Shoppers Check Out of Stores Via Cell Phone

Credit-card issuers are testing "contactless commerce" that lets consumers pay for purchases with a chip affixed to their cell phones

By Olga Kharif

At the Rochester, Ind., Dairy Queen, more than 350 customers can wave special stickers fixed to the backs of their cell phones at a scanner in the store, thereby banking loyalty points and qualifying for free cones and Blizzard sundaes. Customers have come back to the store more frequently as a result, helping sale rise more than 3 percent in the past year, says co-owner Dave Reasner. "It's something that's working," he says.

The radio frequency identification technology behind DQ's loyalty cards, similar to warehouse inventory tracking systems, is starting to work on behalf of consumers at the cash register. Discover Financial Services (DFS), Citigroup (C), and Visa (V) are introducing "contactless payment" technology that lets consumers pay for purchases by waving chips attached to their cell phones. Instead of swiping a credit or debit card, consumers can wave or tap phones—items that are nearly always handy—equipped with specially encoded stickers, or holsters, on receivers at the checkout counter.

Card issuers also hope that handset makers will embed the RFID chips into phones, then create smartphone applications to help shoppers manage payments. "Everything you store in a leather wallet will migrate to a mobile handset," says Barry McCarthy, a general manager at First Data, which processes transactions for 2,000 card issuers worldwide.

This summer, Citigroup will start issuing contactless payment stickers to some customers, says managing director Liza Landsman. Later this year, some Discover Card customers will be able to wave or tap two-inch-square stickers glued to the backs of their iPhones (AAPL) at McDonald's (MCD), 7-Eleven, and Home Depot (HD) stores. Discover Network, which issues the cards, plans first to test the technology with users of its iPhone app for viewing statements.

On May 4, Visa and contactless device vendor DeviceFidelity briefly posted online—and then removed—a press release that said the companies are building a contactless microSD payment card, coupled with a protective case that fits iPhones. Consumers could use the technology to pay at fast food outlets, in taxis, and at train stations, the press release said. Visa spokeswoman Elvira Swanson later declined to comment on any aspect of the information, as did DeviceFidelity co-founder Deepak Jain.

convenience increases transactions

The card issuers' goal is to decrease the use of cash, still involved in half of all point-of-sale transactions. Each purchase conducted with a contactless card affords issuers a small fee. The financial institutions also share in late charges consumers can accrue on their credit cards. "For us, it's real growth if we can be more competitive with cash," says James Anderson, a vice-president at MasterCard (MA).

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