Digital Transactions Authoritative, insightful and timely information for payments professionals
The recent surge of interest by banks in allowing customers to view accounts, pay bills, and perform other functions via mobile phones is paving the way for mobile payments to merchants at the point of sale, according to a new research report. In particular, the report argues, mobile banking will ultimately lead to contactless payments through handsets. “To many in the industry, mobile contactless payments is the end game, allowing consumers to use their phones to make payments at a point of sale,” argues Celent LLC analyst Dan Schatt in the report, “U. S. Mobile Banking: Beyond the Buzz.” Speaking to Digital Transactions News, Schatt says two forces will lead from mobile banking to contactless payments. One is the ability offered by mobile banking to check balances on the go. This function has become a near-necessity for more and more consumers as they depend on cash back on debit cards at the point of sale, Schatt argues. “An increasing amount of money is being pulled out of the point of sale instead of ATMs,” he says. “So there's an immediate need to check your balance and check it quickly. You don't want to be humiliated [by a denial owing to insufficient funds]” The other factor, he says, is loyalty and rewards programs delivered through mobile devices. Banks have not yet begun to work with retailers on such programs, but Schatt sees the potential for merchant-driven rewards programs involving on-the-spot messages to select consumers advertising specials and discounts that might be available for only a limited time, such as later in the day. Consumers could receive word of the specials via text messages to their phones that would also promote the cards they hold from their banks. In both instances, consumers will begin to see advantages in loading cards on phones to complete transactions, Schatt says. “Reach into your pocket to grab a phone, reach in to grab a card?at the end of the day the absence of work is what drives adoption,” he says. That will mean consumer demand over time for contactless technology, which enables mobile-phone payment at the point of sale through a standard called near-field communication (NFC). With NFC, phones carry card-account information that can be transmitted via short-range radio waves to point-of-sale transceivers. “There's some value to the contactless card, but the real value is when you can get those transactions on a phone,” Schatt says. Up to now, NFC payments have been tested by both Visa USA and MasterCard Worldwide in a few pilots. Though banks have experimented with mobile banking for years with dismal results, improvements in handset capabilities and wireless speeds are helping to propel adoption now, Schatt says. In recent weeks, banks such as Citigroup Inc. and Wachovia Corp. have adopted downloadable technology from startup companies that lets customers perform banking functions, including funds transfers and bill payments, from their handsets (Digital Transactions News, April 4). Although only 200,000 households, or 0.5% of all online-banking households, were using mobile banking at the end of 2006, Schatt estimates that proportion will grow to 3% (1.4 million households) by the end of this year and 10% (5 million households) by the end of 2008.
