Thursday, April 30, 2009

Mobile Banking Could "Kill" Credit Cards & Cash

Banking by phone used to mean dialing a number and speaking with a teller. For Peter Kastner, 61, a consumer electronics consultant in Westport, it means whipping out his iPhone and touching an on-screen icon.

Up pops a program that connects Kastner to his Bank of America accounts, where he can check his balances and pay his bills, even when he's traveling or boating on the Westport River. No need to interact with a bank employee.

``I don't have to be tethered to a desktop anymore,'' said Kastner. ``Everything I can do on a Web browser, I can do on my iPhone.''

Mobile banking seems like a natural application for today's powerful smartphones, and a majority of the nation's major banks offer mobile services. But most of America's 270 million cellphone subscribers have yet to embrace the concept. That poses a challenge for efforts to convert our cellphones into digital wallets that would take the place of today's credit cards.

``About 10 percent of people have tried mobile banking,'' said Mitch Siegel, director of payment advisory services at the accounting and consulting firm KPMG LLP in Atlanta. Siegel adds that many of those who have signed up for mobile banking services rarely use them. 

But Scott Moeller, chief executive of mobile banking software maker M Shift Inc. in San Jose, Calif., said his client banks have been signing up lots of new customers over the past year. ``We're seeing the adoption rate increasing dramatically,'' said Moeller. ``You're looking at the start of what's to come.'' 

Moeller credits the increasing popularity of powerful smartphones like Apple Inc.'s iPhone and Research In Motion Ltd.'s BlackBerry, which are capable of running more sophisticated programs than simpler, cheaper phones. 

Douglas Brown, senior vice president for mobile product development at Bank of America Corp. in Charlotte, N.C., said that his company alone has signed up 2.4 million mobile banking subscribers. ``There's a convenience and control function that people really enjoy,'' said Brown.

Today's mobile banking applications work in the same fashion as a bank's website. For example, the iPhone application for Bank of America lets users see account balances, transfer funds between multiple accounts, or make bill payments. ``Unfortunately, your cellphone can't give you cash,'' said Kastner.

But it can do the next best thing. By adding a radio frequency identification chip to the phone, it can be used to buy products at retail stores. A user would merely tap the phone against a ``near field communication'' device that could read the radio signal from the chip and collect the purchase price from the customer's bank or credit card company. It might sound like science fiction to Americans, but not to people in Japan. About 50 million people in that country carry ``wallet phones'' that let them buy items as well as place calls.

Wallet phones are getting tryouts in the United States, but nobody expects them to become commonplace anytime soon. ``We think this is more like a five- to 10-year thing,'' said KPMG's Siegel. 

The industry faces a classic chicken-and-egg challenge. Hardly any US cellphones contain the necessary chip technology, and consumers won't buy them until enough retail stores have checkout devices that will work with the technology.

Mohammad Khan, president and founder of Vivotech Inc. in Santa Clara, Calif., said that this problem is well on the way to being solved. About 80 million credit cards already contain the same kind of chip found in wallet phones. And Vivotech has sold about half a million of the card-reading devices, including 400,000 to retailers in the United States. As more retailers begin using the chip-reading checkout system, Khan predicted, consumers will grow comfortable with the technology and begin demanding wallet phones. ``They're tapping their card to pay,'' Khan said, ``and tomorrow they'll tap the phone to pay.''

Khan says digital wallet technology is very secure, even though credit data is being radioed from the phone to the checkout device. The phone's chip generates a unique code number for each transaction, so data intercepted by criminals couldn't be used to make any more purchases.

Still, it'll be years before most retailers will be able to accept cellphone payments. But efficiency-minded consumers like Kastner will welcome the changPublish Poste. ``That would be one step closer to removing currency from my life,'' he said. ``It's as simple as that. Convenience.'' 

Source: The Boston Globe 

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