Cell Phones vs. Credit Cards: The Battle Begins
Posted by: Olga Kharif on June 28, 2005
I wonder if credit card companies and banks could soon be in for a nasty surprise. For the past several years, European wireless service providers have allowed subscribers to charge vending machine purchases onto the users’ mobile phone bills. Now, U.S. service providers are starting to follow suit. For instance, users of mobile short-text messaging service SMS.ac can now add charitable contributions to their wireless bills.
Subscribers simply need to send a short-text message to a 5-digit short code to donate 25 cents a day for 31 days. That donation will appear on their monthly wireless bill.
Here’s my thinking: If wireless service providers continue to roll out such billing services, they could, eventually, grab a chunk of revenues away from credit card companies and banks.
Lots of analysts believe that cell phones will soon turn into our virtual wallets. We'll be able to use them to pay for purchases everywhere: at stores, restaurants, amusement parks. Perhaps we'll even consolidate our gas and water charges onto our wireless bill.
If that happens, banks and credit card companies will loose out on the fees they currently charge for facilitating financial transations. Today, every time you pay a merchant with your credit card, that seller has to, in turn, pay Visa or MasterCard 1% to 2% of the purchase price.
Perhaps in the future, they will pay that fee to wireless service providers, instead. Such a set-up might especially appeal to young people, who seem to never part with their mobile phones. Also, some estimated 10 million to 20 million U.S. households without bank accounts -- but with cell phones -- might jump at the chance to use the wireless micropayments service.
In fact, I think it's quite possible that cell phone companies could, eventually, become banks, keeping customer money, helping users pay bills and to pay for purchases. Check out this story, describing the various financial transactions that wireless service providers already enable in other parts of the world.
In all likelihood, we'll soon be able to do the same things here, in the U.S. And that could shake the credit card and banking industries to the core.