Are You Ready to Turn Your Smartphone Into Your Wallet?

The tech savvy vacationer knows that French McDonald’s locations typically serve as free Wi-Fi hotspots, but they may not know that the Golden Arches is also a major mobile payment test bed. In 30 McDonald’s locations throughout France, McDonald’s is currently testing the mobile payments waters, giving hungry throngs of customers the opportunity to order their Royale with Cheese and mayonnaise-drenched fries with a swift smartphone app.

This is only one of a series of moves by retailers the world over to kick into motion an idea whose time not everyone is convinced has come. Aside from Mickey-D’s — whose partner in the endeavor, PayPal, has also signed up over a dozen other retail stores including Office Depot and Home Depot — there are plenty of others joining the race to take advantage of what’s being seen as a new revolution in currency tech. Some have predicted that mobile payments will rake in over $600 billion by the year 2016. Currently, it’s only responsible for $171.5 billion.

Some are actually sinking serious money into ensuring its success. Recently, Starbucks struck a deal with electronic payment start-up Square Inc. that saw the coffee giant cough up a $25 million investment, ensuring it won’t be long before all 7,000 of its stateside outlets are fully compatible with mobile payment.

Taking it a step further, your smartphone may soon double as your wallet. Poised to give PayPal and Square Inc. a serious run for their money is MCX (Merchant Customer Exchange), a joint venture formed by an imposing band of heavyweight retailers who have decided to take the DIY approach to ushering in the era of mobile payments: Shell, Sunoco, Wal-Mart, Target, Best Buy, Lowe’s, 7-Eleven, and Sears, to name a few. Although not yet available and reportedly still in the development stages, payments will be facilitated through an app that will not only enable users to pay with their smartphones, but that will also track purchase activity and deliver incentives like coupons and special price deals straight to the user’s phone.

Meanwhile, Google (whose 2011 release of Google Wallet gives it a decided head start over all late comers) is finally making some long overdue improvements to its own contribution. Initially limited to a frustratingly small number of Sprint phones owned by Citibank and MasterCard users, Google has made an effort to expand the reach of Google Wallet – only it may not be enough to prevent it from being completely eclipsed by the combined efforts of PayPal, MCX and Square Inc. Although it can now be used with any credit card and keeps all data in the cloud instead of on the phone itself, Google Wallet remains compatible with only six Sprint and Virgin Mobile phones. Not surprisingly, it’s also been designed to work with Google’s own Nexus 7 tablet, which isn’t exactly a convenience but certainly ranks high on the novelty scale.

Powered by NFC

Powering the mobile payment revolution is a technology called Near Field Communications, or NFC for short. NFC is a radio technology that essentially communicates and transmits data only over very short distances, like when two NFC-capable devices physically touch. This ensures user security, and is why NFC is ideal for mobile payments. Google Wallet and MCX are built around NFC.

In smartphones, NFC typically comes in the form of a very small chip and can be used for more than just mobile payments. NFC-capable phones can pass data like contact information and photos when connected, and can also be used to quickly pair Bluetooth accessories with devices. NFC is just about standard on all new high-end smartphones, and it’s widely expected to make an appearance on the upcoming iPhone 5.

Consumers Ready?  

All of this begs the question: are consumers really all that eager to turn their mobile phones into e-wallets? It’s a question worth asking, especially in a day and age where the speed and simplicity of credit card swipes have rendered cash an inconvenience of the rapidly receding past. The answer to that question apparently doesn’t have much to do with convenience or security, but more with the exponential rate at which smartphones are becoming indispensable possessions.

According to a recent report from the Pew Internet Project, almost half of all adults in America own a smartphone. Given that in a single year that percentage went from 35 percent to 46 percent indicates it’s only a matter of time before the majority of paying consumers are equipped to try out mobile payments. Whether they’ll adopt the technology at the rate anticipated by retailers is anybody’s call.

Barriers to Adoption

Standing in the way of universal adoption of mobile payment technology is the delicate issue of compatibility – something that could be an even more insurmountable obstacle than selling the fraud-wary masses on the security of smartphone financial transactions. PayPal and Google have agreed to come to the table with the “big four” wireless carriers and a number of major credit card providers to develop a list of standard practices, but that doesn’t mean that widespread interchangeability will be here anytime soon.

Last year, in an obvious display that “not all is peachy” between competitors, Verizon (who together with AT&T, T-Mobile, Discover, and Barclays pooled their efforts to develop their own mobile payments network, Isis) instituted a block disabling its customers from installing and using Google Wallet.

Ultimately, the rapid fire proliferation of different mobile payment platforms could end up being what really prevents the concept from taking off. It’s no secret that consumers love, crave, and demand choice. But when too much choice leads to confusion, indecision and uncertainty are only steps away. This is something that the retail giants would do well to bear in mind.