Photograph by Sue Tallon

Your Smartphone Will Soon Double as Your Wallet

The race is on to transform your smartphone into your wallet.

The Japanese call it osaifu keitai (cell-phone wallet). Flash your phone virtually anywhere you go for almost any purchase and it's automatically logged into a digital expense report. Eat frequently at McDonald's? Tap your phone to pay and your all-in-one debit card/receipt tracker/loyalty program may instantly offer you 10% off.

Today, if you want to enjoy these benefits, you have to go to Japan. But after years of talk, wireless carriers, banks, startups, and handset makers are now actively working to transform Americans' cell phones into mobile wallets. The goal: to snag a share of the processing fees associated with the $3.2 trillion in annual retail credit-card charges, and to turn the $1.2 trillion in cash and check spending into digital transactions.

For the past five-plus years, Visa and MasterCard have used near-field communications (NFC) chips in tap-to-pay credit cards and key fobs. Now they're embracing mobile phones as well. Later this month, Visa will release an iPhone case (developed with Dallas-based Device Fidelity) that makes the handset compatible with tap-to-pay consoles. This follows MasterCard's similar entry this summer, when it started marketing tags (developed with Atlanta-based First Data) that stick to phones. "Consumers already use phones for online payments," says Josh Peirez, MasterCard Worldwide's chief innovation officer, referring to downloaded songs and software. "The goal is to get them comfortable doing the same thing in the physical world."

The interim offerings will have a decidedly short shelf life. Nokia has announced that it will include NFC chips in all its 2011 smartphones, effectively forcing Apple, Research in Motion, and other rivals to follow suit. "Stickers and stuff are welcome bridges," says Gerhard Romen, Nokia's director of mobile financial services, "but demand is growing, and full implementation is what makes a technology go forward."

Analysts estimate NFC will become ubiquitous within the next three to five years, which will give wireless carriers newfound leverage in determining the future of the mobile wallet. Indeed, AT&T, Sprint, T-Mobile, and Verizon are reportedly working on a joint-payments initiative. (All either declined to comment or couldn't be reached.) "Not only do they distribute the physical devices and 'own' millions of customers," says Philip J. Philliou, of payments-consulting firm Philliou Selwanes Partners, "but they also understand how to do payments — billings, collections, maintaining accounts — on a massive scale."

That said, carriers are unlikely to go it alone. In Japan, a primarily cash-based society, NTT DoCoMo took control of the mobile-wallet market by buying a bank. A likelier scenario in the United States — where consumers already love to buy now, pay later — would be for one or more carriers to partner with or even acquire a credit-card network, so as to take advantage of its brand equity, processing savvy, and retail relationships. "Together, they can offer unparalleled fraud protection," Philliou adds. "And when risk decreases, so does cost."

The excitement surrounding the mobile wallet's potential is so fevered that in addition to carriers and credit-card networks, now banks, tech giants, and startups are all eager to lay claim to some part of this potentially huge new ecosystem. PayPal already lets users send money via text message, and Osama Bedier, its VP of mobile platforms and new ventures, envisions a service that stores gift cards and alerts customers when they're near a merchant. This past summer, mobile startup Loopt launched its Loopt Star program, an über digital-rewards card for such brands as Starbucks and Gap. U.S. Bank is working with Infosys to move beyond a basic banking app: It's developing a location-based "concierge" so smart (and potentially creepy) that it can offer a shampoo discount to shoppers browsing the hair-care aisle. As NFC tech proliferates, says Dominic Venturo, U.S. Bank's chief innovation officer, "we'll be able to make a business case for services that are even better."

This year, eBay expects U.S. consumers to buy roughly $1.5 billion worth of goods using its smartphone apps. It's a short leap, then, to using that same handset to pay at the Target in your neighborhood shopping center. "From the customer's point of view," says Robert Hedges, a partner at the financial-services consultancy Mercatus, "the question is, When is the banking industry going to catch up with us?"

Photograph by Sue Tallon

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  • Darrell Tadley

    “NFC is not the silver bullet. Touch tag payments have been around for the longest time with limited success. Some of my cards are already proximity chip enabled and I still swipe them - even when there is a touch capable unit such as VeriFone. The merchants are barely aware that they have the touch n pay option. That's a very US-centric view of course, as Europe, Asia and Australia already have a ubiquitous deployment of Chip & Pin terminals. I do see part of the value proposition as being that issuers could potential reduce card management costs by facilitating device registration against an account. And also there is the element of functional integration beyond payments, such as loyalty systems and the onset of the apps approach, such as the Starbucks iPhone / Android app or our own BaruPay”

  • Amos Winbush III

    The mobile wallet is a great idea for mobile carriers as it will bring in additional revenue. But I do wonder how many customers will immediately begin to use this option verses paying the traditional way with a credit/debit card. Customer conversion will be the biggest challenge implementing this new technology.

    Amos Winbush

  • John Heaney

    What's missing from the mobile wallet discussion is the reason why consumers would switch from their convenient and trusted card swipe to a potentially less convenient mobile wallet payment system. Right now I just open my wallet, extract card and swipe. With most mobile wallets, I'd have to turn on my phone, enter a passcode, launch the mobile wallet app, enter another passcode, select the card I want to use then tap the countertop terminal. Is the mobile wallet really any easier? Consumers will embrace the mobile wallet when it enhances the shopping experience beyond payments. Mobile loyalty will likely be the first widely adopted application. No more plastic cards, instant enrollment, realtime balance checks and targeted coupons and promotions sent right to your phone, saving you money and potentially connecting you with other merchants or shoppers. When the mobile wallet providers look beyond payment they'll see how they can really enhance our shopping experience.

  • Dan Martin

    What happens when you don't have your leather wallet and you're about to pay for something, but the battery in your smartphone is dead? Maybe the merchant will need to have some type of universal charging device so you can pay.

  • Thomas Albert

    The use of Smart Phones for wallets is a neat plan of absolute government control of private individuals.  As we have seen wit this bogus War on Terror, the government can go to any carrier and tap your smart phone, tracking your accounts and if they desire to shut off your cash to put you in a spot where you have zero resources available.  Smart Phone wallets are just one more step to a dictatorship, where absolute control is ensured by any means possible.  Besides the obvious hacking issues, the facts are we are already dealing in funny money, this just would make it funnier.

  • Mike Gauba

    Mobile Wallet has only been able to build some traction in Japan because of the generous incentivization. Once it is withdrawn, people are likely to stop using their mobile for purchases. This is because Mobile Wallet is a secondary service on a mobile phone, the primary service being the telephony. The secondary services typically struggle for usage till a focus is brought on to them. Once that focus is withdrawn, the usage diminishes.

  • Mike

    My Blackberry Bold 9900 Has NFC. I can't use it anywhere yet. I have no idea how to link it with my credit card. The sooner the better. I wonder if we'll have a mobile drivers license linked to this technology some time soon as well.

  • David True

    It will be a marathon, not a sprint, with a measured pace and many adjustments on the way.  The technology is there, but reasons for merchants and consumer to adopt in large numbers are not. 

    In particular with NFC, and all the hardware and behavior changes it involves, the path will be a long one.  NFC is getting all of the buzz these days, but there are other technologies in market (or soon in market) that may better address the merchant/customer value question, and thus will grab share more quickly.

    And until there is a common standard that people can use at many merchants, customer adoption will be slow.

  • Hotrao

    Every innovation as one (or more) good sides and one (more) bad sides.

    This one is tricky. The convergence between mobile phones and payments is usefull, and could increase commerce, by getting people spending as fast as a bullett.

    But gives you also everybody the capability to automate a gesture (paying) without having the capability of understanding if they can afford the buy or not.

    We need to stimulate economy, but, definitely we don't need people having more debts than they have now.

  • Victoria Sheppard


    Costanza-like wallets are already a thing of the past! While I'm waiting for mobile payments, I'm already using Cardmobili (www.cardmobili.com) to store all my loyalty cards! And I also have all my husband's cards in my LG! Guess it is also available for iPhone, Windows Mobile and Android smartphones. YOu should check them out!

  • Scott Byorum

    I can do without my cellphone... because I don't have one. I never have and I hope I never will. I've used one before and I didn't like it. So I hope I'm not forced to integrate with this gung ho snowball. I hope our culture evolves to keep choices open to those not interested in adopting certain technologies.

  • Morgan Barnhart

    This is HUGE! In today's society, when you ask someone what they couldn't do without, most answer "My cellphone." I have been waiting for something like this for quite some time. Practically everyone I know, don't carry around cash anymore. So this surprises me that Japan, as stated in the article as a cash wielding society, would implement this first. The apps are a good start and I hope we'll catch up soon.

  • ppeyret

    There are reasons and circumstances when using a mobile phone for paying or managing money makes good sense. The two most obvious ones: (1) in urban transportation / mass transit where pulling a card out of a wallet takes more time than tapping a phone when going through a turnstile in the metro or exiting a taxi cab in a rush; (2) for people with tight financial means who may not need to actually pay with their phone, but want real-time access to their balance, instant ability to deposit cash in their account, or get a check sent to their landlord just in time to not miss paying rent at the end of the month.

    On the other hand, there are bad reasons for attempting to turn a phone into a wallet: making it look cool for customers to bump their phones against a new fancy terminal instead of swiping their card for no particular benefit to the merchant or to the consumer.
    Which is exactly what Bank Of America is doing with its New York trial.
    And by the way, try convincing people to leave their leather wallet at home and only take their smart phone with them, when the driver's license and ATM card can't possibly be an application in their phone!
    Ok, so maybe you can keep your driver's license at home when you live in Manhattan...

  • Tender Futurist

    Actually, your DMV issued license and ATM cards being part of the phone is EXACTLY what this is about, and standards and government policies are already in place to make this happen, in some ways sooner than later, but the clock is already ticking.

    There are benefits for going electronic, far beyond "being cool". Location awareness, enhanced privacy, auto-registration of recall and safety information, better fraud detection and transaction encryption, etc. never mind the speed and lack of chance of spread of contagion by physical contact like money and cards do.

    In the US, by 2014 most DMVs will be complying with the Electronically Verifiable Identity (EVI) portions of the PATRIOT and REAL-ID Acts, while government mandates are in place for many other forms of government issued IDs to become electronically available at the latest by 2017. It may not sound like very far away, but it is coming sooner than many expected.

  • ppeyret

    Dear Tender Futurist...

    About digital Drivers Licenses:
    "Electronically Verifiable" is intended for "non documentary" evidence, like when you provide your SSN inside an online form and its gets matched against your name and date of birth by Experian or some other database.

    As long as the Highway Patrol operates "face to face" with drivers on the road, I doubt that they will be asked to switch from "documentary" to "non documentary" evidence. It may indeed happen some day. Not in 2014, and probably not in 2017 either.
    Mark your calendar: I'll eat my driver's license and buy you a bottle of Champagne if I am wrong.