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Earlier this year, Starbucks rolled out a new app for iPhone, Blackberry and (coming soon) Droid users that lets customers pay for coffee and other Starbucks goodies with their smart phone. Download the app, Starbucks Card Mobile, and then enter your Starbucks Card number. Now, it’s one less card you have to carry in your wallet. Load up your pre-paid Starbucks card with money, and you’re ready to go.
Call up the app and your smartphone displays a barcode that the Starbucks barrista scans to pay for your purchase.
You can still track your purchases toward free beverages, check your balance, and load your card online at My Starbucks Rewards through your phone.
Starbucks is a trendsetter with this mobile app here in the United States, but other countries, including Japan, have been using iPhones and other smartphones in lieu of “old-fashioned” plastic credit cards for at least a year now.
There are already several forms of technology that allow vendors and merchants to accept credit card payments from conventional credit cards using their iPhones. But technology recently introduced here in the U.S. will now allow consumers to pay with their smartphones, too.
Near Field Communications (NFC) : How Mobile Payments Work
Mobile payments in Japan and across the world (and, soon, here in the U.S.) use technology called Near Field Communications (NFC), a form of short-distance wireless communications technology that will allow you to transmit your payment information to a contact-less payment terminal (a touch-and-go device common at many retail locations) by waving the iPhone in front of the terminal.
Last summer, Visa and DeviceFidelity introduced a special case for the iPhone that permits iPhone users to use a MicroSD format NFC device — the kind that’s in the Nexus S android phone from Google and in several Nokia cell phones — to make mobile payments with their iPhone.
Because the iPhone does not have a Micro SD card, until Visa and DeviceFidelity created this special case that contains a MicroSD format NFC device, iPhone users were unable to take advantage of these kind of mobile payment options.
But, Apple is now hinting (and, by the time this post hits, it could be more than just hearsay) that the next generation of iPhones, and even the iPad 2, will contain an NFC chip, bringing mobile payments to users of the nation’s most popular smartphone.
How Apple Could Change the World, Again
The easy conclusions to draw from the prevalence of NFC-based credit card payment options is that mobile payments offer consumers:
- More convenience
- Less security risk (the digital technology used to transmit credit card numbers is a lot more secure than carrying a wallet you can easily lose or forgetting your credit card at the cash register)
- And even, possibly, technology that lets you check your balance right at the register before you make a purchase.
Currently, Apple and the manufacturers of other NFC-equipped mobile phones will partner with major credit card issuers like Visa, MasterCard and Discover to accept payments. But there’s no reason Apple can’t circumvent the high interchange fees charged by the banks when customers use debit and credit cards by developing their own payment system.
Blogger Doug Ammoth of Time’s Techland website, along with a report in Bloomberg, posits that Apple could develop its own payment network. The timing is perfect for such a move, with the Durbin Interchange Amendment changing the whole credit card usage fee game for merchants and banks.
Apple could reduce transaction fees for merchants, encouraging them to offer incentives to customers for paying with their iPhone (so far, there’s no legislation prohibiting this, especially since NFC payments are such new technology). It could even link consumer’s iPhones to other payment options, such as an iTunes account, Paypal, or checking accounts. It could also partner with current wireless carriers, AT&T and Verizon Wireless, to add charges to customer’s cell phone bills, or even “add funds” to your phone in advance when you pay the cell phone bill.
We could say that the future of payments is changing, but the truth is that payments have already changed with the Internet. Is Apple leading consumers to the next step?