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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 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.

Reader Comments

Ricardo Pessoa

June 29, 2005 12:26 AM

I totally agree with the threat. Some years ago, I tryed to discuss this with Telecom industry people, actually trying to seduce them into starting a similar business venture.

I was shut up with the usual regulatory difficulties and risks (security mainly). But business sense allways prevails. The idea makes sense, is a very appealing use for something you already carry anyway, and the initial complaints or restrictions regarding security and privacy will be (as usual) answered in due time, as business grows.

let's wait and see.

Vishal Mehta

June 29, 2005 4:49 AM

I think it is an idea whose time has come. I am not too aware of the US markets , but in India/China this definitely looks like something looming large on the horizon. Today the cell phone companies have all the infrastrucutre in place to run credit card operations - in terms of database, sales network, billing infrastructure, expertise in validating customer details, credit checks, etc.

Also, the largest CDMA service provider in India, Reliance Infocomm, is part of the Reliance group, which is soon going to launch banking and financial services (Reliance Capital). Tata Teleservices, which is the other player, is part of the Tata group, which is looking for a foray into banking services.


February 3, 2006 11:53 PM

Different feauters offered in sprint cell phones plans are as follows:
there are various options to send and to receive messages with special option known as SMS Voice

Messaging, and also for text messages.

Smith Oshodin

February 26, 2006 6:22 PM

About this vitual wallet with your mobile phone has any country already implemented it. China and india are both of them already using this technology.

Card Service Sales

June 13, 2007 12:39 PM

It is more likely that banks will find there way in between the two markets, ultimately the banks are the ones with the money, and more or less the government of money. Fundamentally as long as there is money there will be banks.

Kris Buehler

October 3, 2007 12:18 PM

The easiest and most popular system is found at This mobile cash system is the only one that is free to merchants,patented to be same as MC/Visa,and a money handler. That's right,no levies or carrier fees attached like other systems. This system is the leader for micropayments. Go to the site (being worked on today) or 10/4 and align yourself with wireless carriers world wide.
508 274 4596

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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