As technology advances at an exponential pace, consumers have gotten used to losing a few of their old friends, like the cheque book and typewriter, along the way. With the invention of mobile wallet services where mobile phones are used to make monetary transactions, consumers need to prepare for parting with their friend the wallet.
One of the main technologies being used in mobile phones for transactions is near field communication (NFC) technology – the same technology used by Oyster cards. Devices enabled with NFC are able to perform in three different ways. Through card emulation, the device acts as a replacement for information typically stored on a plastic card, like a bankcard; through peer-to-peer, information is exchanged between two devices by bringing them in proximity with each other; and through card/tag reading an NFC device can read or change information stored in a RFID, radio-frequency identification, or contact-less card. These different methods all have possible retail uses.
In the UK mobile phones with NFC technology may by used for transactions of up to £15 in 50,000 locations throughout the country. All major mobile retailers in the UK are promoting this technology. Everything and Everywhere (Orange and T-mobile) has partnered with Barclaycard to launch a NFC trial using Samsung Tocco Lite phones enabled with the technology and O2 UK, Vodafone UK and Everything and Everywhere recently announced a joint mobile wallet service venture.
In the US, Visa has teamed up with Samsung to offer NFC mobile wallet services and Google has launched the beta phase of its own “Google Wallet” which uses NFC technology. Google Wallet can store users’ loyalty cards, gift cards, receipts, and boarding passes. Currently users can only pay using a Google prepaid account, Citibank’s PayPass and eligible MasterCard credit cards. Ebay alleges that Google’s mobile wallet was conceived by stealing trade secrets from a former PayPal executive, Osama Bedier, and is suing Google. PayPal is a subsidiary of Ebay.
Ebay itself has entered the mobile payment fray by combining Paypal with recent acquisitions, Redlaser, a barcode scanning technology for comparison shopping on the go, Milo, a local comparison shopping search engine, and WHERE Inc. WHERE Inc. shows local listings and suggests places and deals to users based on their past behavior and location. It also allows advertisers to target users in proximity of their store. This would allow retailers to combine information about online and real life purchases to form a more developed picture of consumers retail habits.
Mobile companies, Internet companies, and retailers see the enormous potential of targeted advertising and are eager to spread the usage of mobile wallets. However, NFC has yet to gain traction in the minds of UK consumers. Research by YouGov has found that 91% of British consumers have not heard of NFC technology, while 70% have yet to hear of the ‘mobile wallet’. Because it is an added cost for retailers to install NFC readers in their shops, they may not see the benefit of the added expense.
Yet other forecasts are more optimistic. IE Market Research says NFC payments will account for a third of the £700bn global market for mobile payments by 2014 and Jupiter Research predicts that by 2014, $50bn in sales revenue worldwide will be generated by NFC mobile payments. The accuracy of these predictions will depend on just how much consumers feel the need for checkout speed.
Other Options
Non-NFC mobile payment methods are also spreading among retailers. Pizza Express has recently launched a new iPhone app that allows customers to pay their restaurant bill with their mobile phones. In the US, Starbucks has introduced a rewards card application that can be used upon checkout to make purchases by holding up their phone to a 2-D barcode scanner. Customers can instantly see how much they have spent, their rewards card balance, and how many points they have received from their purchase. Using the Starbucks and Pizza Express method, customers may use older, non-NFC enabled mobiles to make purchases.
Other companies have invented more creative methods to get a piece of the mobile payment action. Zoosh, an app made by Naratte, a Silicon Valley upstart, uses soundwaves to make mobile payments. It works with any device with a speaker and microphone. Square, has designed its own credit card reader that plugs into smartphones. Square charges a 2.75% fee per purchase and has attracted major investment. On June 22, Square announced that it has added Larry Summers, former US Treasury secretary, to its board of directors.
It remains to be seen who will win the battle for this brave new mobile payment world. One thing is certain, companies that do not expand into this market will be left behind. How can they compete with ads streaming directly into a potential customer’s mobiles as they stroll by store fronts, targeted offers based on preferences and location, and real-time price comparison shopping? It’s time to say goodbye to credit-cards and small change for good and say hello to the mobile wallet.
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By Rose Scobie
