Visa (NYSE:V) is teaming with European mobile phone provider Vodafone (NASDAQ:VOD) to create a mobile-payment service. Vodafone customers with a phone containing near-field communication (NFC) will be able to make purchases in-store with a swipe of the phone. The NFC hardware in the mobile device will signal a chip in the register to process the payment using a Visa prepaid account linked to that device. Customers can save time at checkout and avoid the need to carry a payment card at all times.
Mobile-payment systems are still a rarely utilized technology, but a new white paper from Parks Associates suggests that it’s a growth industry. Parks reports that more than $100 million in mobile transactions were completed last year, and the firm expects that number to expand to “the hundreds of billions” in the next three years.
The mobile-payment structure centers on a “wallet” — a financial account associated with the phone. Prepaid cards, coupons, and loyalty cards can all be linked to the same wallet for ease and versatility when checking out. The wallet can be provided (and branded) through a mobile-service provider, a payment provider, or through an operating system.
Google Wallet is a notable recent example that Google (NASDAQ:GOOG) has been including in certain Android smartphones. That wallet is linked to either a Citi Mastercard or a Google prepaid card that’s linked to another credit or debit card.
According to a Parks survey, 37% of smartphone owners would consider using a mobile wallet, though security is a major concern. Respondents said a payment network such as Visa would be the most trusted provider of mobile payments, with a service provider, such as Vodafone, coming in second.
Mobile payments require robust protection that covers a wide range of scenarios. Google Wallet faced two security flaws that could have exposed its prepaid card, but not the underlying financial account, of smartphone owners who sold or lost the phone.
Wide consumer adoption of mobile payment will depend on changes in manufacturing and provision. An increasing number of phones are being built with NFC, but many popular devices, including Apple’s (NASDAQ:AAPL) iPhone, don’t include the technology.
In-store chips aren’t seeing the same production growth at this time. Google Wallet is currently accepted at a small group of stores, including Home Depot (NYSE:HD) and Macy’s (NYSE:M). The Vodafone-Visa agreement hasn’t specified its associated stores, but the press release states that the service “will be offered to a range of financial institutions, retailers, transport and utility firms.”
Mobile-payment agreements will become more commonplace in the coming years. Payment networks benefit by having the built-in customer base that the service provider offers. Vodafone alone has 400 million customers in Europe. The service provider receives the processing power, security, and brand trust that the payment network provides.
Expect to see all of the major mobile-service providers striking payment agreements in the next year or two.
