MasterCard International is planning to test software that would let people download the information needed to turn a cell phone chip into a contactless payment card.
Several U.S. companies are testing hardware that turns phones into payment mechanisms, and at least one phone company is already offering a handset that includes a contactless payment chip as an option.
But the contactless payment phones that have been tested to date have typically been preconfigured by hand. Card executives say that if the concept of phone payments takes off, and people start purchasing mobile phones that come with inactive payment chips, the industry must be able to activate them remotely.
Issuing credit and debit products used through cell phones “is a very different world from a traditional world of bank card issuance,” Richard Fletcher, the group head for MasterCard’s mobile/wireless center of excellence in London, said Wednesday in an interview. “We think we’ve cracked that problem.”
The software MasterCard expects to begin testing this year would let people contact an issuing bank to activate their phone’s payment chip remotely. Mr. Fletcher said that issuers could let customers do so through their Web sites or by using a landline or mobile phone. The process would be nearly instantaneous and would be comparable to the way people activate a credit or debit card today, he said.
The software, developed by the Munich payment technology provider Giesecke & Devrient GmbH, uses a Java “midlet” that can work on any handset capable of running Java. (Many cell phone games are Java midlets.) Giesecke & Devrient is expected to demonstrate the software this week at the Cellular Telecommunications and Internet Association’s Wireless 2006 conference in Las Vegas.
Mr. Fletcher said that the software would support only MasterCard products. It is designed “to support PayPass and other MasterCard programs, not to be an industry generic solution.”
Once the tests demonstrate the chips can be activated remotely, MasterCard hopes to expand its capabilities, he said. For example, people could select a payment product, or even multiple ones, from a menu of issuers’ offerings. (Only one payment product would be active at a time; a specialized application would let customers toggle back and forth during the day.)
“One of the issues with mobile commerce, generally, has been that up until now, the handset technology’s not quite been ready,” Mr. Fletcher said. However, “there’s momentum now, and there’s a lot of interest in taking this product to market and making it real.”
Phone manufacturers are already building the technology into their phones, he said. In 2004, Nokia Corp. announced it had developed a specialized shell for its model 3220 handset that features a contactless chip; the Finnish cell phone company started testing the payment phone last year.
Mr. Fletcher said incorporating contactless payments into cell phones creates opportunities that are not possible with traditional plastic cards, because “the cards are passive devices, and the handset is an active device with a battery in it.”
For example, the phones could include a password-protected “on/off button” that lets people deactivate the payment function, he said. That function could be useful if the phone is lost or stolen.
MasterCard tested mobile phones featuring its PayPass contactless chips in Dallas in 2003. The payment information in those phones was installed by hand.
JPMorgan Chase & Co. and Visa U.S.A. have been testing a mobile phone payment system in Atlanta since December, and Morgan Stanley’s Discover Financial Services has also been testing a contactless payment phone.
Dan Schatt, a senior analyst for the Boston market research firm Celent LLC, said remote activation is “a much better solution than what MasterCard has done in the past.”
However, he also said that the long wireless service contracts many U.S. consumers carry could delay the arrival of mobile payment phones. The handsets may be commonly available in about a year, but most consumers wait until their contracts expire before switching to a new provider or upgrading their phones, and it could be two years “until we see a lot of people move over” to payment phones.
Aaron McPherson, a research manager for payments at Financial Insights Inc., a Framingham, Mass., research unit of International Data Group Inc., said card companies and issuers will need to work with phone carriers if they want to use mobile phones as payment devices.
“The carriers have become powerful enough that they’ve been able to force the handset manufacturers to customize phone features for them,” he said, and since the software MasterCard plans to test “uses the network for activation,” the carriers will demand to be involved.
Carriers could ask for some kind of branding arrangement with the issuers, but in exchange, banks would be able to offer customers a simple, ubiquitous payment instrument, Mr. McPherson said.
“You carry your phone on your belt,” whereas cards are tucked away in a wallet or a purse, he said. The cell phone is “always available.”
