This still-evolving partnership forced the two players, which had rarely collaborated in the past, to confront such issues as how to deliver the software to users and who is responsible for resolving technical problems. And as banks look to add mobile payments to the equation, they face an even more complicated challenge: persuading carriers to install the chips that are required for phones to support contactless purchases.
Citigroup Inc. is hoping that an upcoming test in India of phones with contactless payment capabilities will help it develop a business case to present to carriers in the United States.
"The mobile phone really has emerged more recently as the big thing that's going to take contactless over the edge," Jeff Semenchuk, the executive vice president at Citi Innovation, said in an interview Tuesday.
He said the goal of the Bangalore test, which could get under way as early as April, is to collect enough data on consumers' use of mobile phones equipped with contactless payment chips to demonstrate to handset manufacturers and U.S. carriers that including the same chips in phones in this country would be worth the investment.
"It's no longer a technology trial or anything like that. It's literally a business model trial," Mr. Semenchuk said.
He said Citi plans to collect data in India through the end of the year, and that if the test goes as expected it would be two to three years before mobile phones with contactless chips are widely available within the United States. But once the wireless industry is sold on the idea, the transition could come rapidly, Mr. Semenchuk said.
The idea of including payment features in phones is "where it used to be with camera phones," he said.
Cameras in phones were initially dismissed as a gimmick, but caught on quickly and are now ubiquitous, he said. "It's inevitable that contactless will be huge."
Because this transition is still at least several years away, Citi continues to issue contactless credit cards in the United States to maintain consumer interest in, and awareness of, the technology.
"We're not racing toward issuing tens of millions of contactless cards," Mr. Semenchuk said. "I think the right word would be: we're pacing it. We believe in it. We believe it's inevitable. We've seen enough data to show that people with contactless cards will use them more than a mag-stripe card, so that's why we want to keep moving forward … until the phones are better equipped."
Citi, and other banks that issue contactless payment cards, face a secondary test: getting people to use the cards that have already been distributed, when some people do not even know they are carrying one.
If a small group of consumers contacted by American Banker is any sign, awareness remains low.
Joanne Tang, who works in television in New York, said she knew the cards existed but did not realize that her bank, JPMorgan Chase and Co., had issued her a contactless debit card. "Honestly, I didn't even know I had it until I was told to look for it," she said.
Her friend Anthony Ramirez, who works in advertising, said he knew he had a JPMorgan Chase contactless card, but, "I never really think to use it" for contactless transactions, "and I wouldn't know what to do. It's just a matter of tapping your card?"
