Credit cards and debit cards could be under threat thanks to Smartphones. It's estimated that there are over 1 billion credit and debt cards owned by people in the US. There are plans by AT&T, Verizon Wireless and T-Mobile to launch a payment sytem on phones. For example, people who use T-Mobile cell phones would be able to pay directly from their phones rather than having to use a card or cash. Industry consultant, Richard K. Crone said "This is definitely a game changer".
While there aren't many techinical details on the service at the moment, it is thought that the system would allow consumers to make a purchae by holding the smart phone in front of an electronic reader in a store. Transactions would be processed by Discover Financial Services (DFS). Barclays in the UK would help to manage the accounts according to industry insiders.
While the technical details are sketchy, the service would let customers make purchases by holding a smartphone in front of an electronic reader in stores. Transactions would be processed by Discover Financial Services (DFS), the fourth-biggest payments network in the U.S. behind Visa, MasterCard, and American Express (AXP). London-based Barclays (BCS) would help manage the accounts, say the people, who requested anonymity because of confidentiality agreements. Representatives for the carriers, Barclays, and Discover declined to comment.
While Visa and Mastercard are currently benefiting from people using credit cards and electronic payments instead of checks, the new smartphone system could end their dominance. Last year, Visa and MasterCard accounted for $2.45 trillion, or 79 percent, of $3.1 trillion in U.S. consumer spending on credit and debit cards.
A report published by the Federal Reserve Bank of Boston said that adoption rates of the new technology are likely to be initially very slow. Consumers won't demand mobile payments "until they know that enough merchants accept them, and merchants will not implement the technology until a critical mass of consumers justifies the cost of doing so," the report said. The techology behind the service would also add on a cost an extra $10 or $15 per hand-set to manufacture.
Any new payment system may face barriers that prevent the technology from taking hold quickly in the U.S., the Federal Reserve Bank of Boston said in a May policy paper. Consumers won't demand mobile payments "until they know that enough merchants accept them, and merchants will not implement the technology until a critical mass of consumers justifies the cost of doing so," the report said. Merchants would have to spend an estimated $200 per electronic 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 worth the money if accepting mobile payments allows retailers to send rewards and information about promotions to their customers' phones at checkout.
Visa and MasterCard are investing in their own mobile payment systems. MasterCard has worked for years with carriers, handset makers, and banks on developing mobile payment technologies in countries around the world, including Japan, Turkey, and the U.K., Chief Executive Ajay Banga said in an Aug. 3 conference call with analysts. "While the business model for mobile payments is yet to be proven in a tangible way across the world, I have no doubt that it will get proven in some form," he said.
