A new microchip stands ready to make consumer purchases as easy as waving a smartphone in the air. All that's missing is a unified global retail system. Jane Williams reports
Personal finance has gone through massive change over the last half century, from the automation of cheques in the 1960s to the launch of the first worldwide credit cards and, more recently, the introduction of internet banking.
But the latest advancement, apps that turn smartphones into personal banking devices, looks set to revolutionise the market, sweeping aside all other cash alternatives and giving customers the freedom to pay for just about everything from a cup of coffee to a Mercedes-Benz; transfer money; pay bills and check accounts with a click, or a wave, of their handset.
Sriram Natarajan, the chief operating officer of global services firm Quatrro, believes that smartphone and related technology will transform business and see credit and debit cards go the way of the passbook within six years.
"It sounds unbelievable but it's already happening. Social networking and online shopping have pushed the technology ahead and there are pockets around the world, like the Philippines and eastern Africa, where money transfers are regularly being done from mobile to mobile," says Mr Natarajan.
The combined market for all types of mobile payments, already well adopted by the tech-savvy across the US, Europe and Asia, is now around $300 billion (Dh1.1 trillion) and expected to double by 2013.
Meanwhile, the rapid penetration of mobile phones into emerging markets could see whole communities bypass plastic altogether.
"The mobile industry has been the fastest growing industry in the world over the last decade," says Mr Natarajan.
"Country's like India and China are adding 30 million new mobile connections a month. In many countries now, mobile phones out-rate credit cards, so it's quite a logical step."
The shift, he says, is being driven by social media, and the growing move towards virtual shopping - a pivotal point being Christmas 2010 in the US, when more shopping took place online than in the real world.
The primary methods for mobile payments are premium SMS-based transactions; direct mobile billing and mobile web payments using payments systems such as PayPal, Mobile Pay and Nokia Money. But the introduction of revolutionary Near Field Communication (NFC) technology has opened up a whole new range of possibilities.
NFC is short-range wireless technology that uses a microchip installed in a smartphone handset.
By waving the phone near a merchant's compatible reading device, users will be able to transfer bank details, monetary transactions and even loyalty card data from the chip.
Credit card companies have already adopted the technology. Visa, for instance, runs an NFC system called payWave where a tiny chip is placed either in a traditional debit or credit card or in a mobile phone case while American Express uses similar technology in its "Blue" cards.
Now Google has partnered with Sprint, Citi, First Data and MasterCard, to launch its Google Wallet service. Initially set to work on one smartphone, the Google Nexus S 4G, it will only connect, via NFC to MasterCard PayPass terminals in the US.
It's the first major player out of the ranks, but it will face stiff competition from other big names such as Apple, eBay and Isis, which are all intent on becoming the leader in the market.
Under some proposed payment systems being designed by telcos, credit card businesses could be left out of the equation altogether with charges instead appearing on mobile phone bills.
This could eliminate the need for a credit account and all the related charges attached to it.
So far, attempts to market these new mobile payment platforms on a broad scale have failed because of the lack of unity and co-operation among the competitors, and it appears any successful rollout will require systems to work in partnership with existing credit card companies.
Consumers, however, seem more than ready to put aside the plastic and adopt the new mobile payment system.
A recent MasterCard survey found customers in the US are already poised to embrace mobile payments systems, with 62 per cent of mobile phone users saying they would be willing to use their handset to make purchases.
"Consumers are already living a mobile lifestyle, so using their phones to make payments on a daily basis is a natural next step," says Mung Ki Woo, the group executive, mobile at MasterCard Worldwide.
"This year is the beginning of the NFC mobile payments era, and consumers are eager to get their hands on the first commercial deployments in the US."
A survey in India by the technical services company Accenture found that nearly 75 per cent of respondents would be interested in making mobile payments, putting the nation second only to China in its eagerness to adopt the technology.
And the UAE, with its sophisticated banking system and fervour for mobile phones and all things digital, could be the first Gulf state to make the switch.
The National Bank of Abu Dhabi (NBAD) became the first Emirates bank to offer mobile payment services in 2008 and now has 10,000 customers using the system, up 200 per cent from a year ago.
"Users tend to be professional, digitally aware customers, not necessarily young but busy and technologically savvy," says Ahmed Al Naqbi, the head of direct banking and e-development for NBAD.
Right now, the system is largely used for verifying accounts, paying school fees and bills, donating to charities and sending remittances overseas. But the number of customers taking up the service is expected to increase with the introduction of the bank's Arrow app.
Named Best Mobile Payment Application at the recent Mididle East Smart Cards Award, the app aims make mobile payments simpler, more accurate and more user-friendly.
"Mobile payments are definitely an expanding area for the market, even faster growing than internet banking," says Mr Al Naqb. "It's plausible that mobile payments will take over from plastic cards, but I doubt it will happen soon.
"Plastic cards are very transportable and cheap, not everyone can afford a smartphone with built-in NFC options. And it's a question of technology.
"Banks have just spent a lot of money replacing swipe card technology to accept chips instead of magnetic strips; they will have to upgrade again for NFC, and this could take years."
While implementation may be stymied, the technology is advancing exponentially and the possibilities are endless.
Along with virtual shopping, digital gifting is also growing in popularity.
It is no longer a question of if but rather of how fast mobile payments will take over, David Douglas Stone, the co-founder and chief executive of Cashstar, a digital gifting and incentives company, told mashable, an online social media guide, recently.
Sceptics remain, but they are probably of the same mindset as the people who said they would never take up a credit card, use an automated cash machine or join a social media network like Facebook.
