Dispensing with cash, plastic

The Baltimore Sun

CHICAGO -- Frank Hernandez usually doesn't carry a wallet when he strolls through Discover Financial Services' sprawling headquarters in north suburban Riverwoods, Ill.

Even when he recently stopped at a canteen to buy a morning snack - Gatorade and a rice crispy bar - there was no wallet in sight. No cash or plastic either. He used his cell phone to pay, swiping it over an electronic reader.

Hernandez is one of almost 100 Discover employees testing what the credit-card industry hopes will become a household staple: the wallet phone.

Discover, a credit-card issuer, and wireless equipment-maker Motorola Inc. recently launched trials in Chicago and Salt Lake City. They're among several tests under way in the United States, with the goal of bringing the wallet phone into commercial use.

But the wallet phone must overcome consumer fears about security - what if the phone gets stolen? And it must prove to the payment chain - merchants and wireless phone networks - that it saves money or boosts profits.

The wallet phone operates on contactless payment systems, which usually are based on a technology called near field communications.

Usually in a contactless system, a special chip is embedded in a credit card. A reader at a cashier's station extracts information from the chip via radio waves. No card swipe is necessary.

The wallet phone runs on the same principle, except the chip is in the handset.

The device first made a splash in Japan several years ago. NTT DoCoMo, a top Japanese wireless network, has sold its wallet phone services to more than 19 million subscribers.

The devices are popping up in other Asian nations too. ABI Research expects that by 2011 wallet phones will make up about 30 percent of the global cell phone market, or about 450 million phones.

"Some markets are already taking off, and that gives us a good feeling that some of the forecasts will materialize," said Gerhard Romen, head of Nokia's development program.

Nokia, the world's largest cell phone maker, is teaming with MasterCard for two U.S. wallet phone trials.

Motorola, the world's second-biggest mobile phone maker, has three wallet phone trials in operation.

Motorola is providing phones and software for the trial. If Discover rolls out the service commercially, it will be available on non-Motorola phones, too, but Motorola's M-wallet software will power the system.

If the wallet phone takes off, the device will do much more than just make transactions. It will hold coupons and loyalty-program points. And it will allow for paying bills and other forms of online banking.

But Discover's trial is limited to credit card transactions and checking account information.

Hernandez, a customer services director at Discover, got a Motorola Slvr phone last month, downloaded his personal credit card account into it and began charging.

He said he doesn't like carrying a wallet, but he always carries his phone. So his new Slvr has become his currency at Discover, where the cafeteria and smaller canteens are equipped to handle contactless payments.

Changing consumers' perception is just one hurdle for the wallet phone.

Merchants must be convinced that contactless payment systems are worth the investment, currently about $100 to $200 per cashier's station.

One benefit for merchants: Consumers might use a wallet phone for transactions they normally would make in cash, giving them the means - credit - to buy more.

Mike Hughlett writes for the Chicago Tribune.

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