Let the Phone Pick Up the Tab

Imagine having your very own mobile ATM—otherwise known as your cell phone—in the palm of your hand

by Olga Kharif

Cheryl Bussani's son was grown up enough to move out of their Daly City (Calif.) home into his own place. But he still needed the occasional quick infusion of cash, and his new home in Pacifica, Calif., was far enough away that it wasn't convenient for Bussani to just drive over and drop off a few dollars. "It wasn't worth the gas," she explains.

So Bussani makes loans to her son via cell phone. She uses a service provided by Obopay, in Redwood City, Calif., that lets her transfer funds by dialing a few numbers on her wireless handset. The professional housecleaner also collects her own payments and pays bills with the service.

Bussani is part of the vanguard of U.S. mobile-phone subscribers who are doing their banking with wireless handsets. The practice is expected to gain traction in a matter of months when the likes of bigger, more established companies including banking powerhouse Citigroup (C) and wireless behemoth AT&T (T) kick off ad campaigns extolling the low cost and high convenience of paying over a mobile phone.

Following the Money

They may have a point on price. EBay's (EBAY) PayPal Mobile, which lets people wire funds and donate to charity through a phone, is free for many transactions. Obopay charges 10¢ to send money (see BusinessWeek.com, 5/14/07, "Souping Up Your Cell Phone"); contrast that with Western Union (WU), which charges 11% for transfers within the U.S.

And there's reason to expect mobile-phone payments will become easier. While some early versions require a software download onto a phone, AT&T will begin including software on devices in the fourth quarter. Cell-phone makers like Nokia (NOK) and Kyocera, along with Visa and MasterCard (MA), are trialing phones with embedded chips that allow for contactless payments. Simply wave your phone in front of a reader to pay for purchases. That should cut checkout time by 50% to 70%, studies have found.

By 2012, 292 million phones sold worldwide will contain these so-called near-field communications chips, according to consultancy ABI Research. "Consumers tell us they are ready," says Pam Zuercher, vice-president of product innovation and coordination for Visa USA. The credit card association's March survey of 800 U.S. consumers showed that 57% would be interested in buying such a phone. And among 18- to 42-year-olds, 64% said they'd switch wireless carriers for it. "We believe mobile banking will be one of the bigger applications," says Greg Latour, senior vice-president of technology development at wireless carrier Cellular South, which, like carriers Amp'd Mobile and Helio, already offers Obopay.

Fee-for-All

If optimists like Latour are right—and considering the success of contactless payments in places such as Korea, there's reason to think they will be—the increased reliance on mobile payments is likely to have a ripple effect on financial services. Wireless service providers will demand their cut of financial transaction fees. Mobile payments are also expected to crimp demand for cash and checks, which still account for more than half of all consumer purchases.

At stake is $1.4 trillion in small payments of under $25 made in the U.S. each year. By 2010, about 10%, or $140 billion, of all payments under $25 will be made with contactless cards, estimates Dan Schatt, an analyst with consultancy Celent. Of those, 10% could be paid with mobile phones, he estimates.