Will smart phones replace credit cards?

A recent post “Can smartphones replace credit cards” wonders whether or not consumers are ready to  trade in their plastic for their cell-phone.

Mobile payment technology has been around for about 10 years and it has not really taken off in a big way – although there are niche applications.  In Tel Aviv for example, you can buy drinks in vending machines with your cell phone and pay for parking.

Clearly it’s not a technology barrier to entry but a cultural barrier to entry.

I had the privilege and then the scars to pay for that privilege, to be the chief technology officer for a startup called One Credit in 2001-2.  The idea was based on the fact that Americans carry around an average of 5 credit cards with a bewildering array of payment terms and conditions, APR, special deals, coupons, travel points, insurance and extended warranties etc. With multiple cards and difficult-to-grok terms and conditions, there is an opportunity to arbitrage between the cards and get the card holder the best deal on every transaction.   The startup tanked together with the rest of the dot.com boom but the idea had some merit apparently, as less than 3 years later, First USA launched a payment card with most of the features of the One Credit card we had designed (and also pitched to First USA among others….).

One of the features in the One Credit card was payment confirmation using location services and a smart cell phone.  If you receive a payment confirmation request for your credit card on your smart phone, and you’re currently in a meeting with a client in Singapore, you can deny the request – or confirm it, perhaps you made a purchase online at Amazon.  Visa launched a payment confirmation service for the Android in the US about 2 years ago – I’m curious how many card holders are actually using the service. As of now (September 2010) the Visa Web site only shows one issuer participating – USBank, which doesn’t suggest widespread adoption.

I would have to do a more detailed threat analysis and consider some of the software, people and networking vulnerabilities involved in using an iPhone or Android for mobile payments, but it seems almost a certainty that mobile payments or at the very least mobile payment confirmation could go a long way towards improving data security of payment cards and reducing (perhaps drastically) the quantity of identity theft due to stolen cards.

So once again – we have the technology to make mobile payments happen but my nose is telling me that the consumers are not ready  yet.

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