Though payment companies are aligning themselves with different technologies in the mobile payment space, progress may stall as consumers and merchants remain undecided.
Near-field communication chips, which would be built in to new handsets, were given a boost last week as U.S. wireless carriers endorsed the technology and announced plans to use NFC chips as part of a mobile payment system.
Systems such as swappable microSD cards and two-dimensional bar codes are being used in rival programs.
"To have all these different technologies out there freezes the market," said Paul Tomasofsky, the president and executive director of the Secure Remote Payment Council. "There is not enough critical mass in any one of the technologies, and the marketplace doesn't know what to do."
Tomasofsky's organization is developing a set of best practices for payments companies involved in mobile and Web-based initiatives.
NFC's primary hurdle always has been how the card brands, issuers, mobile operators and handset makers divvy up transaction revenues.
Merchants play a role, too, because they would have to adapt to accept NFC payments.
They might be purposely standing on the sidelines instead of helping NFC gain mass adoption, since the incentives for them are less clear.
"If merchants are hearing about [business-model issues], I wouldn't be surprised if they are hanging back to see what develops," said Red Gillen, a senior analyst at Celent.
On Nov. 16, the wireless carriers AT&T Inc., T-Mobile USA Inc. and Verizon Communications Inc. confirmed their rumored plans for a mobile-payments network that would rely on NFC-equipped phones.
Their joint venture might be able to win over merchants if it gives them "really good promotional tools [such as coupons and discounts] and a lower interchange rate," Gillen said.
Unlike other contactless technologies, NFC supports two-way communications, which means NFC phones also can upload information, such as coupons, by communicating with NFC chips placed in payment terminals or even promotional signage, such as posters. For this reason, payments might not be the only factor driving NFC adoption.
While the NFC market figures itself out, bar-code technology is emerging as a less complicated way to complete mobile payments.
Starbucks Corp. and Target Corp., for example, each use barcode payment systems for their store-branded prepaid gift cards.
"The bar code is more ubiquitous and easier to get into consumers' hand[s] and has the advantage" over NFC and microSD cards in that regard, said Tomasofsky, who also is president of Two Sparrows Consulting.
Gillen and other observers said they view bar-code technology as a bridge to NFC payments.
One company that developed a bar-code technology for mobile payments says it plans to get its offering on to NFC chips when the time is right.
Think Computer Corp. has developed a mobile application that uses two-dimensional bar codes to complete transactions at participating retailers. The application also displays the user's digital image to help merchants authenticate transactions.
"If an [NFC] chip gets integrated into a phone, Apple and Google will release new software-development kits built around that chipset," said Aaron Greenspan, the founder and chief executive of Think Computer. "As soon as those kits show up, we'll start writing [software] code that uses the chip."
The prospects for microSD chips, which consumers can install by themselves in many smartphones, probably will depend on what happens with NFC, Gillen said.
"MicroSD will become less relevant since NFC chips will be embedded in the phone," the Celent analyst said.
In August, Bank of America Corp. announced it is collaborating with Visa Inc. and DeviceFidelity Inc. on a mobile-payment trial involving microSD chips integrated with a mobile payment application. U.S. Bancorp and Wells Fargo & Co. are also testing the contactless microSD technology.
The microSD chip has long-term potential because the number of phones that can accept the chips is already substantial, Tomasofsky said. The obstacle to mass adoption, however, is persuading consumers to get a chip and assuring merchants that consumers will use it to pay, he added.
Each technology has roadblocks to broad adoption, Tomasofsky said, but the different players should prepare themselves for the emergence of a leader.
Companies should stay flexible and change their business models if one technology gains mass adoption over the others, he said.
Any of these systems might be able to achieve wider use if a company focused on a particular consumer segment and broke it down even further by particular transactions, such as groceries, Tomasofsky said.
Companies that can capture a certain segment and do well within it could then branch out to others and build critical mass for that payment technology, he said.
Even as the competition among technologies remains unresolved, mobile phone companies continue to push ahead with their favored systems.
Apple Inc. already has built NFC-enabled iPhone prototypes using chips from NXP Semiconductor, according to the technology blog TechCrunch. Apple also has filed patents related to NFC technology and an iPhone application that would initiate mobile payments.
Google Inc. at a conference Nov. 16 demonstrated an Android-powered handset that featured an NFC chip.
"All the stars are starting to line up and show how the mobile phone can be used to create a secure payment environment," Tomasofsky said.