Credit Card Processing of the Future? Using Smartphones to Make Payments

Update: Cell phone credit card processing is now provided by:


Original Article:
For years, there have been talks of the United States entering a new technology market which would enable consumers to use their cell phone instead of a credit card in the checkout line to pay for their purchases. Technophobia is probably the biggest reason why we still aren’t using phones as a payment method.  The credit card processing of the future would be similar to what has already been taking place in Southeast Asia, Scandinavian countries and even several Third World countries can make payments from phone to phone.  The ability to pay for purchases using a cellular phone is not exactly new; but as it has not become commonplace in the United States beyond a few trial runs in select areas, it’s a future technology that may make it’s way to the country soon.

Original discussions for paying for purchases with cell phones involved the prospect of placing stickers on the back of phones, that could be scanned and used to make a payment using a single credit card account; to the use of key chain swipe cards created by Visa and MasterCard.

The Payment Technology in Mobile Phones

Currently, the major telecommunication companies of AT&T, Verizon and T-Mobile are looking at making it possible for consumers to make payments with any of their linked credit card accounts simply by “swiping” their cellular phones at checkout.  It’s actually more like ‘waving’ the phone in front of a reader.
The cell phone technology would involve a radio frequency identification tag (RFID) embedded into the phones.  Customers could link their credit card accounts with their RFID tags, possibly set up password protection which would require that the password is entered before every purchase, and a remote shut off for RFID tags – in case a phone was lost or stolen.

Using the RFID tags, multiple payment methods could be linked to each consumer’s phone.  When they wave the phone at a reader to make a purchase, they’d then have the option of selecting from their linked accounts to determine which credit card they want to use to make the payment.

Mobile Processing in Retail

For retailers, it would mean purchasing new equipment to read the embedded radio frequency identification tags in user’s telephones.  For consumers, it would mean less time searching through wallets for the card you want to use to pay for; and possibly less opportunities for identity theft through credit card use.

As retailers are expressing increasing levels of concern and unhappiness with the amount of interchange fees they have been paying for credit and debit card companies on each of their customer’s purchases, perhaps the use of cellular phones as mobile payment devices would alleviate some of those fees for the retailer.  It is still unclear as to how much the wireless companies would charge retailers in fees, if anything, or if the fees would be passed on to the cell phone user, but if the credit card companies had competition in the industry of payment methods – it stands to reason that the total cost per transaction would become more competitive.

As of right now, there are several pilot programs running in select cities at a handful of merchants, including Starbucks in San Francisco and Seattle and in Target stores.  The pilot will expand to about 300 stores in New York City.

The Starbucks Card Mobile Payment Pilot Program

A small scanner is placed on participating Starbucks counters, which is used to read a 2-D barcode displayed on participating customer smartphones.  Currently, Starbucks Card Mobile is available for iPhone and Blackberry cell phone users.  The cell phone application lets customers make payment simply by holding their phone displaying the barcode up to the scanner.  It allows customers to add funds to their Starbucks Cards from their phones, as well.

As a business owner, this pilot program should interest you as it may indicate a coming trend for the future.  Will you place scanners on your own checkout counters for credit card processing via your customers cellular phones?

Starbucks Credit Card Processing Pilot Program Success

Customers are indicating that they enjoy using their cell phones to pay for their purchases.  Already, one in five in-store transactions at Starbucks are paid with Starbucks Cards rather than other forms of payment, including both the physical Starbuck card and the digital mobile version.

Starbucks offers free WiFi in store, and reports that nearly 50% of all logons to the network while in the store come from mobile phones.  Of Starbuck customers carrying cellphones, 71% have iPhones or Blackberry’s, meaning 71% of cell phone carrying customers of Starbucks could potentially begin using their phone to make payment in store.

Cell Phones to Become Digital Wallets

Already, our cell phones have changed how most American’s live their lives.  Consider that it’s much more than a way to stay in touch with family and friends while you’re on the go – but you probably also use your phone as a digital music player, portable internet source, text messages, GPS, digital camera and video camera.

It only seems a logical extension of the cell phone’s usefulness to replace your wallet for making payments at retailers.  As a retailer, you should be on the look out for opportunities to process credit cards with scanners that read the information from cellular phones. Consider getting in on pilot programs to test it out.  If and when everyone moves to using cell phones in place of credit cards, time spent checking out should speed up,  but without extensive upgrade costs to you as the retailer.

Contactless Technology Credit Card Processing

Customers have been making use of various contactless technology payments, maybe without thinking about it much.  ExxonMobile has offered SpeedPass for years, allowing you to wave your keychain card at the pump scanner to make payment.  Tollbooths in a variety of states, including New York, Florida, California and Washington, DC area have allowed credit card processing through a contactless payment system connected to the windshield of a car that is scanned as you drive through the tollbooth.

It’s only a matter of time before most credit card processing taking place in retail stores will be done through contactless methods, including using a cell phone as a digital wallet.