"Will you be paying with cash, card, or electromagnetic wave?" This may soon be the question you're asked by vendors as smartphones begin to be used as a means of payment. Major wireless carriers Verizon and AT&T are entering into a partnership to allow their customers to pay for products using their smartphones, according to sources who spoke to Bloomberg. T-Mobile is also a part of the agreement. How might this change the world we know?
First, it must have Visa, MasterCard, and American Express a little worried. News like this is the last thing they need on top of all the regulation coming out of Washington recently. They may soon understand how Garmin and TomTom feel, with GPS services largely displaced by smartphones. But at this time, a third party payment system appears necessary for processing -- it's just reportedly with Discover and Barclays instead of the others. Yet, Bloomberg quotes one analyst that implies these cell phone companies could to do most of work:
"This is definitely a game-changer," said industry consultant Richard Crone of San Carlos, California-based Crone Consulting LLC. The firm advises card networks, issuers and phone companies. The mobile carriers "are the biggest recurring billers in every market. They are experts at processing payments," Crone said.
The convenience factor here couldn't be more obvious. How great would it be to only need your phone to pay for stuff, and not any credit cards? After all, you probably take your phone everywhere you go by now anyway.
No physical contact would be necessary to process payments. The phone would emit a radio wave that interacts with a device used by vendors to process the payment. Presumably, such receivers would also have to be portable, as it's hard to imagine handing over your phone to a waiter at a restaurant with the bill.
So how does this agreement work? AT&T and Verizon would be equal partners in the venture and T-Mobile would have a smaller stake, says Bloomberg. You sort of have to wonder if this could create antitrust issues, since all major wireless carriers except for Sprint appear to be banding together towards a common goal like this. It also raises the question: why has Sprint been left out?
At this point it looks like quite a win for Discover. It's currently the fourth-ranked payment processer in terms of market share, after Visa, MasterCard, and American Express. For now it's currently unclear how much the service providers will charge for interchange fees or what cut of that Discover will get. Presumably, these service providers will try to keep Visa, MasterCard, Amex and other banks from simply developing mobile applications of their own to make their cards useable through the hardware innovation. The service providers stand to make billions of dollars off fees. But then, perhaps that's where the antitrust concerns could come in.
Assuming all security kinks are worked out, credit cards don't appear to have many advantages over smartphones for payment. Perhaps cards' only edge is their relative technological inferiority: you don't have to worry about the battery running out on your Visa. But maybe stores will eventually have chargers available to power up dead phones for payment.
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