Page last updated at 12:39 GMT, Friday, 13 February 2009

Challenges to a 'cashless' world

By Maggie Shiels
BBC News, Technology reporter, Silicon Valley

Monopoly board with latest mobile counter
Mobiles could challenge cash if the latest systems take off

The global credit crunch has delayed the shift from payments being made by mobiles instead of dollars or pounds, according to technology experts.

Some believe it will be three to five years before money goes out of fashion and a truly cashless society emerges.

Experts in the Silicon Valley say many hurdles still need to be cleared to move the system into the mainstream.

These include technology challenges as well as high up-front costs, security and enough of the right type of phone.

"There are a series of hurdles to overcome before the reality of contactless payments happens," said David Robertson of the Nilson Report, a journal covering payments issues.

Niche market

"The technology is there although when you think about having a chip in a phone to make contactless payments at the point of sale by waving your phone across a reader, there are only 10% of the handsets in the world that can do that.

Consumers would in may cases prefer cashless transactions when away from home
Mark Beccue, ABI Research

"It is going to take several years where you have a critical mass of handsets to make a difference at the point of sale. Obviously it will come but at the moment there is still discussion about how best to put that technology into a phone," Mr Robertson told the BBC.

He thought this would be resolved in the next year.

Experts say that there are between 360 and 380 billion mobile phones in the world to date.

Another technological hurdle concerns the adoption of one universal standard for contactless payments, said Mr Robertson.

The most talked about is near field communications, or NFC, which wirelessly lets two devices talk to one another at around four centimetres apart. The non-profit NFC Forum said that because the transmission range is so short, NFC-enabled transactions are inherently secure.

But its slow development has been cited by wireless experts ABI Research as one reason it may lag behind other mobile payment systems for at least six years.

How South Korea is moving towards a cashless society

The study noted that text messaging, mobile internet and downloadable mobile applications, have the potential to deliver what NFC has so far failed to.

"About half of all purchases made by consumers last year were made with cash," Mark Beccue of ABI told Contactless News.

"Consumers would in many cases prefer cashless transactions when away from home. So around the world solutions providers have leveraged SMS, mobile internet and downloadable mobile applications to enable mobile commerce and payments."

ABI projects the potential revenue in 2013 from mobile transactions using these methods could total about $18bn (12bn).

Staying with standards, another issue is that of compliance procedures between the banks, operators and regulatory authorities.

Dr Nav Bains, senior projects director of GSMA, the mobile industry trade body, said "The GSMA is working with its members to ensure interoperability across networks and across handsets.

"The aim is to offer multiple payment applications from multiple banks across multiple operators with a variety of handsets."

In a recent study, Juniper Research said that the mobile banking market is currently most advanced in East Asia, but that growing numbers of mobile banking services are being offered in North America and Western Europe.

The developed nations of these three areas are forecast to account for over 70% of the user base by 2011.


Another stumbling block is that of security, an issue that is presently being investigated by the Financial Services Technology Consortium (FSTC), which represents banks and financial institutions in the US.

A cheque being written out
Traditional cheques are gradually being phased out

"The big hurdle on everyone's mind is how to ensure that the payments are secure and as secure as possible. We are also concerned with interoperability," said Jim Pitts, managing executive of the FSTC's payments standing committee.

"The NFC looks like they are pushing the envelope but clearly there is an opportunity to attach a secure element if you make a near field payment from a cell phone.

"Any time you are dealing with information on a chip, security is an issue not just when you are paying or making a transaction.

"You are taking a risk every time you have got that chip in your pocket, inside your car or your telephone. If you don't have that chip secured that chip might as well be sitting on a table with a notice asking thieves to pick it up," warned Mr Pitts.

The FSTC will be making recommendations to its members later in the year as well as to the wireless industry operators and manufacturers.

Mr Pitts said while he is worried that some early innovators will not be as concerned with security issues initially, he added that he believes mobile payments are the way of the future.

"I personally see mobile payments ultimately as being as usable, valuable, secure and flexible as cheques have been for years in the United States.

"But for this all to happen, the banks are the key and they will have to embrace it and make it as widespread and as interoperable as possible," said Mr Pitts.

Merchant incentive

There is little doubt the market has the potential to be very lucrative, but Mr Robertson warned that any return would only come after some hefty up-front costs for merchants.

"There are 27 million point of sale locations in the world, so it is not going to happen overnight.

"Adding a contactless chip reader at the check-out is something that will take time and that will play out in vertical markets where some merchants will want to do it and make it a feature.

"It is hard to imagine why Macy's would ever want to do that whereas a fast food restaurant or drug store where there are long lines and you need to move the line forward faster makes a lot of sense," said Mr Robertson.

Some reports put the combined market for all types of mobile payments in excess of $600bn (403bn) by 2013.


One company already actively exploring the world of mobile payments is the credit card company Visa.

Visa symbol on a credit card
Visa is owned by the banks that issue its cards

Of the 14 or so trials it has going on around the world to find out what kind of mobile services work best, Visa is using the cell phone to pay for transport in Germany, fast food in Guatemala, and to receive coupons and discount offers in North America.

The company said the mobile phone is on course to replace the PC as the primary device for getting online, with more than half the world's population subscribing to a mobile phone service.

"Our vision is to deliver all payment applications on the mobile device. It is happening in the form of trials," said Tim Attinger, head of product innovation at Visa.

"There is momentum behind using the mobile device to make a payment at the point of sale but we need more phones in the market and more merchants that will accept payment that way.

"The biggest hurdle is getting the business relationships in place with companies like ours, the mobile carriers, the operators and the financial services. We are working hard to find the right business construct."

'Take the lead'

"Come on people make this happen," is the blunt message from Ewan McLeod the founder of the blog Mobile Industry Review.

"What we have here is lots and lots of people staring at each other waiting for someone else to take the lead and do something," said Mr McLeod of the hurdles preventing the cell phone becoming a virtual wallet.

"We are already downloading and paying for digital content with our phones.

"We have a financial relationship with our phone operators and carriers. We access our banks via the mobile internet. This is all do-able and just makes good sense. So why the delay?" he asked.

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