The Wallet-less Future

U.S. Bank ventures closer to it with pay-by smartphone technology.
The Wallet-less Future

Starbucks introduced a pay-by-iPhone or -BlackBerry option at its shops nationwide in January, and the Twin Cities got a glimpse of what a wallet-less future could look like. Soon, people could be using their smartphones to pay for everything from fast food to utility bills. Both nationally and locally, activity around mobile payments has dialed up a notch.

U.S. Bank wrapped up a pilot program in March in which it embedded “wave-and-pay” technology (the technical term is NFC, or near-field communication) in employees’ BlackBerrys and iPhones, asking them to use the devices at retailers with NFC terminals. For now, terminals are most common at convenience stores and fast-food chains, and are used with smart cards issued by credit card companies. U.S. Bank is one of four major banks working with Visa to combine the contactless payment technology with customers’ mobile devices.

“This is about being able to provide the option for the customer to do business with us in the way they want to,” says Dominic Venturo, U.S. Bank’s chief innovation officer for payment services. 

Venturo says U.S. Bank still has to evaluate whether or when to launch the technology as a new product. But Visa has said that some of its partner banks might roll it out in the second half of this year. 

There’s a growing population that wants to do business—and just about everything else—from their mobile phones. For U.S. Bank and others, it’s not just grabbing the next generation of banking customers that’s at stake. It’s also the “interchange fees” that banks and credit-card processors collect from merchants every time a credit card is swiped. The fees amount to an estimated $48 billion per year. Banks want to become issuers of predominant mobile payment systems so they can hold onto that revenue. Meanwhile, others are aiming to divert some of that stream (see sidebar).

U.S. Bank has been exploring smart-device payment technologies since 2007. The one used in the latest pilot project requires that a tiny MicroSD chip, supplied by Texas-based DeviceFidelity, be inserted into a user’s phone or mobile device. Software from developers Monitise and FIS is also loaded onto the phone, enabling the chip to communicate with pay stations. 

Kim Garretson, a partner with Ovative Group, a Minneapolis consulting shop that plays matchmaker between tech start-ups and retailers, says mobile payment systems present big questions for retailers. Should they develop their own systems, as Starbucks has done? Or should they get behind another service? The challenge there, Garretson says, is that there is no clear front-runner yet. California’s Bump Technologies appears to have legs, he says, and so does a company called Square, created by Twitter cofounder Jack Dorsey.

For now, NFC is in a chicken-and-egg conundrum. Retailers don’t want to install new equipment for it if it’s not going to be used frequently, but customers won’t find the technology useful if it’s not widely accepted by retailers.

It’s tough to know “how fast the technology will move,” Venturo says. “But we want to be in a position where we’re prepared and have learned enough that when we want to go out, we know how to do it smartly.”