Mobile Payments Challenge Credit Cards

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Over the past decade, Americans have been writing fewer checks and using more and more plastic. But now, some are predicting the demise of the credit card, paying by smartphone could elbow out giants such as Visa and MasterCard.


Over the past decade, Americans have been writing fewer checks and using more plastic. But now, some analysts are predicting an end for the credit card too. Who's the giant-killer capable of one day taking down Visa and Mastercard?

As Jacob Fenston reports, it is your smartphone.

JACOB FENSTON: A few retailers are already trying it out.

(Soundbite of customers ordering coffee) ..TEXT: FENSTON: At Starbucks you can now use your smartphone to buy coffee.

Mr. RYAN HUDNEL (Barista, Starbucks): First of all, do you have a regular Starbucks card?

FENSTON: Barista Ryan Hudnel explains, ironically, the first step in this cardless payment is to buy a card.

So I actually have to get a physical card?

Mr. HUDNEL: Right.

FENSTON: Then I enter the card number into my Starbucks app.

So, 6064, 25 digits later, 306. And, finally, I'm ready to buy my coffee.

Mr. HUDNEL: So your total is going to be $1.65. And would you like your receipt today?

Mr. DAVID SCHROPFER (Author, "The SmartPhone Wallet"): The Starbucks mobile payment product is a lot like the Model T Ford.

FENSTON: David Schropfer is author of a book called "The SmartPhone Wallet."

Mr. SCHROPFER: It's not perfect by any means. It's a little difficult to get it started. But, in time, it's going to evolve into something that provides a lot of value-add to me as a consumer.

FENSTON: According to some estimates, paying by mobile phone is going to explode in the next few years. From $16 billion last year to $214 billion in 2015, according to market research firm Aite Group.

That could be a boon to storeowners, says Casey Chroust, with the trade group RILA, which represents some of the country's biggest retailers. He says these companies want to go mobile, in part because it could reduce costs. Payment apps could link directly to customers' bank accounts, cutting out the middle men.

Mr. CASEY CHROUST (Executive Vice President of Retail Operations, Retail Industry Leaders Association): You can reduce credit card fees significantly here and pass it on to consumers and that's a huge win for consumers and it's a huge win for retailers trying to bring consumers into the store and get them to spend more.

FENSTON: But credit card companies are putting up a fight to hold onto their share. Last year, Visa hired mobile guru Bill Gajda to head up the battle. He says credit card companies aren't going anywhere.

Mr. BILL GAJDA (Director of Mobile Innovation, VISA): Mobile really represents the next big opportunity to displace cash. So we've been doing that for 40 or 50 years.

FENSTON: Visa's planning to roll out a mobile program in July. In the other corner, three of the biggest mobile phone carriers have banded together to create a new payment system called Isis.

In the meantime, retailers don't want to invest in untested new systems, says Casey Chroust with RILA.

Mr. CHROUST: When you're a retailer that has 50 registers in a store, and you have hundreds if not thousands of stores in the country, it can be very expensive very quickly. And so, you have to have confidence that the solution you're deploying is going to be here for the long term and that customers are going to use it.

FENSTON: But 2011 may be the tipping point. This year's new generation of smartphones will include built-in chips to communicate directly with the cash register.

For NPR News, I'm Jacob Fenston.

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