Paying by mobile, that’ll do nicely

Mobile phones are replacing cash and cards as a method of paying for goods, writes Emma Smith

You know the scenario. Fumbling through your pockets at the supermarket checkout, you realise you’ve left your wallet at home and all you have by way of payment are a few coppers and an old bus ticket.

You’re about to make your red-faced excuses when you remember you also have your mobile phone. All you need do is swipe it across a reader by the till and instantly your purchases will be charged to your credit card.

Not satisfied with replacing your landline, MP3 player, camera and alarm clock, mobile phone manufacturers have now set their sights on supplanting your wallet. Their new generation of phones will link to your credit or debit account as part of a joint initiative with phone operators, banks and credit card companies. They predict this one-swipe payment technology will potentially replace cards and cash and make it possible to go shopping armed only with a mobile phone.

A “pay-by-mobile” system already operates in Japan, where it is nicknamed “o-saifu keitai” (mobile wallet), and trials are under way in the United States, France and Sweden.

Industry insiders predict the new technology could arrive in the UK within one year. Pay-by-mobile received a boost last week, when the GSMA (Groupe Speciale Mobile Association), representing mobile phone operators, announced a framework for a global standard for mobile phone payments. This would allow users of networks such as and Orange to use their phones to make purchases in the sameVodafone, O2 way around the world.

“After several fragmented initiatives, we are now uniting around a single approach to enable mobile phones to be used instead of cash or plastic,” said Rob Conway, the GSMA’s chief executive.

The ability for mobile phones to be used as payment devices has long been seen as the holy grail for both phone companies and banks. As tariffs for conventional calls fall and competition from cheap or free calls over the internet heats up, phone companies are increasingly looking to new applications to boost revenue.

Credit card companies see pay-by-mobile as a way of encouraging people to make small purchases that are currently made with cash, on credit. By volume, two-thirds of UK payments are still made by cash, so “mobile wallet” would give credit card companies a slice of these cash transactions. And research shows people are more likely to leave their wallet at home than their mobile.

The technology that enables payment by mobile phone is called NFC (near field communications). An NFC chip in the handset enables short-range wireless radio communication between the phone and the reader (in a similar way to Oyster travel cards in London), which triggers the payment. Bank or credit card details can be stored in various ways, but the GSMA favours keeping them on the phone’s sim card. The phone can simply be swiped across a reader, or customers can type a pin code into the phone to authorise larger payments. Some companies are also considering pay-as-you-go options, whereby purchases could be deducted from a prepaid balance.

One of the principal backers of the new technology is MasterCard, which is behind a mobile phone payment system called PayPass on test in the US and France. MasterCard, which last week signed a deal with phone companies Nokia and Samsung, says it is considering expanding its trials to the UK. The credit card provider has already linked up with four of the top five US banks to offer payments by mobile phone in 51,000 global shops and restaurants.

“We’ve got all the different companies working together and we have proved it works and is commercially viable,” says Tatiana Mulry, a new technology specialist at MasterCard. “I used my phone to pay in a McDonald’s the other day and everybody in the queue was fascinated. They love the convenience.”

Not everyone is convinced. Vincent Poulbere, a senior analyst at telecoms consultancy Ovum, says it may be some time before the vision becomes reality, not least because of the infrastructure needed. “Many companies – banks, credit card companies, phone operators and makers, and retailers – have to cooperate to make this happen. And customers will have security concerns.”

The GSMA claims details can be stored securely on a sim card. And phone companies remain confident that it’s only a matter of time before mobiles add yet another function to their armoury. Nokia has just launched a new handset with NFC capability – the 6131 NFC, which arrives in Britain in a fortnight – and is testing a system in New York that enables customers to swipe their phone across cinema posters to pay for movie tickets.

“The mobile phone has become like a modern Swiss Army knife, but without the sharp edges,” says Gerhard Romen of Nokia. “It combines so many different functions, and this is one more way to enhance convenience. Having credit and debit card functions combined with your phone will be so much easier than carrying a wallet full of cash and cards.”

Texted barcodes to give discounts at the till

It may be some time before you can buy your weekly shopping with a simple swipe of your phone but a new system using barcodes sent by text message will soon offer UK shoppers money off at the tills and pave the way for a full pay-by-mobile system.

The scheme, called Shop Smart Save, has undergone trials in Hull and will be rolled out in July across 17,000 stores nationwide, including some branches of Somerfield, Coop, Budgens and Spar. To join the “discount club”, customers send a text to the Shop Smart Save number to receive a personal barcode. Special offers are then texted to their phone and, to take advantage of them, all they have to do is present their barcode to the cashier. Software installed in the cash register communicates over the mobile phone network with the Shop Smart Save database, and discounts are deducted as the shopping is scanned. Brands including Red Bull, Procter & Gamble, Nestlé and Mars will offer deals. “Over time we hope to tailor the offers to individual needs,” says Marc Lewis, founder of the Light Agency, which is behind the scheme.

Chiltern Railways, which connects London Marylebone and the Midlands, is also planning to text barcodes to passengers who buy tickets online. The barcode would replace a ticket and could be scanned at ticket gates.

During a three-month pilot scheme, 6,000 mobile phone rail tickets were sold.

• Have your say

Anybody care to inform us about the security standards. We get the picture of mcommerce's convience in hundreds of articles... My question: is it convenient to be used securely ?

Gordon, London, UK

People have been paying with their mobiles for years in Finland already. Car wash, tram/tube tickets, cinema, vending machines... you name it. It's simply done by sending a text and the money is charged to your mobile phone bill. Why are things like this always so slow to be taken in use over in this country??

Sebastian, Brighton,

Great for Times to include an article on this. I am part of the NYC Trial and let me say it (the idea and the Nokia 6131 NFC) is amazing. I always carry my mobile, so why not put my MasterCard PayPass inside of it. While not all merchants accept contactless payments, many time sensitive environments are adapting to this technology. We all know NYC is about speed, and time is money, so not only do the big chains like McDonalds or the Duane Reade/CVS pharmacies accept PayPass so do many Midtown delis for those busy lunch times when the bankers converge on these busy lunch spots.

PayPass is speedy and convenient and gets plenty of shocked till clerks when I use my mobile with PayPass. They all ask how I can do that, and I just say – it’s MasterCard on my mobile. They love it and I love it.

MasterCard and their PayPass brand are really at the forefront of not only mobile payment technology but contactless payment technology.

mobile payment

M-payment (mobile payment) is a point-of-sale payment made through a mobile device, such as a cellular telephone, a smartphone, or a personal digital assistant (PDA). Using m-payment, a person with a wireless device could pay for items in a store or settle a restaurant bill without interacting with any staff member. So, for example, if a restaurant patron wanted to pay quickly and leave the restaurant on time to get to an appointment, the bill could be paid directly from the table - without waiting for a server to bring the check. The patron would simply connect to the cash register with a wireless device, punch in the table number and bank personal identification number (PIN), and authorize payment. According to Orange Mobile Payment (a Danish company), the entire transaction should take no more than 10 seconds.

The earliest m-payment trials were based on the wide area network (WAN) used for cellular phones. That meant, however, that users had to pay cell phone charges to make a payment, and also had to punch in long sequences of digits each time. Other technologies tested enable less cumbersome procedures. Palm and Verifone will use infrared (IR) data transmission for their initial trials. Among the other technologies being used are Bluetooth, WiFi, and RFID, a short-range transmission system. Public key infrastructure (PKI) encryption - considered to be necessary for secure m-commerce in general - is currently being incorporated into digital wireless networks and into an increasing number of wireless devices, a trend that is likely to increase consumer confidence in m-payment's security.

M-payment is already being used in some parts of the world, including Europe and Asia. In North America, a series of trials are scheduled for late 2001. Commerce Systems, a company based in Kingston, New York, and Nokia jointly developed a cellular phone m-payment system that is being tested in a trial with two United States restaurant chains. One small complication hindering wide-spread acceptance of m-payment is the distinction that credit card companies make between transactions where the card is physically present at the point of sale and those where it is absent - for example, when you use your credit card for transactions over the telephone or your computer's Internet connection. For payments in what are considered "card not present" situations, credit card companies charge the merchant a higher transaction fee. Whether m-payment would qualify as a "card present" situation or not has not yet been determined; that decision may depend on the degree of confidence credit card companies have in the security of m-payment.