Dynamics Inc. made a splash last year with the launch of a Citi-issued multipurse card that has a built-in screen and keypad, but all of those features are duplicated by the mobile wallet systems that have been announced since then — including Google Wallet, which also has Citi's support.
Despite these advances in mobile payments, investors are expressing faith in Dynamics, which received roughly $35 million in its latest round of funding. They praised Dynamics' technology for its compatibility with existing point of sale devices, whereas many mobile payment systems would require upgraded terminals.
However, Dynamics' system could be categorized as a "bridge" technology, which would be used primarily to satisfy issuers and retailers that do not want to wait for full-fledged mobile payment systems to take off. Other providers of bridge payment systems have already had to discontinue their products (for example, Bling Nation Ltd. offered mobile payments through a sticker that attaches to phones, but shut down in recent months to refocus its business model).
Dymamics, aware that it too could suffer if other technologies gain momentum, is already looking at how to adapt if its flagship product fails in the market.
"If banks in the U.S. want contactless cards, Dynamics can deliver it. If they want EMV [chip and PIN], we can deliver that. If the banks want phone-based payments, we can deliver it," Jeff Mullen, Dynamics' chief executive, says.
Dynamics will use its latest funding to hire new employees and increase the production capacity of its cards, he says. The investment round was led by Bain Capital Ventures of Boston.
Dynamics' card has a rewritable magnetic stripe, which consumers can use at any time to switch the account from which the card draws funds. Citi's version of the Dynamics card, called the 2G card, uses this feature to allow customers to redeem rewards at the point of sale. The technology can also be used to introduce dynamic data to each transaction, improving security.
Cards with built-in screens and keypads can also be used as one-time password tokens, generating a unique code to be used to access online banking or to authorize payments.
All of these functions can be handled in software on a mobile phone. Google, of Mountain View, Calif., is testing a mobile wallet that can access multiple accounts, including one issued by Citi. The other account is a Google-branded stored-value account. The Google Wallet is accessed through a phone that has a built-in contactless payment chip, which can generate dynamic data to improve security for each transaction.
Many security vendors also offer software banks can use to produce one-time passwords from a handset.
Despite these advances, Mullen stressed that the U.S. payments market is still very much in flux, and that the current batch of mobile payments systems is not guaranteed to succeed. Though phones have been widely used for payments in developing countries, there are fewer success stories in developed ones like the U.S., he says.
James Van Dyke, the president of Javelin Strategy and Research in Pleasanton, Calif., says that it is too early to declare any mobile payments system a success.
"The reality is that anybody that claims to have surety of knowledge of how mobile payments will take off is a liar, no one knows," Van Dyke, says.
Van Dyke says much of the current mobile-payments technology he has tried "doesn't work," but that "mobile payments is absolutely coming and someone is going to be first." He stressed that the winner is not likely to be decided this year.
In the meantime, many companies continue in their efforts to improve the everyday magnetic-stripe card.
"The fact of the matter is, the overwhelming majority of us still use a tried-and-true payment form, our plastic card in our wallet," says John Grund, a partner at First Annapolis Consulting in Linthicum, Md. "This is not a fork in the road where the investment dollars are going to be focused all on emerging [technology]. It's not a beginning to an end for the legacy products."
A Google spokesman says the company does not provide comment on rivals' payment systems. A Citi spokeswoman would not provide an executive for an interview.
