When will the U.S. jump on the bandwagon?

Soon your cell phone may be just an extension of your corporate checkbook. Text messaging and other mobile payment methods are poised to become a new form of currency, but you may have to wait a while for their full adoption in the United States.

Gartner Group, a Boston-based analyst firm, predicts mobile payments will double worldwide by 2012, when more than 190 million users become participants in a cashless global economy. Most of this early adoption will take place overseas.

“The United Kingdom and Japan have widespread usage of mobile payments, but we see the broadest uptake in the developing countries of Africa and India,” says Sharif Alexandre, founder of XIPWIRE, a Philadelphia-based provider of mobile payment solutions. “Developing countries lack financial and telecommunications infrastructure, but they do have cell phone transmitter towers. The demand for these mobile payment services is tremendous.”

As with most technologies, Alexandre says, the younger generation will be among the early adopters. “They use their phones for everything – phone conversations, e-mail, texting. Why not turn it into your wallet?”

Kurt Adams, senior vice president of strategy and product at U.S. Bank Corporate Payment Systems, sees a broad spectrum of opportunity for mobile technologies and payment options for business and personal use.

“Mobile technologies are still in the very early stage of development, particularly in the United States,” he says. “In the commercial space, they are more prevalent in travel and entertainment, but that will expand. In the near term, mobile technologies can really help the traveler by sending instant alerts about flight delays, misuse and abuse of credit card accounts, et cetera. Payment options will naturally evolve as these technologies become more mainstream.”


What are mobile payments?

Mobile payments are defined as actions by consumers and businesses paying for a product or service using mobile technology, such as near-field communication (NFC), wireless application protocol (WAP), or unstructured supplementary service data (USSD), the latter of which is not available in the United States.

While the technology jargon seems intimidating, the application for mobile payments is pretty direct. Transactions are initiated by individuals with an iPhone, cell phone, or BlackBerry. The devices have applications that are linked to virtual accounts and online banking to enable the transfer of funds from one source to another.

What can you do with mobile payments? Let’s say you meet a friend for lunch, but you left your wallet at home. Your buddy spots you $20 to cover your food costs and you pay him back immediately with your cell phone. Yes, it can be done, but your payment options are not limited to simply honoring a debt to a friend.

The ability to combine mobile payments with mobile banking – access to loans and other financial services – may vastly improve the standard of living for people in countries where cash is not always king. It’s already occurring in even remote locations around the globe. Just imagine the possibilities:

• Go on safari in Kenya and order some supplies to be delivered to your base camp. You can pay the vendors who deliver the goods with a simple text message from your mobile device.

• Jump on the Tube (the subway) in London, tap a transit card against a reader device, and hop onto the train. The tap-and-go Oyster card represents a popular form of cashless mobile payment that lets you zip through the city without ever reaching for change in your pocket.

• Split a dinner check with your friend in Tokyo without using a credit card, cash, or traveler’s check. Instead, you’ll pay directly from the “virtual wallet” on your iPhone.

Whether your adventures take you to Africa, Asia, Europe, or anywhere else in the world, you may encounter mobile payments. But you won’t find anything like it in the United States yet. At least not at the level of mass adoption you’ll find elsewhere.

“We hope to change that,” Alexandre says, “but it will take time.”


Why the U.S. is behind

While the ability to pay for meals, shopping excursions, and other indulgences holds great appeal for many, Americans are not among the leaders in deploying and enjoying mobile payments worldwide. Alexandre suggests the United States is a victim of its own success, which has slowed the mass adoption of mobile payments within the country.

“We have a solid infrastructure,” he says. “We have easy access to ATM machines and cash whenever we need it. There’s just no sense of urgency among Americans to push for mobile payments.”

Dominic Venturo, chief innovation officer for U.S. Bank Retail Payment Solutions, agrees. Even with the proliferation of iPhones, BlackBerrys, and other web-enabled mobile devices, Americans don’t seem to be clamoring for mobile payments – yet.

“NFC requires power,” Venturo says. “If you have Visa PayWave or Mastercard PayPass embedded in the device, you also need it at the point of sale. There may be good adoption traction in restaurants and convenience stores, but for other retailers and businesses, they would have to change their POS system. It takes time and money to overhaul a system, and mobile payment acceptance is not yet broad enough for everyone to swap over to pure contactless systems. The demand just isn’t there yet.”

Hygiene is another issue. In China, for instance, currency is not clean. There are concerns about SARS, swine flu, and avian flu. People don’t want to handle money for fear of potentially spreading disease. The United States doesn’t really focus on these health concerns with regard to cash flow.

“In the United States, consumers must have a problem that needs to be solved at a price they are willing to pay,” Venturo says. “There needs to be a value proposition to accept payments in this way. Technology alone will not enable this to happen. Consumer behavior must change, but it will take time.”


What’s next

Adoption of mobile payments may indeed take a while, but businesses are laying the foundation for what could be explosive growth in this industry. Consider this:

• UK’s Barclaycard reportedly plans to deploy mobile phones enabled with NFC technology to facilitate mobile payments. The NFC service will be offered in conjunction with France Telecom’s Orange and may support applications for Apple’s iPhone and Google’s Android mobile phone operation system.
 
• Venmo has developed a system that allows consumers to exchange money with people they trust via cell phone text message. Their slogan: “Replace your credit card with your phone.” 

• XIPWIRE has deals in place with merchants throughout Philadelphia to make XIP payments as easy as buying a cup of coffee – even if you run a business that is purchasing crates of merchandise from overseas ports.

“We want to integrate directly with existing and future POS systems,” XIPWIRE’s Alexandre says. “That would mark the transaction as a XIPWIRE transaction, which allows POS to initiate the transaction – no matter the size of that transaction.

“Businesses can all interact with the system, rather than having one person interacting with an individual iTouch. XIPWIRE can be directly integrated on the back end, and a product shipment would be received with simple acknowledgment of the transaction. All transactions are secure. There are no limits.”

As mobile payment options become more widespread, finance professionals will need to adapt to business-to-business transactions conducted in real-time with a handheld device. So what does this mean for accounts payable? No one really knows for sure.

“AP professionals will need to maintain the same meticulous levels of controls that they have today,” says Adams from U.S. Bank. “Control and integrity are essential to the success and longevity of any financial transaction processing solution. This is just another avenue through which payments may be made.

“At the end of the day, the data is king,” he says. “Being able to deliver that data to the AP department in the format they need is the critical aspect as mobile payments begin to take shape.”