November 16, 2010

With Google CEO Eric Schmidt's announcement yesterday at Web 2.0 Summit in San Francisco that the next edition of Android — officially version 2.3, or Gingerbread — will have Near Field Communications capabilities baked in, came new evidence of smartphone manufacturers' and developers' continuing commitment to turning mobile phones into something more akin to digital wallets.

In August Apple hired NFC expert Benjamin Vigier as its product manager of Mobile Commerce.

With two smartphone giants taking steps in the direction toward contactless mobile payments, and any number of mobile payment providers prepared to jump into the arena with software offerings, how will banks themselves adapt to the burgeoning "cellphone-as-wallet" contactless payments space?

Currently Citibank is offering a MasterCard PayPass-enabled sticker that can be placed on the back of cell phones. It seems only a matter of time before one of the mobile phone manufacturers and a bank or payment processor announce a partnership that utilizes the built-in capabilities of a future device running Android or Apple's iOS.

"Paypass was always targeted at the mobile phone because obviously you can’t swipe a phone, you can’t dip a phone, you have to tap a phone," James Anderson, VP of the Center of Mobile Excellence at MasterCard Worldwide recently told Bank Systems & Technology.

Anderson says that, from early on in MasterCard's research, NFC was the protocol that made the most sense for payments. Now, he adds, NFC is integrated into many handsets sold in the United Kingdom, and there is growing interest in contactless capabilities in America. The issue domestically could simply come in consumers' understanding of what contactless payments are.

"With anything new the first barrier is always ignorance," Anderson says. "They’re not demanding it because they don’t know it exists."

Combining two seemingly disparate things - electronic payments and cell phones - no matter how familiar the general public is with either one, is the challenge.

"When you talk about the mobile phone, people have a strong affiliation because they’re using it," Anderson says. "When you talk about electronic payments, people have a strong affiliation with it because they’re using it all the time. But when you combine the two, there’s an initial fear caused by unfamiliarity."

Perhaps an Android device supporting out-of-the-box contactless payment technology will be the tipping point in building consumer awareness to the point where banks actively begin promoting the use of the cell phone as a wallet.