Future of Mobile Banking: Paying with Your Cell Phone

Clerks will soon need to offer you a third choice in addition to "credit or debit": cell phone. Google on Thursday rolled out a trial program to allow shoppers to use phones as electronic wallets, taking us closer to a future in which you can leave your plastic and cash at home and instead pick up milk at the grocery, get on the subway, or buy baseball tickets through a simple tap of your BlackBerry or Android. Your PC could be tied to your phone, too, so buying items online could be accomplished with another simple tap, with no need to remember countless site log-ins and passwords. And merchants could use the system to communicate with you as well, sending receipts and custom offers based on your shopping history directly to your phone.

After Google unveiled its tap-to-pay technology in New York, PayPal struck back in a California court with a lawsuit alleging the service is the byproduct of intellectual theft and betrayal. Google says it will fight the allegations.

The technology enabling such mobile commerce, known as NFC, for near-field communications, has actually existed for several years; it’s the same type of system used when you zip through tolls with your EZ Pass. Japan and South Korea already have mobile payment systems to pay for public transportation and convenience items. But NFC has been slow to get off the ground in the U.S. as cell phone makers, mobile carriers, banks, and retailers figure out how to manage the technology — and, of course, divvy up the profits. But the necessary pieces are slowly coming together.

Late last year Google introduced the first NFC-enabled smartphone, the Nexus S, made by Samsung. A simple app turns the Nexus S into a portable payment processor. And more phones are on the way. Nokia and BlackBerry maker RIM have promised to unveil their own NFC smartphones by the end of the year. For its part, Apple has been cagey about its NFC plans, with some doubts as to whether the technology will appear in the next iPhone. But starting next year a surge of NFC phones should begin to reach consumers. Market researcher Pyramid Research is forecasting that 28 percent of all smartphones (around 250 million) sold by 2015 will be NFC enabled.

Olympic Trials

Meanwhile, Verizon, AT&T, and T-Mobile are developing their own mobile payment networks, often in conjunction with banks. And retailers have been dabbling with NFC as well. At next year’s Olympics in London, for example, sponsored athletes will be able to shop and pay for items at participating vendors via NFC-equipped smartphones given to them by Samsung and Visa.

As with all mobile technologies, especially those involving commerce, customers have one key question: Will NFC be safe and secure? A recent survey from MasterCard showed that 62 percent of respondents said they’d need to be sure their personal information was secure before buying something directly with their smartphone. The survey revealed a sizable difference of opinion based on age: Among those 18-34 years old, 63 percent said they would be comfortable paying for items via NFC, but for those 35 and older, the percentage dropped to 37 percent.

In order to allay those concerns, the industry has instituted a number of safeguards. To make a payment, for example, you’ll be required to punch in a passcode at the point of sale, just like you do when you use your ATM card. The NFC software will also include built-in security and encryption.

Safety First

What if you lose your mobile phone? Just as with a credit card, if you report it lost, the payment system would be disabled and you wouldn’t be responsible for any unauthorized charges. Your bank could even remotely wipe the credit card account information stored on the phone. It’s also possible your phone wouldn’t even house your credit card information, but would instead store a randomly generated token that your bank would compare with your actual credit card number when you make a purchase.

Even with the right security measures in place, the NFC industry will undoubtedly face challenges trying to convince consumers that the technology is safe and reliable. And there are also some companies, notably Square, that have developed mobile payment systems that don’t use NFC. But once the pieces start to come together and consumers get their feet wet with mobile payments, your phone may just replace your wallet.

Predicts Pyramid analyst Stela Bokun: “Over the next five years ... NFC-based services will become ubiquitous, consistent, and secure.” As to whether making it even easier to separate you from your hard-earned money is such a good thing: Well, that’s another question entirely.

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Journalist, software trainer, and Web developer Lance Whitney writes columns and reviews for CNET, Computer Shopper, Microsoft TechNet, and other technology sites. His first book, "Windows 8 Five Minutes at a Time," was published by Wiley & Sons in November 2012.