http://www.nytimes.com/2005/01/10/technology/10cellphone.html?th=&pagewanted=print&position=
The New York Times
January 10, 2005
Momentum Is Gaining for Cellphones as Credit Cards
By MATT RICHTEL
eople already use their cellphones to read e-mail messages, take pictures
and play video games. Before long, they may use them in place of their
wallets.
By embedding in the cellphone a computer chip or other type of memory
device, a phone can double as a credit card. The chip performs the same
function as the magnetic strip on the back of a credit card, storing
account information and other data necessary to make a purchase.
In Asia, phone makers are already selling phones that users can swipe
against credit or debit card readers, in much the same way they would swipe
plastic MasterCard or Visa cards. Trials are now under way to bring the
technology to America, industry executives said.
Ron Brown, executive director of the Infrared Data Association, a trade
group representing companies pushing the technology for cellphone credit
cards, said that the new handsets could become "a major form of payment,
because cellphones are the most ubiquitous device in the world." He added,
though, that "cash will never go away."
Advocates say that consumers will readily embrace the technology as a way
to pay for even small purchases, because it is less bother than taking a
credit card out of a purse or parting with cash.
The impending changes to the cellphone happen to coincide with major shifts
taking place in the banking industry. Since credit cards are still
considered somewhat inconvenient, particularly for quick, small purchases,
major credit card companies have developed "contactless payment"
technologies for checkout counters that allow customers to wave their cards
near an electronic reader without having to swipe the card or sign their
name.
MasterCard, for example, has introduced a system called PayPass that lets
cardholders wave a card in front of a reader to initiate a payment, much as
motorists use E-ZPass and similar systems to pay tolls and ExxonMobil
customers use SpeedPass to buy gas. Several major credit card companies
issue PayPass cards; McDonald's has agreed to accept them at some
restaurants.
And American Express announced late last year that it would have its
system, ExpressPay, in more than 5,000 CVS drugstores by the middle of
this year. Judy Tenzer, a spokeswoman for American Express, said the
technology made it more likely that customers would use credit cards to pay
for small items.
Cellphone makers are hoping these new payment systems will also make it
easier to market handsets with credit card functions, although they could
just as easily represent competition for the practice of paying by
cellphone.
The marriage of cellphone and charge card poses some significant
challenges, including security problems. To reduce fraud from stolen
phones, consumers may be required to punch an authorization code into their
phone each time a charge is made.
For more than a year, phone makers, software companies and computer chip
manufacturers have been working to develop secure and reliable payment
technology for cellphones. After the phone's chip is recognized by the
electronic reader, the credit card account number will be verified, as it
is now, and the price of the purchase will be added to the consumer's
credit card bill.
The new phones may also be capable of being programmed for a prepaid sum
from which payments could be deducted.
But there have been some glitches in the product trials, according to Jorge
Fernandes, chief executive of Vivotech, a cellphone software company based
in Santa Clara, Calif.
In two trials, one at a corporation in the Midwest and the other at Santa
Clara University, Vivotech used infrared technology for communications
between the phone and the card reader. Participants had to aim the
cellphone at the reader in a certain way for the infrared beam to be picked
up.
"People got very upset," Mr. Fernandes said. "Pointing your cellphone at a
target is very difficult."
Mr. Fernandes said the company believed it might have solved that problem
by switching to a technology that uses low-level radio signals. Last month,
Vivotech began testing the technology, which allows users to wave the phone
within a couple of inches of a reader, at a sports arena in the Atlanta
area.
Cellphones are becoming mainstream payment devices in Korea and Japan. In
Japan, NTT DoCoMo, the mobile phone operator, said that it had already
sold more than a million phones equipped with chips that include the
payment function.
More than 13,000 Japanese shops have electronic readers capable of
communicating with the phones. For now, the phones are used mostly to debit
a prepaid amount, which is deposited by plugging the phone into a machine
similar to an A.T.M. that takes cash and credits the handset.
In South Korea, people are already using cellphones as credit cards, said
Sue Gordon-Lathrop, vice president for the consumer products platform for
Visa International. She said American consumers would eventually embrace
these new functions, but acceptance could be slower than in Japan and
Korea, where people are more comfortable with using phones for many
purposes.
Also, she said, there are more cellphone operators in America, making it
harder to set standard technology and business practices. "The phones are
exciting, but it's going to be a long time" before a widespread base of
merchants and consumers in America are equipped to use them, she said.
For now, some of the major American cellphone companies are monitoring the
technology without committing to it. Jim Ryan, senior vice president of
product development for Cingular Wireless, the country's largest cellphone
provider, said the company was "closely watching" the progress in this
field.
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R. A. Hettinga