At this point, smartphones are practically permanent attachments to our hands. But that quickly changes the moment you need to pay for something at a store and you take out a credit card.
The idea of using your phone as your wallet – for storing payment methods and even swiping, scanning or tapping it to pay at the checkout register – is a long-promised future that has been surprisingly slow in coming. Multiple technologies exist for mobile payments, but there is no clear winner and a lot of chaos.
“Mobile payments, it’s been the next big thing for three or four rounds of next big thing,” said James Wester, the director of global payments research at IDC Financial Insights. “I would say we’re probably still three to maybe five years away from seeing mobile payments really common, with most of us using it.”
But recently, several new products and services have been released that could make mobile payments more convenient and worth trying. Before you dive in, though, it’s best to have a map of this complicated landscape.
Amazon introduced an experimental app this summer that lets people store gift cards and loyalty cards from a variety of retailers and check some balances on Android phones and Amazon devices. You can display the gift cards as a bar code or QR code (that odd checkered square on many products now) so that it can be scanned at a register.
So far, you can’t store credit or debit card information on the app. But Amazon already has a payment platform that lets you pay individuals or check out at some online stores, so the app could be a short hop away from being a full-fledged mobile payment service.
PayPal, the online payment giant, has also released new payment options, with an updated app for iOS, Android and Windows Phone that lets you store loyalty cards (like those used at grocery stores or pharmacies) in addition to your regular PayPal sources.
Some new partnerships PayPal has reached with some stores, restaurants and services, including Uber and Jamba Juice, also provide interesting payment twists.
People using the new app can order ahead from a participating restaurant and pay with their phones. Or if you are dining out, you can pay your bill on your phone instead of waiting for the check (and waiting for a server to retrieve your credit card, swipe it and bring it back). Many of those stores and restaurants also offer coupons or discounts as an added enticement.
At Home Depot, a partnership with PayPal lets you check out by choosing PayPal instead of credit or debit at the store’s payment terminals. Then, instead of entering a debit PIN, you enter your phone number and a PIN you previously set up on the PayPal app. No wallet or phone required.
And then there are the persistent rumors that Apple will introduce a mobile payments service tied to iTunes accounts, perhaps based on the existing Passbook app.
Apple recently added a feature called iTunes Pass that lets users load money into their accounts (although this must be done in person at an Apple store) to make purchases. The company also allows users to load and organize gift cards through Passbook; like Amazon, it could potentially tie Passbook to credit cards stored in iTunes to allow purchases elsewhere, too.
But so far, the company that has had the most success at creating popular, usable mobile payments is Starbucks. The Starbucks mobile app lets you pay for items with your smartphone at the company’s coffeehouses and also accumulate rewards like free food or drinks.
Howard D. Schultz, Starbucks’ chief executive, told investors in July that mobile payments made up about 15 percent of its sales transactions in the United States and even hinted that the company would try to share its payment system with other retailers.
If all these efforts by so many companies still sound like a messy playing field, you are right, and those examples are just scratching the surface. Part of the reason so many different apps and mobile wallets exist is that the previous attempts at mobile payments – based on tap-to-pay or contactless payments – took so long to get moving.
But now, there’s interesting movement in those technologies, too. The trouble is, many standards have not yet been worked out.
Contactless payments work using a technology called NFC, which stands for near-field communication. It’s kind of like short-range radio. When you pay for something at one of these contactless terminals, you tap or wave your phone in front of it, enter a PIN, and you’re done.
Your phone must have an NFC chip in it for this to work. Most new Android phones and some Nokia Lumia Windows Phones have NFC, but iPhones do not.
Contactless payments have had a checkered history. At the moment, the two major mobile payment systems that use NFC are Google Wallet and the Isis mobile wallet app, which was a joint creation of AT&T, Verizon and T-Mobile. (Isis mobile wallet is in the process of changing its name to avoid confusion with the violent militant group wreaking havoc in Iraq and Syria.)
In the past, NFC payments required actual hardware: a so-called secure element within a SIM card, the card that identifies you as a carrier subscriber when you insert it into your phone. When you install the Isis mobile app, you can order the enhanced card free or pick it up from your carrier. Newer phones will have this type of card by default, Isis said. But most existing phones do not.
Worrying about a new card is a hassle. Worse, the card also puts the carriers in charge of the mobile payments world, and the companies have tried to keep out competitors. The carriers often blocked Google Wallet from being downloaded onto devices on their networks, though that practice has mostly stopped. (I was able to download the app on a Samsung Galaxy S5 and LG G3.) An Isis spokesman wouldn’t say whether blocking of the app might continue.
But other companies aren’t going to sit on their hands and accept Isis. Already, new technology built into the latest version of Android, technology that already existed in BlackBerry phones, makes the extra security unnecessary. The technology, called host card emulation, or HCE, lets apps like Google Wallet retrieve stored credit card information from the cloud.
Visa and MasterCard have approved use of their cards with HCE – basically, the Google Wallet app has permission to act just like a credit card. And potentially, many apps will soon be able to let you make contactless payments, not just Isis or Google Wallet.
One other note, of course, is that contactless payments cannot happen without payment terminals in stores that can read the signals. Not every merchant has those terminals or wants to upgrade.
But those upgrades look like they will be coming. Most American credit card companies are migrating from cards that use a magnetic stripe to those that use a microchip to store information. Those microchips work with contactless payment terminals, so the credit card migration could also help out NFC-based mobile payment methods.
It is unclear exactly how the iPhone will fit into this, because it can’t make contactless payments using NFC. Now, if you want to use Isis mobile wallet with your iPhone, you’ll have to buy a special case that includes the NFC antenna. There are few options, and they cost about $70. And it’s unclear whether they will work with an NFC payment app like Google Wallet.
See? There is still a lot yet to be solved before mobile payments are as popular as credit cards.
But the new options popping up are exciting, and once you get the hang of them, they can actually make paying a little easier. I, for one, am hooked on my Starbucks app. But it’s easy to forget that many people still are not comfortable shopping online and are far from storing credit card numbers on a phone app and paying that way.