Mobile Payment Systems - the wallet in your cell phone

There were a couple of meetings last year moderated by the Atlanta Federal Reserve branch, putting representatives of the big mobile carriers and the banks in one room to discuss the future of mobile payments in the US. The remarks by the branch's president in the meeting minutes reveal that the Fed will be trying to facilitate agreement between the telcos and the banks, but the government won't be imposing any standards.

However, Consumer Reports, the guys that always bang the drum when there is a product or service problem in the making, have recently demanded from the US government to hammer out regulations for the upcoming mobile payments revolution. They state that if the payment is linked to your credit card, you receive the fraud protection that comes with it, but if it is a carrier-billed or prepaid deposit solution, you are out of luck. The group wants the same extensive security protection with zero liability policies that comes for your credit or debit card, to be expanded to include the mobile payments, regardless of which technology ends up most popular. That is probably one of the main reasons Visa and MasterCard automatically become the most viable contestants for the mobile payments pie, that is expected to hit 2.5 billion users in 2015.

Last time we covered those in the US that could take the lead, like the traditional players – banks and the carriers with ISIS – as well as alternatives like PayPal, Boku, Bling Nation, even Apple itself. As of today, none of those has an active and popular mobile payment option. The big surprise actually came from another company, the almighty search engine that introduced Google Wallet.

Its solution is complete with the NFC-capable phone to make it work, the merchants network that will be provided NFC POS extensions, and a big payment processor like MasterCard to back the whole thing up, bringing piece of mind to Google Wallet users with its extensive security protections. Not to mention the loyalty and coupon system Google Offers that goes with it. The only thing missing is widespread adoption, as it only launches in a few pilot cities, and it would have won our praise as the most complete active payment system in the US to date. Until more phones with NFC chips are available, the search giant will supply stickers for the back of your phone, that will work with Google Wallet and Google Offers.

Apple, in its turn, started selling the Square credit card dongle in the Apple Store, which is a big endorsement, and on top of that Square just got a $100 million investment, which values it at more than a billion. Verifone is also prepping a module to accept bank cards with your phone and tablet. From those with big potential last year, PayPal didn't move much, and is suing Google Wallet for poaching the people who worked on its own mobile wallet initiative. Still, it has 100 million subscribers and processes more than $10 million worth of mobile payments a day, so it could be a matter of time until PayPal elbows its way in. Most of the other players, like the carrier-backed ISIS, announced they will work with the traditional payment processors like Visa and MasterCard, instead of going solo.

And we don't blame them – Visa announced it will be gunning for a vast mobile payment network itself, equipping millions of POS terminals that accept it with NFC capabilities, and it's impossible to fight Visa on such a scale. The trials for this one are set to begin in the fall. MasterCard announced a mobile payment app for every major platform, including iOS and BlackBerry, which don't even have NFC-enabled phones at this point. The app is supposed to use virtual credit for mobile payments, however this project is targeted mainly at corporate credit cards.


All these different paths and methods will probably merge, or be standardized in a way, as consumers are increasingly buying smartphones, and getting accustomed to research, shop and pay through them. The issue is that Americans have a lot of cashless payment options to choose from. It is not like Africa or parts of Asia, where a lot of the population is underbanked, but owes a cell phone, and mobile payments are picking up steam even with technologies like text messaging.

Still, Jupiter Research predicts the money flow through this channel will reach more than $600 billion by 2014, and there are a lot of commissions to be earned, so mobile payments will be jammed down our throats in one way or another. Has the time come to leave your wallet at home, but never leave your cell phone at the back of a cab for the US? We are sure that in a year's time this thought will be much more mainstream than we are currently imagining. Tell us, after you have been gradually leaving at home your map, notebook, calendar, voice recorder, camera and music player because of your smartphone in the last few years – are you willing to ditch your wallet with all those bank and loyalty cards in it too?

After all, most likely you'll still have to enter a PIN if a debit account is stored in your phone, or sign for big ticket items, if a credit card account is in there, which should minimize the damage should your phone get snatched. If you are worried that someone will get your info while walking around the street, NFC is only active when the screen is on, at least in the case of Google Wallet, plus the information you exchange with the NFC terminal is encrypted. A very good overview of how it will all work is given by Peter Ho, Product Manager of Wells Fargo's Credit Card Services in the video below. Bummer, you won't be able to buy a Ferrari by just flashing your phone in the showroom any time soon.


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