Using the mobile phone as a credit card

I admit it; I've been put off by the term "contactless payments." But it's an emerging area that deserves some attention.

If you are in Asia, you know what I'm talking about. People there have been making payments with their mobile phones using what's called "near-field communications." Just wave the handset in front of a reader and voila, the transaction is done.

In the U.S., we've had RFID technology embedded in cards. But the long-term goal is to eliminate the need to carry credit cards, building access badges and transit cards and just turn the phone into an all-in-one device.

Well, while the mobile phone has turned into an entertainment device over the last few years, it hasn't become the payment and access device in the U.S. that was envisioned when contactless payment strategies were born back in 2005 and earlier.

And now, with the economic downturn, the near-field communications industry is likely to take even longer to take off. Broad adoption of near-field communications will take longer than expected now, as long as three to four years, predicts Shyam Krishnan, an industry analyst at Frost & Sullivan.

So, a French company called Inside Contactless has come up with an interim solution that will let people turn their phones into credit cards and transit cards. Inside's MicroPass technology will be embedded into a sticker that can then be affixed to a phone, wallet, or anything else.

The company, which entered the U.S. bank card market with a microprocessor-based chip in 2005 and is backed by Nokia, Motorola and Samsung, recently announced that Colorado Plastics will be producing stickers using the MicroPass technology.

Soon, we may see people waving their mobile phones, iPods, ID badges, or wallets in front of readers to get on the subway or buy coffee at Starbucks.

"It's a cool way to pay; convenient," said Charles Walton, executive vice president of the payments business at Inside. "It turns the phone into a super wallet."

"It's a card in a different format," said Jonathan Collins, principal analyst in ABI Research's RFID and contactless group. "We've had American Express fobs, but they didn't prove to be overly popular. Stickers are more useful."

The MicroPass technology should fare better with regard to security scrutiny than the much-maligned NXP Mifare Classic RFID chip, which has been found to have severe flaws and can be cloned.

"We're using a microprocessor with open-standard security techniques, not a fixed memory, proprietary security scheme" like Mifare Classic, Walton said. The applications implemented using MicroPass "cannot be cloned in that way."

Adoption will depend on how quickly banks, retailers and phone companies can agree on standards and implementation, as well as on whether people are ready to merge their phone and their wallet.

"There has to be a benefit for the end user," Krishnan said. "It all boils down to its convenience, at the end of the day."

I'd be interested in hearing reader thoughts on whether this technology would be useful.