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Tuesday, January 18, 2005

Cell Phones As Credit Cards

We recently covered SAP finds mobile segment very attractive and had earlier covered,The mobile revolution is next only to the internet revolution. The NYTimes has come out with an excellent article Momentum Is Gaining for Cellphones as Credit Cards.Excerpts with edits and my comments added:

People already use their cellphones to read e-mail messages, take pictures and play video games. Before long, they may use them in place of their wallets.By embedding in the cellphone a computer chip or other type of memory device, a phone can double as a credit card. The chip performs the same function as the magnetic strip on the back of a credit card, storing account information and other data necessary to make a purchase.The new handsets could become "a major form of payment, because cellphones are the most ubiquitous device in the world." But,"cash will never go away." Consumers will readily embrace the technology as a way to pay for even small purchases, because it is less bother than taking a credit card out of a purse or parting with cash.
The impending changes to the cellphone happen to coincide with major shifts taking place in the banking industry. Since credit cards are still considered somewhat inconvenient, particularly for quick, small purchases, major credit card companies have developed "contactless payment" technologies for checkout counters that allow customers to wave their cards near an electronic reader without having to swipe the card or sign their name. MasterCard, for example, has introduced a system called PayPass that lets cardholders wave a card in front of a reader to initiate a payment, much as motorists use E-ZPass and similar systems to pay tolls and ExxonMobil customers use SpeedPass to buy gas. Several major credit card companies issue PayPass cards; McDonald's has agreed to accept them at some restaurants.And American Express announced late last year that it would have its system, ExpressPay, in more than 5,000 CVS drugstores by the middle of this year.
Cellphone makers are hoping these new payment systems will also make it easier to market handsets with credit card functions, although they could just as easily represent competition for the practice of paying by cellphone.The marriage of cellphone and charge card poses some significant challenges, including security problems. To reduce fraud from stolen phones, consumers may be required to punch an authorization code into their phone each time a charge is made. For more than a year, phone makers, software companies and computer chip manufacturers have been working to develop secure and reliable payment technology for cellphones. After the phone's chip is recognized by the electronic reader, the credit card account number will be verified, as it is now, and the price of the purchase will be added to the consumer's credit card bill. The new phones may also be capable of being programmed for a prepaid sum from which payments could be deducted.
In seoul from where, I am posting this , cellphones are becoming mainstream payment devices . In Japan, NTT DoCoMo, the mobile phone operator, said that it had already sold more than a million phones equipped with chips that include the payment function.More than 13,000 Japanese shops have electronic readers capable of communicating with the phones. For now, the phones are used mostly to debit a prepaid amount, which is deposited by plugging the phone into a machine similar to an A.T.M. that takes cash and credits the handset. In South Korea, people are already using cellphones as credit cards.

An excellent overview of what lays ahead for the mobile and we shall begin to see more and more impact that mobile technology makes on various industries.

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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
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