer might receive a coupon to a nearby merchant paid for by that merchant.

"We're creating constant interaction so customers can have their payment, shopping and loyalty information at their fingertips," Wesley said. "About 75 percent of households are enrolled in loyalty programs and it's great to have this intersect with the cell phone."

Another benefit of using a cell phone over a credit card or a key chain trinket embedded with a chip is that will make it easier for users to manage their money. Many of the banks are working to allow their customers to check on their balances, transfer funds and pay off bills from their cell phone.

Not all companies are trying to link existing money accounts with your cell phone. Obopay, which launched last week, said it is encouraging customers to create special mobile accounts which would allow, for example, parents to send money to their child.

"It's the coolest way to get emergency cash to friends or your kids," said Carol Realini, CEO of Obopay. "Your daughter could be in line at a bookstore and sends you a request for $50 dollars to buy some books. In the time it takes to push some buttons I can send the money."

For now, if a Obopay customer wants to buy something or use their account money, they must use a companion debit card linked to their Obopay account. But Obopay's president said the company will explore embedding near communications chips in phones when it becomes available.

While it's still early in the game, many companies said there's no reason why the rapid evolution of the cell phone shouldn't include the replacement of cash and credit cards.

"It's really likely in the future customers will reach the same comfort with the cell phone as their credit card," said Tom O'Donnell, senior vice president Chase Card Services. "The cell phone is more than just call making device. It's a content device with music and video and the opportunity is it could it be the way to make payments."


Using your cell phone as a smart wallet

-- PayPal has a service that allows a user to pay for items out of a PayPal account through text messages. The service, currently operational, would enable one to pay friends or donate to charities while on the go.

-- Visa, MasterCard and American Express are working on ways to embed a credit cardholder's information electronically in a cell phone. A payment is processed when the data is placed in front of an electronic reader. The system is in the testing stage; most companies expect a rollout possibly later this year or next year.

-- Obopay's users can use their mobile accounts to transfer money back and forth with others on cell phones. The service went live last week.

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