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This story appears in the September 2009 issue of Cards&Payments.
Critical mass is a key driver of any movement, whether it pertains to bicyclists trying to cross a busy intersection in China or trends nudging consumers and businesses toward wider use of mobile payments.
After nearly a decade of schemes to transform mobile phones into virtual payment card wallets and point-of-sale terminals, the evolution toward widespread mobile-payment use has a new link. Mobile applications downloaded to so-called smartphones now lie somewhere in the evolutionary process between person-to-person funds-transfer schemes launched nearly a decade ago and contactless Near Field Communication mobile phones that remain limited to pilots in much of the world.
Increasing use of downloadable smartphone applications is laying the groundwork for wider consumer and merchant demand for mobile payment-enabling tools. This is especially true in countries such as the United States, where mobile payments have not gained as much traction as they have in parts of Europe and Asia but where smartphone ownership is gaining speed.
In the United States, which has prolific plastic payment card use but has done little to adopt mobile-payment tools, free applications downloaded to smartphones make P2P funds transfers easier than ever. And consumers now can search for, reserve and pay for taxis, and receive receipts for the service, all through free smartphone applications tied to payment card accounts.
In addition, more and more merchant acquirers are targeting small-business owners with applications that turn Apple Inc.'s iPhones or Research in Motion Ltd.'s BlackBerry devices into mobile POS terminals for subscription fees of little more than $20 per month.
The growing number of mobile-payment applications for smartphones could provide a big boost to mobile payments, says Bruce Cundiff, director of payments research and consulting at Javelin Strategy & Research Inc. "It's a big deal and could certainly extend the reach and broaden the participation in mobile payments," he says.
A smartphone is a mobile phone that offers advanced capabilities, such as e-mail and Internet access. In an April 2008 survey Javelin conducted involving 2,350 U.S. consumers, 9% of participants said they had used such smartphones as the iPhone and BlackBerry Storm. By April of this year, the percentage had grown to 17% of 2,779 survey participants.
"One of the reasons that mobile payments misfired nine or 10 years ago is that you didn't have a critical mass of consumers that had viable (mobile) devices," Cundiff says. "Now you have willing and able participants who are going to download an application."
A confluence now exists of smarter phones, more-affordable data plans and more consumer time spent doing tasks using mobile devices, all of which will drive consumer and small-business adoption of mobile financial services, according to Mike Friedman, a senior analyst at Mercatus LLC, a Boston-based consultancy.
"The smartphone presents an interface that is familiar and convenient to consumers," Friedman says. "The ability to make electronic payments with a smartphone mimics the PC desktop so well that it's a seamless transition."
Demand Increasing
This increasing reliance on mobile phones to conduct a variety of tasks, undertaken so often, is a fairly recent phenomenon, Friedman notes. "Even three years ago, the amount of time and things we were doing on our phones was very different," he says.
And the demand for mobile payments is increasing along with mobile use, according to a recent Mercatus report.
In June, 18% of 1,166 U.S. survey respondents ages 18 to 25 said they had sent funds, paid someone or paid for something using their mobile phones (not including purchases of ringtones, games or wallpaper for the phones themselves). That is up 11 percentage points from 7% of respondents who reported making similar mobile payments in May 2008, according to Mercatus. Among the respondents to the June survey, 14% ages 26 to 34 reported having conducted such mobile transactions, double the 7% from that age group who said so in May 2008, Mercatus says (
A partnership with Redwood City, Calif.-based mobile-payments firm Obopay Inc. helped MasterCard Worldwide jump into the downloadable apps game in June with the launch of its Mobile MasterCard MoneySend service. At Cards&Payments' deadline, the service was tied solely to a prepaid card issued by The Bancorp Bank, a unit of the $1.8 billion-asset Wilmington, Del.-based Bancorp Inc. MasterCard expects more issuers to offer the service this year.
The service enables consumers to transfer funds between accounts. When the sender and receiver both have cards from participating MasterCard issuers, they can send and receive funds to each other online or by using an application for BlackBerry phones, on other phones via SMS text messaging, or through a mobile browser.
More Possibilities
MasterCard is equally committed to offering payment services through simple mobile text-message channels, which are becoming more common for payments in developing countries where smartphones are rare, says Josh Peirez, MasterCard group executive, innovative platforms. "It's just as fast to send the money with a text message," he says. "But the (smartphone) application really enhances your experience during the service. You can check your balance and interface with your address book."
MasterCard is developing downloadable applications for other smartphone platforms, including iPhones (
"If you're an iPhone user, you don't think of yourself as sending SMS messages, even though when you chat you hit that green bubble that says 'chat,'" Peirez says. "That look and feel is very different from what you get" on a basic cell phone.
Besides P2P payment tools, such as MasterCard MoneySend, consumers also can download smartphone applications to reserve, pay for and save receipts from taxi rides.
For example, RideCharge Inc. in 2007 began as a person-to-taxi reservation and payment system for business travelers. The service works through Web sites, text messaging, mobile Web browsers and BlackBerry or Windows Mobile smartphones. Late last year, RideCharge launched TaxiMagic, a similar service for the general consumer population, enabled by an iPhone application.
Today, both services enable bookings with participating taxi fleets with electronic dispatching services in more than 30 cities.
The concept for RideCharge came from cofounder Tom DePasquale's work building software applications with Concur Technologies Inc., a company that offers travel-reservation and expense-management services for business travel. DePasquale approached Concur about developing an application to offer under a partnership agreement that would help reduce paper receipts and cash transactions from taxi trips by business travelers.
In 2007, the timing seemed right to launch such a mobile application for corporate travelers, says Toby Russell, RideCharge cofounder.
"There was an intersection of mobile technologies and an acceleration of mobile computing–BlackBerry and the advent of the iPhone–to be able to handle on-the-go applications," Russell says.
Users of RideCharge and TaxiMagic essentially are evenly divided between those who use the service through online and text-message systems and those who use it through smartphone apps, Russell says. "We've seen enormous growth on the iPhone," Russell says. "BlackBerry has been growing faster with the launch of the BlackBerry App World."
Russell declined to say how many transactions the company handles each year, but he says the service is growing, mostly from consumers who see their friends use it.
Katherine Sullivan, Concur senior director of solutions marketing, is one of those phone-apps show-offs. "I'm an avid user of RideCharge," Sullivan says. "I was in a meeting with our partner, American Express, in Washington, D.C. We realized that it was 3 o'clock and we hadn't arranged travel to the airport, and we all had pending flights."
So Sullivan booked a taxi through her smartphone, got a message that a taxi had been dispatched, then got notification some 30 minutes later that a taxi was waiting downstairs. "My peers at American Express were in awe," Sullivan says. "They knew we were offering the service, but the peer next to me had not utilized it yet."
Besides the convenience and fun factors, a key for Concur is helping corporations manage travel expenses, especially in a traditionally cash-based service such as taxis, Sullivan says. "You potentially could have fraudulent activity when the driver gives you extra receipts," she says.
The recent introduction of another app demonstrates consumer demand for tools to enable financial functions on smartphones.
Bank ATMs In Jeopardy?
On Aug. 11, USAA, a San Antonio-based financial-services provider for some 7.2 million military members, veterans and their families, launched Deposit@Mobile, a platform that enables users to deposit checks to their USAA accounts using images of fronts and backs of drafts captured with an Apple iPhone camera.
USAA's customers used their iPhones to deposit $1.5 million during the first three days the service was available. By Aug. 18, some 70,000 customers had either downloaded or updated the Deposit@Mobile app, according to USAA.
USAA officials attribute the popularity of Deposit@Mobile partly to the geographic distribution of its customers. "Nearly 50% of our 1 million mobile users are active-duty military, who may be deployed anywhere," Wayne Peacock, USAA executive vice president of enterprise business operations, said in a statement.
The bank is developing similar check-deposit applications for BlackBerry, Palm Pre and Android smartphones.
Applications that turn smartphones into card-accepting payment terminals are proliferating, too, as merchant acquirers and independent sales organizations seek to enable more small-business owners to capture and settle card data on the go.
Such applications include QuickBooks maker Intuit Inc.'s GoPayment application for iPhone and iPod Touch users, which includes a one-time set-up fee of $59.95, monthly fees of $19.95 and "competitive" per-transaction fees Intuit did not disclose. And wireless terminal provider and payment gateway Charge Anywhere LLC offers mobile card-payment software for a variety of BlackBerry, Windows Mobile and J2ME smartphone platforms.
U.S. independent sales organization iTransact Inc. launched an application for iPhones, iMerchant Pro, in early July. Formerly called RediCheck, Salt Lake City-based iTransact offers merchant accounts for accepting credit, debit and gift cards and electronic checks. It also offers related services and equipment and an Internet payment gateway to e-commerce and brick-and-mortar merchants. ITransact works with a variety of processors and ISOs, including Retriever Payment Systems Inc. and National Processing Co.
In the past year, an increasing number of iTransact's merchant customers stopped by its booths at trade shows and asked when the company would start offering applications to enable card acceptance on smartphones. One of those customers, software developer Cliff Helsel, offered to build the app for iTransact.
Helsel's initial contact with iTransact was in April, and the application was ready for launch by June.
The company sold six of the applications right away and had about 20 awaiting approval of their merchant accounts within a few weeks, says Troy Burningham, iTransact senior sales agent. The company expected contractors such as plumbers and carpenters to adopt iMerchant Pro, but Burningham says he was surprised by the variety of merchants using the service. "One is a hairstylist who goes to her clients' homes and adds hair extensions for $300 or $400 per session," he says. "And a guy with a fruit stand selling juice by the side of the road wants one."
The application, available for download through the Apple Store, costs $24.99. Merchants then pay $25 per month for iTransact's gateway and processing fees.
Using the application occurs "as quickly as you can type," Burningham says. At press time, the company was preparing to offer a small card-swipe terminal that would connect to iPhones. After a transaction, iMerchant Pro e-mails a receipt to the customer.
The main draw of such applications for small-business owners is the security of authorizing card transactions and receiving approval before they release merchandise to customers, according to Burningham. "They like the security of knowing when they drop off merchandise they don't have to rush back to their homes or stores and hope that the credit card goes through," he says.
ITransact also is working with developers to offer the application through other smartphone platforms, including BlackBerry, Burningham says.
Analysts interviewed by Cards&Payments were hard-pressed to estimate the exact number of payment-related applications now being offered for a variety of smartphone operating systems. But a search of Apple and BlackBerry apps stores revealed dozens of applications, with a larger portion devoted to converting smartphones into POS terminals.
Small-Business Demand
Payments enabled by mobile applications are not so much a new type of payment as they are an easier-to-use version of mobile payments, Cundiff notes. And the more consumers and small-business owners use applications to enable a variety of functions, the more both will generate further public demand for payment-enabled mobile devices, he says.
Red Gillen, senior analyst at Celent LLC, agrees. "Some of these financial apps are acclimating consumers to the idea that your phone can play a role in your financial life," he says.
That acclimation likely will move from mobile banking and alerts, which are only informational, to paying bills through mobile-banking apps, then person-to-person payments, then perhaps POS schemes, Gillen says.
What is less clear is how payments enabled by applications downloaded to smartphones might improve the prospects for contactless payments enabled at points of sale by NFC chips in mobile phones or other devices, Cundiff adds. "I still think Apple's going to be the first company to move on the handset side of things, which will mean putting an NFC chip in the next generation of iPhone," he says. "But I'm kind of hazy on whether there's interest" in that from consumers and merchants.
What is clear is consumers and merchants have a growing variety of payment applications available for their smartphones. And the proliferation of apps shows no signs of slowing. CP
(ATM&Debit News Editor Frederick Lowe contributed to this article.)
