Pay by phone

Cell phone shopping makes wallets redundant in Japan.

JAPANESE office worker Satoshi Tada pays for shopping, wins free food and gets store discounts all by waving his cellphone.

“I use it pretty much every day,” the 25-year-old said. “You can charge money on it right there if needed, and you don’t have to run around trying to find an ATM. You can even get points because it’s linked to credit cards.”

The world’s top firms such as Visa Inc and Nokia are still mostly testing phone use for payments, but in Japan, more than 50 million, or about half of all cellphone users, already carry phones capable of serving as wallets.

Japan has pioneered not just the technology but also the business models that will pave the way for wallet phones to become a standard payment method in the future. Some 700 million people worldwide are expected to own such phones by 2013.

“You can’t deny that having such applications on a phone is convenient, and that will likely be the way that mobile phones are going worldwide,” said JPMorgan Securities analyst Hironobu Sawake in Tokyo. “People always carry cellphones on them, and they would find it useful to have a financial function there.”

Success in Japan and in trials abroad have shown that the technology is ready for cell phones to replace credit cards, cash as well as serve as transportation and movie tickets and electronic keys for homes and offices.

But there are other hurdles; from breaking the psychological barrier for consumers sceptical about using phones as credit cards, to working out new business models as the lines blur between banks, financial institutions and cell phone companies.

Japan is leading the way in this regard.

Outside Japan, telco industry and financial players are still in the midst of working out how the wallet phone payment business would operate, who would get a cut and when.

A wallet phone being held over a scanning device in Tokyo.
These special phones can be used like money for purchases in stores equipped
with the scanners.

“Traditional financial industry met telcos by going mobile. Now telecom operators want to play a part in that chain. These talks are well under way,” said Gerhard Romen, Director for Strategic Alliances & Partnering at Nokia.

A wallet phone being held over a scanning device in Tokyo. These special phones can be used like money for purchases in stores equipped with the scanners.

The world’s biggest payment card company, Mastercard, said last month it was in talks over commercial launches of phone wallets with several banks, and during the next two years it expects to see substantial activity from retail-focused banks.

“Now banks say: I have no doubt in the technology. We need to solve the business model between mobile and payments industries. It’s not a trivial task,” said James Anderson, a vice president at Mastercard’s mobile business. “There is a very strong consumer pull for this service.”