Can Mobile Phones Become Credit Cards?

Sources: Bloomberg News &

Major cellphone carriers AT&T, T-Mobile and Verizon are beta-testing new features intended to “supplant more than 1 billion plastic cards in American wallets” – by allowing subscribers make credit card buys using their mobile phones!

It’s already happening in Japan, Turkey and the U.K., with cellphones being waved over an in-store reader to consumate purchases. “This is definitely a game-changer,” an analyst told Bloomberg news, saying that already cellphone carriers are “the biggest recurring billers in every market. They are experts at processing payments.” And the concept is already being cheered on by retailers. “We have long argued that real competition is missing from today’s payments market,” one industry spokesperson added.

Further, the mobile phone carriers are attacking at a time when credit card companies are being denounced for dishonest disclosures of penalties and other fees. (Today Forbes cited a new study which shows that some credit cards “no longer provide full disclosure of the terms of the penalty rate, or fail to correctly follow disclosure requirements required by the new Federal Reserve rules.”) Consumers are already experiencing raised hopes that federal stimulus cash can somehow eliminate credit card debt. “Mobile payments are the logical next step for consumers,” an AT&T spokesman told Bloomberg, and another financial analyst seemed to agree. “What is a cell phone, except a mechanism for consumers to address their lives in whatever way they choose? There’s certainly no reason if an AT&T account can effectively be carried on a phone that a JPMorgan or a Wells Fargo card can’t be there, too.

“In fact, the antitrust issues would demand that that be allowed!”

Merchants would have to spend an estimated $200 per reader, and updating mobile phones with embedded microchips would increase manufacturing costs by $10 to $15 per handset, according to the Boston Fed. That may be worthwhile if accepting mobile payments allows retailers to send rewards and information about promotions to their customers’ phones at checkout.

Contactless, or near-field communication, technology “is no less secure” than today’s plastic cards, according to the Fed. Consumers may also be able to sync their phones to a computer, allowing them to make purchases even if there’s no mobile signal or the battery dies.

“These are important issues if people are to be convinced to rely on this technology as an alternative to carrying a wallet,” the policy paper said.

The wireless carriers have an advantage over Visa and MasterCard in the race to control the U.S. payments market because the phone companies have access to their customers’ mobile numbers and bank account information, said Crone, the industry consultant.

“A mobile device is online, real-time interactivity that changes the customer relationship,” he said. “A card is dumb.”

– BJ Kharrazi / Editor