Cellphones already play music, scan the Internet, send and receive text messages, and snap photos. Are they going to take the place of our wallets too?
Some big players in telecommunications and finance, including Motorola, Nokia, Sony, and MasterCard, think the answer will be yes, that people will rush to make their phones into a kind of magic wand that effortlessly makes purchases or retrieves information for them.
Americans are already starting to wave a card or key-chain fob near a receiver to do things like travel on a bus, buy gasoline, or unlock a door. But the real shift will happen, some observers say, when mobile phones, with their additional capacities, can do the same thing.
Imagine it's 2009: You're at the movies and see a poster for a coming attraction. You pass your mobile phone within a few inches of the poster, which is embedded with a radio frequency (RF) chip, and download a trailer for the movie, which you view on your phone's screen. The phone then connects you with a website that offers to sell you a ticket and give you a discount on the movie's soundtrack, which you can have either sent to you on a CD or downloaded directly into your MP3 player.
The idea of using mobile phones as vehicles for commerce has been around for years. But this year it finally seems to be getting some traction as major players agree on standards. Last month, Motorola and MasterCard announced they were teaming up to do a field trial of mobile phones equipped with chips that allow them to pay for products. "In essence, your phone will become your wallet, key chain, and your ID," said Ron Hamma, a Motorola vice president, adding that the new handsets have "the potential to be a lifestyle-changing device."
Some industry observers are more reserved. "We are cautiously optimistic that over the medium-to-long term this is an idea that has legs," says Ed Kountz, a senior analyst for emerging technologies at TowerGroup in Needham, Mass.
Next year will see more field trials and pilot programs using the new phones, says Mohammad Khan, president and chief operating officer of ViVOtech Inc. in Santa Clara, Calif., which makes software that stores credit-card information in an "electronic wallet" within phones as well as terminals for merchants who process purchases. By 2006, he predicts, phones using "near field communications" (NFC) will go mainstream with millions of users. By 2009, more than half of cellphones will be capable of making such payments, according to one analysis he's seen.
The advantage of mobile-phone "wallets" over cash or conventional credit cards centers on speed and convenience. Customers don't have to pull out their wallets and hand over cash, take out and swipe a credit card, or sign a sales slip. By waving a cellphone within a few inches of a receiver - a so-called "contactless payment" - customers make their purchases faster. Early tests indicate that they also tend to spend more using that method.
In Japan, mobile customers already can wave their phones to pay for mass-transit rides or buy inexpensive items in stores, vending machines, and restaurants. The phones must be "loaded up" by prepaying cash, as people do when they buy calling minutes on a phone card. The system being envisioned in the United States is bolder, tying phone-based payments directly into the customer's Visa, MasterCard, American Express, or other credit-card accounts.
Security has not been a major concern so far. The signal has such a short range - a few inches - that it would be difficult to steal. And the feature is password-protected and can be turned off when not in use.
"Privacy is essential, and companies are going to address those needs before they roll out any product. It's absolutely critical," says Erik Michielsen, an analyst who follows wireless technologies for ABI Research in Oyster Bay, N.Y. Some companies also envision biometric safeguards, such as requiring a fingerprint ID, to further secure the phone.
A marketing push by credit-card companies next year will be aimed at educating consumers about the merits of all kinds of contactless payments - chip-enhanced credit cards, key-chain fobs, and cellphones, Mr. Kountz says.
Only 10 percent of Americans are aware that a cellphone could be used as a contactless payment device, according to a survey earlier this year by Synergistics Research Corp. in Atlanta, a financial research company. In the same survey, 85 percent expressed concern that it might be hard to verify a contactless transaction if there's no paper receipt.
The potential uses for phones with NFC extend beyond sales into marketing, with products gabbing to customers about their price and features with a wave of their phone.
Myriad other business uses are envisioned, too, such as an on-site technician waving his phone near a disabled machine tagged with an RF chip to receive instructions on how to repair it.
Contactless payments have been slowly working their way into the marketplace for several years. The Massachusetts Bay Transit Authority, serving the Boston area, is just one of several around the country now converting to contactless cards for passengers. McDonald's is beginning to accept contactless MasterCards in its restaurants. "That's a major, major announcement," Mr. Khan says. "We're going to see a lot more retailing chains announcing these programs."
ExxonMobil's Speedpass allows drivers to wave a key-chain fob at the pump to buy gasoline. But it is a "closed system" that works only at that company's stations. The new NFC-enabled phones are an "open system" that someday would work at millions of different sales outlets. Comparing Speedpass to NFC phones is like comparing a pair of roller skates to a fully loaded SUV, Kountz says. "It's got all the bells and whistles."
Even so, getting consumers to abandon cash and plastic and leave their leather wallets at home is going to be "a long-term process," he says. Consumer habits can be hard to shift, and the advantages of wallet phones have to exceed "the hassle of making that shift," Kountz says.