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Mobile Payment Apps Offer Benefits of NFC Without the Hardware

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A host of new mobile payment applications promise many of the perks of near-field communication technology, without the costly hardware.

NFC chips allow phones to function as electronic wallets. But mobile phone users can now make payments from their checking accounts via Dwolla Corp.'s software, and they may soon be able to store and view receipts with PayPal Inc.'s Fig Card, or receive special offers using ProPay Inc.'s Zumogo — all using technology that is much more common in today's phones than NFC.

Even if these systems cannot derail the shift to NFC chips, they may help train consumers to think of their phones as an eventual replacement for plastic cards.

"It's hard to say whether or not any of these other things will fundamentally change the course of NFC," said Paul Grill, a partner who focuses on alternative payments at First Annapolis Consulting in Linthicum, Md. "At the very least I think these things are going to help consumers and merchants alike [perform] transactions with the mobile device."

PayPal, a unit of eBay Inc., drew attention to the hardware-independent approach when it announced last week it had acquired the startup Fig Card. Analysts expect PayPal to use Fig Card's technology to become a bigger player at the point of sale.

A PayPal spokeswoman said the San Jose, Calif., company was not commenting beyond a blog post written Thursday by Peter Chu, the senior director of PayPal Mobile.

Fig Card's website said it "leverages existing hardware in modern smartphones [namely WiFi functionality] in a nonintuitive way to create a system that checks off a number of boxes towards solving merchant and customer adoption challenges" for mobile payments.

The service involves a mobile app that consumers use on their phones and a USB device that merchants plug into their cash register or point of sale terminal, according to Chu's post.

"We loved their approach to point of sale, particularly because it was driven by the same vision that we have at PayPal — in the future, transactions can be as smart as a computer and not as dumb as paper," Chu wrote.

Philip Philliou, a partner with the payments consulting firm Philliou Partners LLC, wrote in an email that PayPal's acquisition of Fig Card is "notable only in that it signals PayPal's desire to staff up with the best and brightest to pursue the in-store payments opportunity," which he calculated as a "roughly $5 trillion pie."

The acquisition puts pressure on traditional payments companies like Visa Inc. and MasterCard Inc., which are testing hardware-based approaches to mobile payments in the U.S., to "redouble their efforts and resources against cracking this opportunity before PayPal does," Philliou wrote.

Executives at companies like Dwolla and ProPay, which offer software-based mobile payments, said the PayPal deal validates their approach — even if it does not cause the industry as a whole to question its dedication to NFC.

"While we would prefer people to use our payment methodology … we understand we may not be the best fit for some merchants," said Chris Mark, the executive vice president of emerging markets at ProPay. "If NFC does end up taking off, then I think we're complementary."

The Lehi, Utah, company is preparing to relaunch its Zumogo smartphone apps after testing the service in Park City, Utah, during the Sundance Film Festival earlier this year. Unlike waving a phone with an embedded NFC chip in front of a merchant terminal to complete a transaction, Zumogo allows a merchant to send a payment request to a consumer through the app. The consumer can verify the transaction within the application, using a payment card they have loaded into their account.

ProPay is upgrading some of the social media features of the application and plans to release new apps in the coming weeks, enhancing merchants' ability to post deals and allowing consumers to communicate with merchants via a chat function, Mark said.

Dwolla, of Des Moines, Iowa, has deals with 10 financial institutions that are planning to offer the mobile service directly to their customers.

Its approach differs from Zumogo somewhat — instead of merchants sending a payment request to customers, the customer sends a payment directly to the merchant through the app.

All transactions are conducted as automated clearing house transactions, which cost less for merchants than accepting credit and debit cards, Ben Milne, Dwolla's chief executive, said.

"There's no NFC, there's no chip, there's no tapping or scanning of any type," he said.

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