AT&T and Verizon's Smartphone Swipe System: A Threat to Visa and Mastercard?

A new partnership threatens the credit card cartel

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The country's largest mobile carriers are teaming up so that you never have to swipe a credit card again. AT&T, Verizon Wireless and T-Mobile are reportedly partnering with Discover Financial Services and Barclays PLC, a global retail banking company, to challenge the status quo. The wireless electronic payment industry is currently dominated by Visa and Mastercard. These new partners want to allow consumers to complete purchases with a simple wave of their smartphones. Technology observers are calling this one of the most significant challenges to credit card companies to date.

  • Here's How It Works, explains Kit Eaton at Fast Company:

Essentially a cell phone would be modified with the addition of an RFID antenna and chip--the same kind of short-range radio data systems used in some metro and smart bus ticketing systems around the globe. In its simplest iteration, the RFID tech would be embedded into the phone, operating independently of it--like a radio-based version of the magnetic strip on your credit card. But instead of sliding your card through a machine and tapping in a PIN, you'd drop your phone on an RFID reader, and tap in a PIN.

Now, when the RFID system gets integrated with a smartphone's circuits, a whole world of possibilities opens up, including using the smartphone's screen as a super-secure numeric pad for accessing your PIN or even using the smartphone's sensors as a more secure user-ID detection system. Using location data sent over the phone's data network would also ensure greater security, as you'd know that the phone is being used where it says it is, and no-one's cloned the RFID data to steal your money. There's also the opportunity for retailers to send data back to your phone, in the form of adverts or loyalty card-like reward points.

  • This Could Hugely Disrupt the Credit Card Cartel, writes Vlad Savow at Engadget: "Contactless payments made using your phone are hardly a new idea in themselves, but when three of the big four US carriers decide to unite behind it, the time might have come to start paying closer attention...This would require all-new readers for merchants and embedded NFC chips in phones, but we reckon plenty of people might be happy to pay a small premium to streamline their lives that little bit more and leave the plastic behind." Douglas McIntyre at Daily Finance adds, "Retailers who pay a small percent of each credit card transaction to Visa or MasterCard may be ready to help the new venture if it will mean a reduction in their fees."

  • Touchless Pay Is Gaining Speed Elsewhere, notes Jennifer Van Grove at Mashabel: "Consumers have already been able to leverage similar technology with Visa payWave, a system that uses special card readers to allow customers to simply wave their Visa card to initiate payment. Starbucks customers can pay with their iPhones at select stores and Target outlets, and most recently PayPal has been experimenting with BlingNation stickers that turn any device into an instant payment system. Mastercard also has its own mobile tap-and-go device sticker system, Mastercard PayPass."

  • It's About Time, notes Peter Ha at Techland: "Tap-and-go or swipe-to-pay systems already exist in other countries (U.K., Japan and Turkey) and Citigroup introduced MasterCard PayPass stickers earlier this year that can be attached to the back of cellphones and used at over 230,000 U.S. merchants."

  • Things Are About to Get Competitive, writes Om Malik at Gigaom: "This development isn’t good news for the U.S.-centric mobile payment startups. They have a very brief window of opportunity. Either they go big fast or they go home. It was inevitable that the U.S. carriers would finally wake up one day and realize that they have access to owner’s identity, presence and wallet, along with a billing system to support that. All they needed was someone to handle the back-end of payment processing."

This article is from the archive of our partner The Wire.