Who needs a credit card, pay by iPhone!

23rd February 2011  

Pay by iPhone credit cards

The biggest change to the way we pay for cheap items since the invention of the credit card itself is on the way. ‘Contactless Payment’ via your credit card was hailed as “the new cash” but the technology will soon be here to enable you to settle small payments on the move with your mobile phone.

Consumers will be able to pay for small items like a magazine or a coffee without the need to find their credit card or search their pockets for cash. Mobile phone networks and handset manufacturers have been in talks with banks and credit card issuers for some time developing the software and particularly the security to enable your smart phone to become a mobile virtual wallet.

Initially it’s likely that the first retailers to be able to offer the payment method will be those already offering credit card ‘Contactless Payment’ which uses some of the same back-end systems, but uses different security.

However, expect there to be some significant competition between the credit card issuers and the major smart handset manufacturers as to who controls the software behind the payments systems. Clearly the convenience of pay-by-phone means it will quickly become a preferred method of payment for many. Whilst the initial maximum transaction value  is likely to be low, once the security and systems are proven, the cap is likely to be raised.

UK credit card heavyweight Barclaycard has just announced a deal with “Everything Everywhere” (the UK’s largest mobile phone network, a merger of Orange and T-Mobile) to bring a pay-by-phone system to 40,000 tills.

Gerry McQuade from ‘Everything Everywhere’ said

“It’s a cultural shift that is as important as the launch of the personal credit card or cash machines. This is the beginning of a revolution in how we pay for things.

“We’re making something that’s been talked about for many years a reality and, very soon, using your mobile to buy a sandwich, a cinema ticket or, in time, even something bigger like a computer will simply be the norm.”

As well as the obvious battle for control of handset payments, companies are also eyeing the potentially lucrative rental contracts they will be offering retailers for new equipment to handle the ‘Point of Sale’ side of the security and payment systems.

Rumours abound that smart phone market leader Apple Inc will include pay-by-phone technology in the forthcoming iPhone 5. Apple’s rapid domination of the paid music download market caught other handset manufacturers unaware, particularly Nokia whose business has been seriously affected by Apple’s dominance. Nokia tried for some time to establish a music download portal that its handset users would regularly use, but its offering never took off.

If Apple could establish its own payments system outside the control of the credit card processing houses like Visa and MasterCard, it would be able to significantly cut its transactions costs on its world beating iTunes platform. Apple is under some pressure to cut its iTunes commission on sales of music and other downloads, and to offer better revenue share to those who actually produce the content and apps it sells on the site.

Its thought that Google and PayPal are also developing strategic partnerships and technology to compete in this space.

So, many of the world’s best known brands will be jostling for position to see whose technology and software establishes the dominant position. This is all good news for the consumer as so much competition is sure to help drive down costs to the end user.

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