Isis, a mobile payment joint venture between AT&T Mobility, T-Mobile USA and Verizon Wireless, recently announced that next year it will allow transit riders in Salt Lake City to use their mobile phones to pay fares.
To do so, riders' mobile handsets will have to be equipped with Near Field Communication technology that will allow the phone to transmit a signal to a receiver in the transit vehicles. Very few of today's phones have NFC chips, but they are expected to be common on phones rolling out later this year. Research In Motion has already indicated that NFC chips will be available on new BlackBerrys and, though Apple (AAPL) hasn't confirmed anything, it is widely believed that the technology will also be supported by the next-generation iPhone expected this summer. Google's (GOOG) Nexus S Android phone is already equipped with NFC and there are reports that Google is working on an NFC-based mobile payment plan for Android phones.
But NFC isn't the only way to use mobile phones to transfer money. There are solutions that work with existing smartphones and even regular old "feature phones."
Obopay and M-Pesa
are two of the services that enable people with just about any cellphone to transfer funds or pay bills. Both services are able to use SMS (short message system), which is the same international system used to send text messages. M-Pesa, a service of Kenya's Safaricom mobile carrier, is used within Kenya and internationally through relationships with Vodafone and Western Union.
Obopay has a strong presence in India and parts of Africa, where, according to its founder Carol Realini, most people remain "unbanked." In many areas of the developing world, bank branches and even ATMs are few and far between. My son spent his junior year studying in Ghana and even though there was an automated teller machine on his campus, it didn't always work. When my wife visited him, the relatively posh hotel she was staying at wouldn't accept credit cards, so she had to take a bus across town to access an ATM and, literally, fill a bag with cash just to pay the equivalent of a few hundred dollars for her hotel bill.
Obopay is also available in the U.S., where it can be used to transfer funds between individuals and to send money to family living abroad. The company offers a prepaid Mastercard to enable users to more easily spend money sent to their account.
Realini, whose company's current product uses SMS and cellular signals rather than NFC, agrees that NFC makes a lot of sense for the Utah Transit Authority. "Transports are good applications because we're already using card-based stored wallets and in some cases we're using proximity transfer such as when you drive through the toll lanes."
But, she said, for the developing world, it still makes sense to use SMS or apps where the data is transported over the regular cellular network.
SMS, according to IE Market Research, accounted for 76 percent of all mobile payment transactions in 2009, but is expected to decline to about 59 percent by 2014 as other technologies, especially NFC, become more popular. The research firm expects the number of mobile payment users to rise to more than 1 billion in 2014, who will spend an estimated $1.13 trillion on transactions, up from $37.4 billion in 2009.
We're also starting to see phones being used to accept credit card payments. Square, which was co-founded by Twitter co-founder Jack Dorsey, offers users a free credit card reader that plugs into an iPhone or Android phone. For 2.75 percent of the transaction, the service lets anyone accept credit cards. It's ideal for really small businesses like street vendors at farmers markets or art fairs but can also be used by individuals. Intuit (INTU) offers a similar service called GoPayment that works with the company's QuickBooks small business management software.
Security is an obvious concern for all types of transactions. Although some NFC applications, such as getting on a bus, might simply involve waving the phone next to a receiver, others -- especially those with higher dollar amounts -- will require the user to enter a PIN number from the phone's keyboard. Like an ATM card, a phone offers two levels of security because it can be configured to require that you have the phone and a PIN code.
Also, according to Realini, people are far more likely to quickly report a lost or stolen phone. She said people generally realize their phone is missing within minutes compared with an average of 18 hours after a credit card goes missing.
If mobile payments become ubiquitous, that old excuse, "the check is in the mail" might be replaced with a "I paid you but I must have been in a dead spot."