February 22, 2005

The number of opportunities to use your cell phone and other small objects to make payments will grow rapidly this year and will keep growing in future years, according to a study released Tuesday by ABI Research.

Often called "contactless payments," the technology involves swiping an enabled cell phone, key ring or other small item near a point-of-sale terminal. The capabilities, which use RFID-like near-field wireless technology, are starting to gain momentum in Japan and are undergoing tests in the U.S. and Europe. Credit card companies have endorsed the technology.

"As consumers continue to use card-based transactions for smaller, traditionally cash-based purchases, contactless payment capabilities make more sense, especially for card issuers looking to increase customer loyalty and convenience," Erik Michielsen, ABI's director of RFID and ubiquitous wireless research, said in a statement.

While the technology has been around for a while and used in a small number of cases such as ExxonMobile's SpeedPass payment system, it will start to catch on big-time this year, Michielsen said. That's because those previous efforts didn't have the support of credit card vendors.

"What's lifting this to the next level is the expansion of contactless payment from these closed, branded systems, to open systems tied to bank accounts and major credit card issuers," Michielsen said. "These financial institutions now want a bigger share of what was in the past the cash-based economy."

Michielsen predicted that merchants that typically have low-cost transactions, such as fast-food restaurants, will be among the first to switch to the system. Specifically, he said he expects McDonald's restaurants to adopt the system in North America this year.