Mobile Payments: Is the Convenience Worth the Risk?
You may not have noticed, but there’s a war raging over what’s in your pocket. And we don’t mean Android versus iPhone. This battle is about who will convince consumers to use their smartphone instead of cash or credit cards to make retail purchases. A long list of corporate heavyweights are vying for a position in mobile payments, including all four national cellular carriers, software giants such as Google, and credit card companies Citibank, Mastercard, and Visa. Mega retailers want in as well, with Gap, Starbucks, and Target already testing these uncharted waters.
Why the sudden gold rush? Because the necessary technology is finally falling into place—and the potential payoff is huge. In fact, smartphone-aided purchases represent perhaps the biggest sea change in product sales since online shopping disrupted the market back in the mid 1990s.
In a recent report, Generator Research stated that the global market for mobile payments will grow from $68 billion in 2009 to an astounding $630 billion by 2014. Generator also predicted that the number of users of mobile-payment systems will reach 490 million in 2014, up from just 81.3 million two years ago. With projections like this, it’s no wonder that corporations are salivating.
Since much of what makes this technology so valuable is the ability to link your identity to your location and shopping history, mobile payments may cause privacy-conscious consumers to think twice about signing up. Security is another big issue. In today’s world of hacktivists and electronic warfare, waving your mobile device to check out isn’t so risk-free as it seems.
The Mobile Wallet Vision
So how does using your phone as a wallet work? A customer’s handset, likely running Google’s Android operating system, will contain an NFC (Near Field Communication) chip. The chip stores data for multiple bank or credit card accounts (the same info written on standard plastic cards). What’s different is that the NFC circuitry can wirelessly transmit this data on command when in range of specially equipped retail registers. The NFC electronics are in turn controlled by software—namely, an app.
Many of the major banks already issue cards that use contactless payment technology, but they haven’t been heavily marketed. NFC will harness this already-installed base of contactless infrastructure.
According to Richard K. Crone of Crone Consulting, who has more than 30 years of experience in the financial and retail payment business, acceptance and use of contactless cards by merchants has been low due to the expense of equipment and the higher fees charged by banks. “Sure, you may have seen contactless readers at CVS drugstores in New York or in a taxi, and even tried to use them. And a lot of times it doesn’t work,” Crone explained. “The reason for that is the merchant actually turns them off because those payments go for a higher rate.”