Smart Cards, Smart Phones and a Cashless Society

AT&T, Verizon Want to Replace Your Credit and Debit Cards with Smartphones

August 2, 2010

PCWorld - AT&T and Verizon are moving into the business of wireless electronic payments with plans to displace traditional credit and debit cards with smartphones, according to Bloomberg.

AT&T and Verizon, the two largest U.S. mobile carriers, are also partnering with T-Mobile, and are in talks with Discover and the U.K. bank Barclays. Tapping your iPhone or Droid at a cash register sounds like an efficient way to reduce wallet clutter, and based on the program's success overseas, may have American credit card companies scrambling for relevance.

What's the Technology?

Wireless "swipe" payments utilize Near Field Communication (NFC) technology, a short-range high frequency radio wave that can exchange data between devices within four inches. To make smartphones capable of this exchange, they would have to be equipped with radio-frequency identification (RFID) tags -- already seen in U.S. passports. RFID tags could either be embedded into the device during the manufacturing process or they could be applied to an existing smartphone.

Discover, the fourth-largest payments network in the U.S., will handle the behind-the-scenes payment processing systems.

How Secure is This?

Your smartphone already contains a lot of your personal information -- are you ready to trust it with your bank accounts and credit cards?

Fast Company is enthusiastic about the secure possibilities.

"Now, when the RFID system integrated with a smartphone's circuits, a whole world of possibilities opens up, including using the smartphone's screen as a super-secure numeric pad for accessing your PIN or even using the smartphone's sensors as a more secure user-ID detection system. Using location data sent over the phone's data network would also ensure greater security, as you'd know that the phone is being used where it says it is, and no-one's cloned the RFID data to steal your money. There's also the opportunity for retailers to send data back to your phone, in the form of adverts or loyalty card-like reward points."

However, RFID technology is not immune to threats. A 2006 study determined that RFID tags are susceptible to viruses. RFDump -- a site and tool devoted to auditing RFID tags -- exposes RFID security flaws, raising questions about how retailers should be using this technology. There's even an RFID hacking underground, in case you weren't paranoid enough.

When's This Coming?

Citing unnamed sources, Bloomberg claims that these smartphone payment mechanisms will be tested in Atlanta stores and in three other U.S. cities. No specific U.S. release date has been made public.

NFC technology is already present in several overseas countries. To name a few:

• France has a thriving NFC-enabled network used for access control, public transportation tickets, and electronic payment systems
• Orange, the fifth-largest telecom operator in the world, is working closely with Barclay to introduce NFC into its phones by Christmas 2010
• Three major mobile networks servicing Japan and Korea are moving away from non-NFC-enabled smartphones and developing an NFC standard solution
• Poland introduced its smartphone-payment system mPay several years ago and now boasts more than 150,000 registered users

Are Credit Card Companies in Danger?

It's possible that traditional plastic credit cards are slouching towards extinction, but credit card companies are advancing their own tech methods. Earlier this year Visa and DeviceFidelity released the In2Pay iPhone case used for wireless payments (but keep in mind this is a case, not a chip), and Citibank recently announced plans for broadening its use of RFID tags around the world.

But since RFID tags meant for wireless smartphone payments haven't been extensively tested on American soil, it's uncertain whether or not this technology will pose a serious threat to Visa, MasterCard, and American Express. It may come down to the question of whether or not Americans trust their smartphones enough to handle such sensitive data.