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Hold the phone: retailers eye payments via smartphone

Maria Korolov | March 27, 2012
An emerging technology called Near Field Communication will soon give new meaning to the phrase "tapped out."

And some banks - including Citibank and Bank of America - are getting a jump-start on the process as well, handing out NFC chip-based mobile payment tags that their customers can simply stick to their phones.

We won't be seeing a repeat of the 1970s, however, where you'd have to check the stickers on the door before walking into a store to see whether they take your payment method.

All of the NFC schemes currently under development will be compatible with the others -- at least on the payment level.

That's because the use the technology based on MasterCard's PayPass, which the company licensed to both its partners, and its competitors.

"The majority of terminals out there accept pretty much all of the contactless standards," says MasterCard's Mario Shiliashki, the senior vice president responsible for U.S.-based development and commercialization of payment products including PayPass.

"We're very focused on making sure that it's a good experience for the merchant and the consumer," he says. "If I walk up with a card that's PayPass enabled from three years ago and the latest Google Wallet, I'll be able to transact with the same terminal. So we don't go back to the future where you have various devices sitting on the merchant counter and depending on the method you pull one out and put the other one back."

Loyalty programs and coupons are a different story, however.

For example, in my area in Massachusetts, if I have Google Wallet on my phone, I can make purchases at my local CVS, Home Depot, Best Buy, and Hess and Gulf Oil gas stations.

But only a handful of merchants have loyalty programs on Google Wallet. They include Bloomingdales, Old Navy, ToysRUs, Macy's, OfficeMax, American Eagle Outfitters, and the Gap - but only in select locations.

"It's all very dependent on where you are," says John Devlin, a research director at ABI research and author of the recent report, "What Can I Use my NFC Phone For Today?" (His answer: "Not much.")

He pointed out an interactive map from Google that shows a lot of activity in and around New York City, Washington, D.C., Chicago, Los Angeles and San Francisco, but only a smattering of outlets elsewhere - and nothing at all in New England.

Plus, there are application developers that offer cloud-based loyalty programs completely independent from NFC payments - a typical consumer might need several applications on his phone, depending on which loyalty programs they belong to.

How secure are NFC payments?

In order for a payment to occur, the NFC chip has to be within four centimeters -- less than two inches -- from the reader. Purchases of more than $50 also require a PIN or a signature. And the payment only goes through once, even if you tap the reader twice by mistake.


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