Mobile payments may soon make debit cards obsolete

November 23, 2010 8:07:16 PM PST
For many of us, it seems like just yesterday when the world first started using debit cards. Well the next step towards a cashless society may already be here. Cell phones replaced pay phones, debit card usage surpassed credit card use and now mobile payments could make it possible for us to someday do away with our wallets.

It's a busy lunch hour at Sprouts Cafe in Palo Alto. The ingredients the chefs use are fresh and so is the way some customers choose to spend their money.

"It's very innovative. It's quick. It's fast," Sprouts manager Tina Almendras said.

Customers simply tap their mobile phones near a terminal and the money is debited from their PayPal account.

"I just don't always go to the bank and have cash, so this would be a very easy way of instead using a credit card," Bling Nation user Christa Skehan said.

Bling Nation is a start-up based in Palo Alto. A 'bling tag' is all she needed to get started.

"A bling tag is the size of a quarter, and it's just a sticker that goes on your phone and has a little verified chip on it," Bling Nation CEO Wences Casares said.

Bling Nation hopes to roll its system out nationally in the beginning of next year and could become the first to do so. Other players include square, Google, Discover, MasterCard, American Express and Visa.

"Mobile has become the most ubiquitous technology in the world. Five billion phones in the market which is more than all the computers, TVs and fixed line phones combined," Visa Mobile Global Head Bill Gajda said.

Most cite convenience as the primary reason to use mobile payments, but initial reluctance from consumers could hold back wide spread usage.

"There is always an initial worry, concern that things are going to this is a scam. This is some way it's going to fleece me rather than help me. But eventaully people come around and see the benefits," John Morgan from the UC Berkeley Haas School of Business said. "Where it goes, I think is and how fast it goes is really up in the air. My guess is that the key is going to be security."

Both Bling Nation and Visa told 7 On Your Side, your liability for fraudulent use will be the same as with credit and debit cards, no more than $50.

"People should try to make sure if you're using your cell phones to pay, it should be tied to a credit card, a debit card or their bank account. If you don't have any other way to tying it to those three methods, then we advise that you probably stay away from using your mobile phone to pay," Consumers Union attorney Michelle Jun said.

The young are expected to be among the early users of this new technology. In fact, Bling Nation is using Stanford University as a testing ground.

"The kids really love it and we have a lot of teams here and they've all been signing up," Jimmy Viglizzo from Jimmy V's Sports Café said.

Visa hopes to capitalize on the technology and says its system will also soon allow friends to send mobile payments to their friends.

"Visa developed a new payment type that allows cards to send and receive money, which is kind of a new transaction type with us that enables that peer to peer payment," Gajda said.

It took debit cards several decades to surpass credit card use, but some predict mobile payments will surpass debit card use much quicker.

"I think we're taking a big step towards eliminating this big wallet we have to carry with us," Casares said.

Right now, companies are all testing their mobile payment systems in various markets around the U.S. Once unveiled nationwide, you can also expect to receive instant coupons on your cell phone based on your mobile payment usage.


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