Since October last year, motorists in Decatur, Ga., have had the option to pay for metered parking using cell phones. After pulling into a parking space near the courthouse, the driver dials in a parking space number and the allotted time before receiving a text message confirming authorization. MobileNOW!, the company spearheading the project, plans to expand coverage later this year to 350 spaces, up from 50.
While fledgling, the initiative could soon spread fast if Americans find it as useful as Europeans: the company's licensor has so far installed 70,000 mobile parking meters in Belgium, plus others in the United Kingdom, Estonia, Slovakia and Ukraine.
"We are trying to use as much existing technology as possible to make it easy for people," says Krista Tassa, president of MobileNOW!, based in Whitestone, N.Y.
Like MobileNOW!'s, many mobile payment schemes have taken hold overseas while remaining in niche pilot stages across the U.S. But with 270 million wireless subscribers nationwide at the end of 2008, representing 87% of the U.S. population, according to CTIA Wireless Association, experts say there's good reason to believe that mobile payments will become as widespread as Internet banking and ATMs (there are others, of course, who have their doubts). If banks aren't ready, other providers, such as wireless phone carriers and payment vendors, will steal the show.
"The one who enrolls is the one who controls," says Richard Crone, chief executive officer of Crone Consulting, a firm in San Carlos, Calif. "This isn't just a first mover advantage, this is a protect strategy."
Crone predicts three phases for mobile commerce in the coming years. The first is underway with mobile self-service, which many mobile banking services offer for account balances and ATM/branch location information. Next will come mobile payments, then user-defined mobile marketing that could prove crucial to attracting merchants. "Financial institutions need to strategically position themselves to ride each of the three waves," he says.
In the United States, paying for goods and services by cell phone still remains in its nascent stages, due in part to lack of simplicity, lack of investment, and cost of hardware. Merchants are reluctant to install any new terminals, which are needed to read new technologies that are already used in cell phones overseas, such as embedded radio chips that enable contactless transactions at the point of sale.
Meanwhile, the payments system in place here already works well: credit and debit cards are accepted almost everywhere, giving a ubiquity and convenience that makes it hard for other payment types to crack the market.
"We have got cash, cards and checks - and they perform adequately for what we need to do," says Nick Holland, a senior analyst at Aite Group. "Fundamentally, whatever you are doing, particularly in the physical payments realm, it has to be better than cash, otherwise it's dead in the water."
Yet with cell phones as ubiquitous as televisions, coupled with the emergence of smart phones, it may be only a matter of time before these devices will match the convenience of existing payment methods, experts say.
Initiatives overseas are proving that consumers like the convenience of using phones to pay bills or make purchases, although the high levels of unbanked in those countries make it a difficult U.S. comparison. In Africa, mobile transfers have taken off across the continent. M-PESA, a payments solution serving the unbanked in Kenya, grew to 1.8 million users in its first 15 months, representing 5 percent of the country's population, according to Aite Group. There, as in the U.S., many cell phone owners don't have bank accounts.
Five competing technologies are vying to provide new convenience for cell phone users. Voice, text messaging and smart phone browsers all can be used for making payments, and are attractive to vendors since they are open systems that can be harnessed easily. Closed systems include downloadable applications and a wireless chip, commonly referred to as NFC, short for "near field communications." These are more complex to pull off because they generally require coordination among various players, such as wireless carriers, banks and other vendors. U.S. banks and card firms have been testing NFC for six years, including a new pilot in India led by Citigroup.
Providers that have had success note that simplicity pays off, with open systems leading the way. That means tapping into what is already widely available. MobileNOW!'s system uses a touchtone response system to take calls, and text messaging to send authorizations. Their first time parking, drivers receive a text message with a personal identification number and password, which they later use to set up an account online, as they would with a highway toll pass.
"The initiatives that work do not necessarily rely on upcoming technology," Holland says. "A lot can be done with existing voice systems and text messaging."
ShortStop, a chain of four convenience stores in Boulder, Colo., completed a pilot of accepting mobile payments for gift cards earlier this year and plans to continue using it. It also uses existing technology. The retail chain has hired Mocapay, also of Boulder, which sells mobile platforms that use text messaging and existing terminals to send and receive gift cards. Mocapay installs software that is downloaded to the terminals. Users receive a code on their cell phones that can be typed in at the point of sale and the account is debited.
Kevin Grieve, chief executive officer of Mocapay and a former chief strategy officer at First Data Corp., says the payments system should not alienate banks since it doesn't displace interchange fees they collect. Mocapay makes money by charging a fee on top of the interchange involved with the gift card. The model assumes mobile payments will add more revenue and loyalty for merchants, increasing sales. Customers can use text messaging, a phone's browser, or an iPhone application to receive the data.
U.S. wireless carriers have yet to sell phones with them, but the chips have done well elsewhere. In Japan, for example, NTT DoCoMo, the country's largest cell phone carrier, has worked with merchants to promote use of payments using NFC chips embedded in handsets. The chip makes it possible for the phones to store data such as personal identification, bank account numbers, balances, credit account information and transit passes. The service, dubbed "Osaifu-Keitai," includes a mobile-phone-based settlement function using credit or prepaid electronic money. NTT DoCoMo has sold 30 million handsets with the chips since its introduction in 2004 through July 2008, the latest figures that are available. The phone company also struck deals through alliances with railroad companies, major convenience stores and supermarkets to develop platforms to accept the payments.
Yet no matter what technology works, banks need to start building a base to capture part of the mobile payments stream in the coming years, Crone says. "The bank must enroll the customer for some type of mobile self-service," he warns. "You need to get the mobile number ingrained in the fabric of the customer profile. If you don't have mobile banking capabilities, you must install it."
One place to start is with their Internet users. About 18 percent of Internet households reported that they have done some type of mobile payment, according to an October survey of 1,000 online users by Synergistics, an Atlanta consulting firm. Methods included online bill payment, transfers, "peer-to-peer" payments, online loan payments and online purchases.
Some banks are already well on their way. Bank of America has signed up 2.6 million active users since it started mobile banking in August 2007. It's new payments venture with First Data, which has gone to market with applicable NFC-chipped stickers that work on any phone, may be one to watch in terms of merchant uptake.
For other banks, the time is now. "We're in the early adopter stage of mobile payments," says Genie Driskill, the chief operating officer at Synergistics Research Corp. "The infrastructure is in place, based on the number of people that have cell phones and smart phones and are already using them for financial activities."