US mobile operators plan to turn Smartphones into credit cards

Three major US operators have announced their intention to venture into the payment and electronic transactions business, a sector until now controlled almost entirely by Visa Inc. and Mastercard according to Bloomberg:

The service, similar to those already available in Japan, Turkey and the U.K., would use contactless technology to complete purchases in stores. They’d be processed through Discover’s payments network, currently the fourth-biggest behind Visa, MasterCard and American Express Co. Barclays would be the bank helping to manage the accounts, said the people, who requested anonymity because of confidentiality agreements.

The technology used, NFC -Near Field Communication- is a parent of RFID. Already present in “wave” credit cards, it would be directly incorporated in the phone. RFID is cheap and easy to deploy but has proven to be not completely secure.

Embedding it within the CSP services and network could provide additional security features and offer new possibilities of payment for services, ticketing or content. The fact that such systems are already up and running in countries like Japan and UK indicates that these issues can be tackled.

This move from American operators is game changing. Visa and Mastercard have been regularly criticized for their transaction fees but this market –estimated to be worth $630 billion in five years- was until now lacking competition.

The business model remains to be clearly defined. Will the consumer follow? Will the shops invest in new payment terminals? Payment with phones in the US is still not for today, but it seems to finally be close to become a reality.