Imagine walking into your favorite cafe and instead of waiting in line to place your order for a large iced nonfat latte and handing over your debit card, you submitted your order and authorized payment from your bank account via an application on your phone.
You can't do that now. But it's very possible that some day you will. It will be a big leap forward getting banks, credit card companies, retailers, and cell phone makers--not to mention consumers--on board with this idea. But a few companies are beginning to provide digital stepping stones to what someday could be a wallet-less future.
On Thursday, Intuit and Mophie (maker of the JuicePack battery for iPhone) will introduce the Complete Credit Card Solution, which fits over the iPhone 3G and 3GS like the JuicePack and has a credit-card reader that uses Intuit's 18-month-old GoPayment mobile payment software. It will be available as an iPhone accessory in Apple Stores.
The idea is to allow small businesses or anyone who needs to process payments that doesn't have a permanent place to plug in a cash register to be able to accept something other than cash on a device many people already have. The hope is consumers would find this more convenient than keeping cash on hand when they want to make a purchase, even from a nontraditional retailer.
While plastic and cash are still the way the vast majority of retailers do business, that could change over the next few years as smartphone usage continues to skyrocket, and more personal finance details are being taken care of online and on the phone. Hardware makers, banks, and payment processors are at least dipping a toe into the water by participating in trials or offering new ways to pay people without using plastic or cash.
The rest of the field
Intuit is not the first to do a smartphone-attached card reader. Verifone developed a card swiper for the iPhone to enable small businesses to accept and process payments on the spot without need for a cash register. Then a smaller company called Square came up with a similar solution to allow everyone from food trucks to Craigslist sellers and other small businesses to offer a legitimate way of accepting payment without the need for large sums of cash to change hands.
Now in a sign that the trend is entering the mainstream, even the big companies are jumping on board. Intuit is the company behind Quicken, QuickBooks, and now Mint.com, and thinks mobile payments are going to be a booming business in the next few years. The numbers they're looking at are $11 billion in mobile point-of-sale transactions by 2013.
Card readers are just one way of processing mobile payments though. Contactless payments is something that has been tried for years using cards or a clip for keychains and is now starting to be integrated into the smartphone.
DeviceFidelity recently released a case and microSD card for the iPhone that will make Visa charges by waving the phone near a contactless payment terminal.
PayPal, the company that brought online payments into the mainstream, is envisioning a fully digital "mobile wallet" someday, but it will begin with something more like the trial they began recently with BlingNation.
The BlingTag is a sticker that goes on your phone and uses NFC, or near field communication, a technology like USB that can transfer data over very small distances, up to 4 inches. An RFID chip in the sticker authenticates transactions made between the phone and a BlingNation payment console, which a retailer would have to agree to carry.
"NFC is considered the holy grail of getting the mobile phone to [be used in] point-of-sale" transactions, said Todd Ablowitz, president of Double Diamond Group, a payments consultation company in Denver. But it requires an infrastructure to be in place to gain any real traction.
"It takes handset makers, financial institutions, retailers to be on board, with a reader that can read it. The chicken and the egg is...how do you issue payment if no one can accept it?"
There have been baby steps on the part of wireless carriers in this department. AT&T, Verizon, and T-Mobile have reportedly teamed up with Discover and Barclays for a pilot program in some U.S. cities where people can use their phones in place of a credit card. If it were to happen, such a partnership could pose a major challenge to Visa and MasterCard.
Forrester mobile analyst Julie Ask says trials like PayPal-Bling Tag and the Discover-carrier partnership are just that and have a long way to go before they become anything more permanent.
"Banks, carriers, handset manufacturers, and retailers with point-of-sale terminals need updated hardware and software," she said. "A lot of pieces have to come together for that to happen...I don't see it yet where we get to a point where I leave my wallet at home instead of my phone."
But, she says, anything could happen if someone came out of left field.
Say, for instance, the maker of one of the most popular mobile devices in the world. Apple recently hired Benjamin Vigier from mFoundry as mobile payments product manager, and there was also word that Apple had outfitted an iPhone with near-field communications chips for testing last week.
If true, Apple's entry into mobile payments--perhaps opening up iTunes as a way of paying for things besides music, videos, books, and mobile apps--would quickly push the idea of using a mobile device for payments into the mainstream since what Apple does in the mobile world (see iPhone, iOS, iPad), competitors tend to bend over backward to follow.
But the bigger question to all of this is why. Why would retailers or banks, for whom credit or debit card purchases are working well, want to introduce this?
"You've got people doing more things with their mobile phones and you've got payment schemes which are looking to capture nonelectric types of commerce," said Ablowitz of Double Diamond Group. "If you can convert cash to electronic (payments) you're gaining a lot of share."
Besides infrastructure and convenience, security is a major concern--especially when companies you've never heard of--Bling Tag, for instance--are suddenly dealing with your money. And when seemingly random people--Craigslist sellers, food-truck cashiers, etc.--are suddenly equipped to swipe your credit card.
The Consumers Union, the nonprofit group that publishes Consumer Reports, says it's concerned about this new wave of payment options and that consumers may not be fully protected. Earlier this week, the group issued a statement that urged mobile payment providers and facilitators to "make sure that they are at least as safe for consumers to use as traditional credit card and debit card payments."
Hardware manufacturers, like Mophie, say that they've tried to be extra "paranoid" about security. The Intuit and Mophie system ensures that credit cards swiped on the device are safe by using hardware encryption that does not store credit card numbers on the device or the phone. Once the card is swiped, the iPhone sees only the last four numbers of the card, and the encrypted packed of data is sent to the bank for authorization, according to Ross Howe, vice president of marketing at Mophie.
But even being extra careful isn't the only concern. Managing for fraud and having the resources to compensate people when it happens (an invariably it's going to) is tough, as Square discovered and explained to customers earlier this year.
But besides an unknown company trying to get into payment processing, turning phones into credit card readers is likely not the future of mobile payments anyway.