Payments market shakeup: Smartphone credit card processing

Picture of a Blackberry Smartphone.

Soon you may be able to swipe you phone to pay for a purchase. CC by liewcf/Flickr

Wireless carriers using contactless payment technology for Smartphone credit card processing could give credit card companies a worthy competitor. Wireless heavyweights AT&T, Verizon and T-Mobile are gearing up to face off against credit card heavyweights MasterCard and Visa with a test of a mobile payments system in which consumers make a purchase by holding a Smartphone next to a wireless scanner. After fighting with credit card companies for years over excessive swipe fees, retailers are viewing the new competition in the payments market with satisfaction.

Smartphone credit card processing a new paradigm

A test system in Atlanta and three other cities marks the beginning of a payment service network that advances beyond credit cards. Bloomberg reports that the service uses contactless technology similar to mobile payment systems in Japan, Turkey and the United Kingdon. A business analyst was quoted  as saying that the Smartphone credit card venture is a “game changer” because wireless carriers have become experts at processing payments by being the biggest recurring billers in the market, according to Bloomberg. To handle payment processing for the new network, the carriers have enlisted Discover, the fourth largest credit card company after Visa, MasterCard and American Express.

Contactless payments face obstacles in U.S.

More than 60 percent of Smartphones have contactless payment functions in Japan. In the U.S., hackers will have additional incentive to focus on Smartphone credit cards if they become popular. As with credit cards, consumers will need to be protected against unauthorized purchases with lost or stolen Smartphone’s.

Billions at stake in mobile payments competition

In their pursuit of mobile payment profits, the wireless carriers aren’t alone. As the Smartphone marketplace has exploded, ChannelWeb reports that mobile payment programs have accelerated at credit card companies and other tech firms. Their background in payment processing makes wireless carriers believe they have an edge. However, Joe Bardwell, an executive at a California wireless tech firm, told ChannelWeb that servicing merchant accounts directly as a payment service is a far cry from processing payments for their customers. Also, the billing practices of wireless carriers may not earn the trust of their customers to process their credit card purchases.

Competition in payments market welcomed by retailers

after years of fighting over transaction fees set by Visa and MasterCard, retailers could quickly accept another payment service network. The Bloomberg piece calls out a pending 2005 federal antitrust lawsuit, as well as a push by merchants last month to get Congress to enforce caps on swipe fees. A secure and reliable competing network that gives consumers mobility payment options and reduces retailers’ costs would be welcome, a spokesman for the Retail Industry Leaders Association said in the Bloomberg article. In the Bloomberg article, an official from the Retail Industry Leaders Association said merchants will welcome another payment network that saves them money and gives consumers a secure, reliable, convenient purchase option.



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