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Summary:

Visa and Bank of America are reportedly partnering for a trial program that will allow customers to pay for purchases using only a smartphone. Although the wireless payment battle is far from over, Visa’s solution has an advantage because consumers can use their existing handsets.

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Visa and Bank of America are reportedly partnering for a trial program that will allow customers to pay for purchases using only a smartphone. The test program begins next month in New York, says Reuters, and runs through the end of 2010. The mobile transaction market, already embraced by other countries, is starting to accelerate in the U.S., as multiple companies begin to vie for leadership and land-grab the payment processing revenues that come with e-commerce payments.

Niether Visa nor BofA have outlined any details on the trial payment program, but it will likely take advantage of short-range wireless communications offered by near-field communications (NFC) . With a wave of an NFC-equipped phone near a payment terminal, the transaction is processed. Tired of waiting for handset makers to build phones with the proper wireless chips, Visa cleverly worked with Devicefidelity earlier this year to marry NFC chips on the standard microSD memory cards that many modern phones already use. The approach makes sense as it wouldn’t require consumers to purchase new phones just to make wireless payments: a simple memory card swap would be used, which reduces a large barrier of adoption for wireless mobile transactions.

Although Visa appears to have a smart solution, the wireless payment battle is far from over. MasterCard, a key competitor of Visa, spent $520 million this week on DataCash, with plans to expand e-commerce and mobile solutions. U.S. cellular carriers are also stepping into the ring by attempting to standardize payments made through their networks. The big elephant in the room may be Apple, however. Armed with hundreds of millions of credit card accounts in 90 countries through its iTunes Store, Apple has near-field communications patents that could help it do an end-around the traditional banking companies and earn a small percentage of mobile transactions. Every wave of an iPhone could be a wave goodbye to the processing fees that Visa, MasterCard and others have built their business upon.

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By Kevin C. Tofel

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  1. Something that is not very clear on all these announcements is what type of “NFC” they will use. Meaning will it actually interact with a terminal and the cell phone by exchanging secure information or is it going to be just one way like tags on the back of cell phones.

    The other challenge is that microSD cards are not located in the same place on all cell phones, creating the possibility of interrupting voice or data depending on their location. For the user going to be even more confusing as they will have to hold the phone and wave it in a certain position in order to get it to work.

    I think everybody at this point is just trying to posture and reveal some of their cards. And as you said the real question moving forward is what is Apple going to do and for that matter the other three cell carriers. If I were to make a bet, I would make it on Apple and the carriers.

    There is already a real case study of the same situation that happened in Japan which in the end did not turn out well for one Visa or MasterCard!

  2. This is very dangerous stuff.
    I would be much much more comfortable with Apple running all the NFC payment interfaces as opposed to the Banking industry.
    If you think Apple’s secrecy is extreme you haven’t seen nothing to the massive secrecy and conspiracy the banks use to hide all the massive hacking into online banking. It is truly epidemic and these Banks are utterly clueless on how to properly apply technology. Most simply contract out to entities that can easily persuade dumbass banking executives on tech matters that are so far over their heads they need a ladder just to climb up and see a glimpse of reality on the internet.
    Apple would at least put enough proper engineering behind their initiatives that the banks would not have even a fraction of the vulnerabilities they have today (which btw they hide in a massive veil of secrecy)

  3. It’s a sign of things to come in the machine-to-machine (M2M) arena of the mobile marketplace. M2M isn’t all that new, but what is: interest by increasing numbers of verticals (financial services is just one) in the low-cost, automated connectivity benefits. Will be interesting to see how quickly mobile operators jump on this, as it’s something of a godsend given the decline in traditional voice subscription growth. The tricky part: getting support systems right. Some useful insight in these vendor links. . .

    http://www.convergys.com/flash/mediaplayer.php?&mediaID=10074

    http://www.convergys.com/insights/guest/m2m-an-alternate-personality-for-telecoms/

  4. The iPhone Economy Enables Intuit’s Mobile Payments Thursday, August 26, 2010

    [...] is from Square, however, it shares a common feature — a fight between everyone ranging from credit card companies with near-field communications solutions to cellular carriers and hopes for their own common payment standard in order to get a bigger piece [...]

  5. Who’s Driving Mobile Payments? (Hint: Some Are Barely Old Enough to Drive): Tech News « Friday, October 22, 2010

    [...] and the fact that most new smartphones have a memory card slot — I’m thinking that Visa’s wireless payment memory cards show the most potential right now. Then again, it may not matter what I think: I’m too old to [...]

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