Banks, payment processors and cell phone companies are trying to sell US retailers on a not-so-distant future where customers can use their smart phones to do even more - pay for stuff.
But despite Bank of America Corp, the biggest US consumer bank, and Visa Inc, the world's largest payment processor, throwing their might behind the futuristic initiative, they are likely to find it a tough sell.
Visa and Bank of America will run a test program for consumers so they can make retail purchases via their smartphones beginning in September in New York.
US banks see the technology that will allow customers to simply wave their smart phones at special readers to make payments as potentially a source of new cash streams.
They hope that, as the technology catches on, it will allow them to earn fees even on small dollar transactions that some customers still pay for in cash. Banks also want to stay one step ahead of their competitors, as both financial and cell phone companies invest in the mobile payments space.
The technology is already a commonplace payment method in other developed countries such as Japan, but it is just gaining a toehold stateside and experts said it will catch on only slowly.
Mobile payments "has reached a tipping point where it can start being a meaningful technology" in the United States, Naresh Kumar, chief operating officer of Citigroup Inc's cards unit, said in an interview on Tuesday.
Every technology problem with mobile payments can eventually be resolved, "but one element you have to solve is co-ordination," he said. "Every player in the ecosystem has to do its part to enable widespread adoption, value to stakeholders and ubiquity."
Despite the optimism, experts said retailers will be hesitant to spend on new technology in the current economy or face additional fees that come when customers use payment methods other than cash. Already, merchants pay banks almost $50 billion annually for processing transactions on credit or debit cards - even contactless or mobile versions.
Merchants also pay banks and their hardware vendors to upgrade payment systems, but they usually wait at least five years between each upgrade, analysts said.
Equipment that accepts mobile payments is not significantly more expensive, but banks have given merchants few incentives to invest in the new technology ahead of schedule, they said.
"Unless there's some screaming business case to this, merchants are going to wait," said Red Gillen, senior analyst with consulting firm Celent. "It's just another technology that's being forced down their throats."
Merchants could buy into the technology if the banks and processors reduce their prices or offer additional services, such as more data about their customers, said Philip Philliou, a former executive at MasterCard Inc and American Express Co and a payments consultant at Philliou Selwanes Partners.
"Retailers are still saying: 'We're very interested in mobile, we're very interested in contactless, but make it worth my while,'" Philliou said.
Companies that cater to younger consumers, with large networks of stores to defray the upfront technological costs, will likely be the first adopters.
Retailers such as Target Corp, Starbucks Corp or 7-11 would also be prime candidates for early adoption of the technology, as consumers ease into contactless payments, analysts said.
"The trick for the retailers is going to be what is the cost to roll it out to them and what are the benefits to them," said Patty Edwards, founder of wealth management firm Storehouse Partners. "Will it bring in more business because people recognise that they can do their transactions easier in store A than in store B?" It will also take a technology savvy customer to adopt this technology, analysts said.
"It is not going to be Chico's with 60-year-old women. It's going to be the Apple store or it's going to be the mini-market gas stations where the twenty-somethings are more likely to hop in," Edwards said.
And in the end, the technology is unlikely to ever completely displace traditional credit and debit cards, or cash. "You are going to already have 40 percent who definitely won't do it and 40 percent who definitely will," said Marshal Cohen, a senior analyst at retail consultant NPD Group. "The other 20 percent that you need to kind of talk to, to help them get over the hurdle."
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