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Mobile Payment Apps Put Wallets In Phones, Not Pockets
Originally published on Fri October 28, 2011 8:48 am
The use of smartphones as e-wallets has caught on elsewhere; now it's spreading in America.
The new Google Wallet app lets shoppers who own Android smartphones pay at the counter with a mere wave at the cash register and without a pocketful of change in return.
The app uses near-field communication technology to beam customers' payment info from newer-model phones to a cashier reader. And as Bloomberg technology columnist Rich Jaroslovsky tells NPR's Ari Shapiro, it's a sign that we're likely to see more people waving their phones around at the checkout counter.
Google describes the Wallet app as being part of "the next big shift" in currency, which has evolved from metal coins to paper bills and credit cards.
"The money comes from a couple of different sources, depending on how you've got it set up," Jaroslovsky says. "You enter your credit card information into the app, and it's stored securely on a chip inside the phone. But there's also the option of putting a gift card on it."
In addition to not having to visit an ATM or use a credit card to make purchases, Wallet users get access to special discounts and deals at retailers.
In California, Jaroslovsky has been testing the new Google app in the field — or, to be precise, to find a good deal on smoothies. The app lured him to a Jamba Juice store, with the promise of paying $2 for a 16-ounce drink.
"This is really the secret sauce in mobile payments, because while, yeah, it is kind of a little bit more convenient, that isn't really what's going to get people to use it," he says. "What's going to get people to use it is the possibility that they can save money."
At Jamba Juice, Jaroslovsky says, "when I tapped the phone to the reader, it automatically applied the discount. So, I got my $2 smoothie."
Asked about the security of using a cellphone as a wallet, Jaroslovsky says, "My conclusion was that it is certainly no less secure than a credit card and probably more so."
For instance, the wallet must be unlocked by entering a PIN, and the chip is designed to make it hard to extract the credit card info if the phone should fall into the wrong hands.
The Google Wallet app, which was announced in May and instituted last month, is the product of a partnership between Google, Citibank, MasterCard, First Data and the Sprint wireless carrier.
"But the other three U.S. mobile carriers — Verizon, T-Mobile and AT&T — have formed their own plan, called Isis," Jaroslovsky says. "It's not yet out in the marketplace, and nobody is quite sure yet how that's going to work. What you do know is, there's a lot of money at stake here."
Other competitors vying for a share of that money include PayPal and Square, which announced this week that its mobile payment readers will be available at Walmart stores. Instead of using near-field communication, the system uses a small plug-in device to make payments over phones' Internet connection.
Square has made inroads by targeting small businesses that are drawn to its mobility and low costs. It also offers a solution to users whose phones lack NFC technology. Users can also open a "tab" with its Card Case app, which lets them use their stored credit card information to pay for items over the Internet. Cashiers then access the customer's paid "tab" via their own Square app at the register.
As Jaroslovsky says, the open question is which business model will prevail.
"You've got all these big players — the mobile companies, the banks, the credit card companies, the technology companies, the device manufacturers — and all of them want a piece of this pie," he says.
ARI SHAPIRO, host: Waving your mobile phone in front of a cash register to pay for purchases could be the next big thing. The technology for this is well-established in other countries, but only a few stores in this country allow people to use their phone as they would a credit or debit card. We sent Bloomberg News technology columnist Rich Jaroslovsky to take one of the mobile wallets for a spin.
RICH JAROSLOVSKY: So I'm here at the Jamba Juice at the Stanford shopping center. First thing I'm going to do is see what kind of offers I've got. And it looks like I've got an offer here in my Google Wallet for a $2, 16-ounce, all-fruit smoothie. So I think that's what I'm going to have. Oh, let's get a Mega Mango. How about that?
UNIDENTIFED WOMAN: Sounds awesome.
JAROSLOVSKY: And now all I do is tap the phone to the reader at the cash register, and it's giving me a message that says the payment's been made. And it even offers a little wow at the end.
(SOUNDBITE OF LAUGHTER)
SHAPIRO: Okay, Rich, so you finished your smoothie and came into the studio to talk with us about the experience. Welcome.
JAROSLOVSKY: Thank you.
SHAPIRO: For people who have never experienced this, just describe what using the Google Wallet app physically entails. Like, what's on your screen? What are you doing with it?
JAROSLOVSKY: Well, the app only works when the screen is on. So first thing you've got to do is to turn the screen on, and then it requires a pin. At that point, all you really need to do is to tap the back of the phone to the speed pass reader that is on the cash register, and you're done.
SHAPIRO: And is it connected to a Pay Pal account or your actual bank account? Or is it like a credit card? Where does the money come from?
JAROSLOVSKY: Well, the money comes from a couple of different sources, depending on how you've got it set up. You enter your credit card information into the app, and it's stored securely on a chip inside the phone. But there's also the option of putting a gift card on it, and there is a sort of a Google universal gift card that you can replenish with your own credit card if you choose to do that.
SHAPIRO: You mentioned that there was also a coupon for Jamba Juice. Was that just coincidence, or did the app somehow know that you were there from GPS or something like that?
JAROSLOVSKY: Well, I actually went looking to see, okay, well, what offers are nearby? And this is really the secret sauce in mobile payments, because while, yeah, it is kind of a little bit more convenient, that isn't really what's going to get people to use it. What's going to get people to use it is the possibility that they can save money. So I went looking for offers near me at the Stanford shopping center out here in Northern California, and Jamba Juice had a $2 smoothie offer. So the app told me that. I saved it to the app, so that when I went into Jamba Juice, the app remembered, hey, you've got s $2 coupon here. And when I tapped the phone to the reader, it automatically applied the discount. So I got my $2 smoothie.
SHAPIRO: And what about security? Is it as secure as something like a credit card?
JAROSLOVSKY: My conclusion was that it is certainly no less secure than a credit card, and probably more so. Among other things, you do have to enter a pin to unlock the Wallet. The credit card information that you have is stored securely on a chip inside the phone, so that if the phone gets lost or stolen, your credit card information is not easily accessible.
SHAPIRO: And does the mobile company actually make money off of this in the same way that a credit card company will charge a merchant for every transaction that uses the credit card?
JAROSLOVSKY: Well, right now, the business models are still really evolving. Google Wallet is out there right now. They launched last month, and it's really the first of these. And they have a partnership with MasterCard, Citibank and Sprint.
But the other three U.S. mobile carriers - Verizon, T-Mobile and AT&T - have formed their own plan called Isis. It's not yet out in the marketplace, and nobody is quite sure yet how that's going to work. What you do know is there's a lot of money at stake here, and you've got all these big players - the mobile companies, the banks, the credit card companies, the technology companies, the device manufacturers - and all of them want a piece of this pie. And so, in a lot of ways, working out the business models is going to be much more challenging than working out the technology.
SHAPIRO: Rich Jaroslovsky is the technology columnist for Bloomberg News. Thanks, Rich.
JAROSLOVSKY: Thank you. Transcript provided by NPR, Copyright NPR.