Visa Inc. hopes to prove to banks that a contactless payment chip in a mobile phone is a much more compelling product to consumers than the same chip in a plastic card.
Though contactless payment cards and terminals are increasingly common, they are not most peoples' primary method of payment; some people even carry the cards around in their wallets, unaware that they feature near-field communication chips and need not be swiped to initiate transactions.
Though adding the same NFC chips to phones offers much of the same benefits as NFC cards, doing so can also open the door to additional control over users' accounts, according to Bill Gajda, Visa's head of global mobile products. This control could convince consumers to use a contactless payment in situations where many still use cash and checks, he said.
Based on early feedback, "people think it's fundamentally different," Gajda said. Mobile payments with phones are "a different experience."
Visa is promoting an approach based on a microSD card, which can be installed by consumers in the memory slots found in many phones.
For phones without that port, such as Apple Inc.'s iPhone, Visa offers a special case with the port built in. The microSD card is meant as a temporary system that serves to accelerate the payment method's adoption among consumers in anticipation of the time when NFC chips are built directly into mobile phones, Gajda said.
Besides adding an NFC chip, the microSD card can contain software that allows consumers to decide when to activate and deactivate the payment function, and to lock it with a password. The software could also be used to deliver coupons and other offers. Gajda said these are some of the immediate benefits that mobile phone payments has over contactless cards.
Visa said it is working with Bank of America Corp., Wells Fargo & Co. and U.S. Bancorp to test the technology.
Tara Burke, a spokeswoman for B of A, said that "customers are open to new ways to pay," though the exact nature of B of A's mobile payment strategy is still under development.
B of A's mobile payment test, which Burke said is not limited to Visa cards, begins Sept. 13 and will run through the rest of the year. "We're doing this testing to learn," she said. "We would take the learnings from this trial, and that would help us take this product to the next step."
Wells Fargo confirmed that it is working with Visa but declined to comment further.
Visa thinks issuers will want to integrate NFC payments into their existing mobile banking apps, making the experience more seamless. Though each issuer will be responsible for the distribution of their branded versions of these chips, more than one issuer's software can be run from each chip.
However, it is still an open question as to whether issuers will agree to share space on their chips with other banks.
"It's very easy to put a new account on a microSD" from a technological standpoint, Gajda said, but from a business standpoint, "the model is going to take a while to evolve that way."
Though issuers' apps could be locked with a password or a PIN, it would be separate from the PIN used for debit transactions, and contactless transactions would generally be considered signature transactions.
Visa plans to offer its microSD cards early next year, though it is up to its issuers to decide when the technology will get into consumers' hands.
Gajda said that, in contrast to issuers' earlier strategy of making NFC chips standard in some credit and debit cards, banks are more likely to require consumers to opt in for the microSD chip.
"There's a tech-savvy audience that I think will adopt this very quickly," he said, and eventually a mainstream audience would follow.
Though the chips would also allow person-to-person payments, Visa's focus in the U.S. is at the point of sale. P-to-P payments are a more compelling proposition in developing countries, Gajda said.
Avivah Litan, a vice president and distinguished analyst at the Stamford, Conn., market research company Gartner Inc., said that some consumers may be swayed by the wow factor of using a phone for payments, but said that consumers will not decide the fate of this technology.
"Merchants are the ones that were responsible for PayPal's success and they'll be responsible for contactless payments' success," she said, and "they won't be incented unless they get lower rates."
Though contactless payments have already had success in some industries, such as fast food, Litan said contactless payments are "still very embryonic."
Based on the number of patent applications Apple has filed in recent years around mobile payments, many in the industry expect Apple to put an NFC chip in one of its next revisions of the iPhone, she said.
Given Apple's focus on simplicity, it may not require users to launch an app to unlock the contactless payment function every time they want to make a purchase.
"I think Visa is trying to head off efforts by Apple and the mobile carriers to get into mobile payments," Litan said.
Litan said she was also skeptical that banks would agree to allow consumers to link a rival's payment account to their own microSD card, but said that — assuming consumers do favor mobile payments — banks may eventually have to cave to consumer demand on this issue.
Litan agreed with Visa in that allowing multiple banks' accounts to be accessible from the same microSD card "is not a technology issue as much as it's a business issue," she said.
However, Litan predicted that banks that are reluctant to put rival accounts on their microSD cards will eventually agree because consumers will demand it, and those banks "don't want to be left out of the party," she said.
Aaron McPherson, a research manager for payments at IDC Financial Insights in Framingham, Mass., agreed with the general premise that paying with a phone could be an easier experience than paying with a card, but stressed that "you have to give people an incentive to adopt — they have to be able to do something that they can't do now."
McPherson stressed the importance of coupons and rewards, which Visa said it will support, though he said issuers would have to be creative to find a way to provide something different from what consumers can already access online.
"I don't think it is that compelling unless you're actually using the mobile network while you're out and about … using geolocation [and] GPS to deliver real-time coupons," McPherson said.
Something like shopkick Inc.'s technology, which allows merchants to verify whether a consumer has entered a particular store before delivering a reward, is far more compelling to consumers than simply giving mobile access to a coupon that could just as easily be printed out from home, McPherson said.
"If it's just mobile for the sake of mobile … I don't think that the coolness factor really is enough," he said.