Will your Smartphone soon Replace your Credit Card?
If you have both a smartphone and a credit card in your wallet, you could soon see your plastic disappear. This is because smartphone manufacturers – namely, AT&T, Verizon Wireless and T-Mobile – are working to develop a mobile payment system that will allow individuals to pay for their purchases using just their smartphone.
However, Visa and Mastercard may soon be antiquated, leaving them feeling more than a bit threatened with this emerging technology.
Atlanta and three other big cities not yet named will be the location of the upcoming tests of the mobile payment system. Although the particulars of the system have not been fully disclosed, we do know that it will work by holding your smartphone in front of an electronic reader at your favorite retailers.
All transactions using this method will be processed through Discover Financial Services, the fourth-biggest payment network in the country. The London-based Barclays will help manage the accounts processed through Discover.
An End to Visa and Mastercard Fees?
Many retailers, who have for years had to put up with the transaction fees charged by Visa and Mastercard may be inclined to steer towards this method of payment. Most retailers have argued for years that there is no real competition in the credit card business; this mobile payment system may be just what this industry needs to create a healthy competition. Many retailers feel that any new payment system that would reduce their fees would be quite welcomed.
Visa and Mastercard payments currently make up more than half of all U.S. consumer purchases, compared to just 36 percent in 2003, according to the Nilson Report. Visa and Mastercard accounted for a whopping $2.45 trillion, or 79 percent, of all purchases last year. This number represents both credit cards and debit cards.
Merchants will have to pay about $200 per electronic reader and phone costs are expected to increase between $10 and $15, but many people see this change as well worth the money, especially because of the sheer convenience that it will afford both retailers and consumers.
According to Mercatus, a consulting firm in Boston, more than half of all U.S. consumers will use mobile financial services within the next five years. Eighty percent of those consumers will be between the ages of 18 and 34.
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