Judging by the news this week, we will soon be cruising highways in our self-driving cars, napping comfortably in the front seat. We’ll be turning on the lights with our tablets. And we’ll be chopping up our credit cards and using our phones to pay for our groceries.
Yesterday, Visa, the world’s largest payments processor, announced a series of advances to its system. (Check out the vague, glossy promo video here.) They include some handy tools to make paying for goods online a whole lot easier. But they also indicate that Visa is hurtling toward turning your smartphone into your credit card.
The banner part of the announcement actually seems like something of a snooze. When you make a purchase on the Web today, you often need to input a 16-digit card number, a zip code or billing address, an expiration date, and a three-digit security code, along with your name. That helps to keep the payment secure, but the process is clunky and time-consuming, particularly if you have bad eyesight or fat fingers.
Starting in the fall, you’ll only need an email address or alias and a password to pay from any of your Visa-linked credit or debit accounts under the new “digital wallet” system. Visa says it will hold and process some competitors’ cards too. And if you opt in, retailers will be able to offer you deals and discounts through it.
The really cool, pay-with-your-phone news comes in a confusing phrase of corporate-speak lower down in the announcement. The company notes that the digital wallet upgrades will “support NFC payments through the innovative Visa payWave application and deliver a wide range of transaction services to accommodate multiple commerce scenarios.” In English, Visa indicated it is working harder to turn your phone into your credit card, soon.
As my colleague Farhad Manjoo explained in March, of late, a whole host of companies, including Google, Apple, and PayPal, has been working on bringing such mobile payment systems to America. (The systems are already popular in Europe and parts of Asia.)
The goal is to provide another option besides plastic and to make payment more secure and simple. The system relies on relatively newfangled “near-field communication” technology. With traditional credit cards, a reader hooked up to the Internet takes your account information from a magnetic strip and transmits it via Visa’s payment network. With NFC, no contact is necessary. A reader pulls data from a little inert chip, small enough to fit in a phone’s SIM card or in a sticker.
There have been fantastic advances in the technology in the past few years, but no system has really caught on. Visa, for instance, runs an NFC system called payWave. The company puts its tiny chip either in a traditional debit or credit card, in a key-fob-like gadget, or in a cell phone case. Then, when you want to pay, you merely need to wave your card or gadget or cell phone case in front of the pad at the point of sale. American Express uses the same technology in its “Blue” cards.
But waving your credit card rather than swiping it seems like a minor advance: It takes no less time and still requires you to carry your wallet. Why don’t we all have smartphones that can do the paying for us, as they do in Japan?
The shortest answer is “network effects.” The companies that have been most interested in mobile payments are not the banks or payment processors. Technology and communications companies, such as Google and Nokia, want to erode the payment processors’ oligopoly. If a Google NFC chip can sit in your Android phone and link it directly to your debit account, there is no need for Visa to do the behind-the-scenes, move-the-money, make-the-commission work.
Visa and MasterCard’s market dominance has stymied their upstart competitors’ progress. No consumer is going to seek out an NFC-equipped phone if businesses do not accept NFC payments, or if they do not integrate easily with their bank and credit-card accounts. Businesses do not have much incentive to get NFC readers unless their customers want them.
But if the big processing companies push them, NFC will happen sooner rather than later. Visa services about 269 million credit cards and 397 million debit cards in the United States alone. Along with MasterCard, it processes more than 80 percent of all credit and debit transactions.
So, if Visa wants change to come, it will come. And it is clear that the company has noticed some kind of threat from mobile-and-web savvy upstart businesses looking to bypass debit- and credit-card-based transactions. For instance, companies like ZashPay and Popmoney emerged in 2010, promising to let users ping money to one another cheaply and instantly. In response, Visa built a system to let any of its users do the same, knowing nothing more than their friend or trading partner’s email address or phone number.
Visa does not want to see its market dominance eroded if consumers turn out to really like paying with smartphones. On the one hand, that means that we will all get the option sooner rather than later. On the other, it means Visa is working hard to retain its lion’s share of the payments business—meaning, among other things, high fees.
So, it might be a while before you can turn on the lights with your iPad or direct your self-driving car to work. But in no time, with “digital wallet” technology strapped into your smartphone, you will be using a card-free payment network to buy anything you want.
