Security Experts:

Perfect Storm of Social, Economic and Technological Forces Propel Mobile Payments

Mobile Payments are Growing at a Double Digit Pace, Benefitting both Consumers and Merchants with an Opportunity for Quick, Convenient and Secure Transactions

Heightened consumer awareness in the wake of the recent economic downturn has many consumers steering away from credit cards and relying more heavily upon debit cards to better manage their household finances. This is especially true for every day, low value card transactions under $20.00. The emerging trend of personal fiscal prudence opens the door for more convenient and secure ways to access one’s bank account and concurrently presents a significant opportunity for merchants to offer quick, convenient and secure methods for their customers to pay.

Mobile Payment TrendsFor example: gift cards that act as cash at specific retailers are amongst the most popular alternative payment forms enabling consumers better control their finances. More than likely you have been the happy recipient of a Starbucks Coffee® gift card and are probably aware that these cards can be “refilled” and used multiple times. And while this remains a profitable payment vehicle for Starbucks, technology is helping them to deepen their customer reach and extend their brand loyalty via new alternative payments. In January, Starbucks introduced a mobile app for customers to access a Starbucks specific debit account via their smartphone. It works just like the traditional Starbuck’s card but gives the consumer more functionality and greater convenience. By entering the Starbuck’s card number into the mobile application, the iPhone becomes the card, allows for balance inquiry, and tracks reward points for free beverages. Payment transactions work by displaying a unique barcode on the phone’s screen that is scanned in the store. Processing occurs in seconds and does not require a signature or PIN number to be entered. Starbucks wisely realizes that being an early adopter by offering fast, safe and convenient ways to pay will create both customer loyalty and position the company as a tech savvy innovator reaching an exploding tech savvy population.

While there are currently several mainstream and niche ways to pay electronically, such as prepaid gift cards, contactless debit cards, NFC (near field communication) stickers and contactless key fobs; there is one payment vehicle in particular that is quickly emerging as the ubiquitous way to perform nearly all social, business and financial transactions. Consumer acceptance and market penetration of the smartphone driven by the popularity of the Android®, iPhone® and BlackBerry® provide the ideal tech tool for enabling consumers to pay and merchants to accept payment for almost any good or service.

According to Nielsen, 21% of American wireless subscribers were using a smartphone as of Q4 2009 compared to 19% in Q3 2009 and 14% at the end of 2008. Nielsen expects smartphones to account for more than half of the US mobile phone market by 2011. Nielsen predicts smartphones will account for 24% of the US mobile phone market in Q1 2010 and rise to about 33% market share by Q4 2010. Growth will then accelerate in 2011, hitting 40% in Q1 2011 and about 50% by Q3 2011. Based on this rapid increase, smartphones should pass the 50% mark during Q4 2011.

Smartphone Growth in US

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Using their smartphone as an e-wallet, consumers can minimize carrying and keeping track of traditional plastic cards yet enjoy all the benefits that traditional debit cards provide. For merchants and service providers, using their smartphone as a mobile payment acceptance device gives unprecedented freedom to securely accept payment in the field or to help alleviate long checkout lines in store.

Today, there are several methods by which a smartphone can act as an e-wallet providing convenient access to your funds for payment:

• Mobile banking apps that allow direct access to accounts

• SMS text messaging via your mobile carrier

• NFC tags (an ultra thin sticker that affixes to the back of the phone that includes a micro radio transmitter that is read by a compatible contactless readers)

• Scanable barcodes displayed by the phone application, as in the earlier Starbucks example

In order to prepare for the wave of consumer mobile payments, leading mobile carriers AT&T, Verizon, and T-mobile created a joint venture with Discover Financial Services to create a national mobile commerce network using smart phones and NFC. NFC Capability will be built directly into the mobile device by leading manufacturers where it is predicted that approximately 26% of smartphones will have native NFC capability by 2015.

On the merchant front, there are many choices available today to accept card payments via smartphones. While the iPhone is the most popular platform, there are solutions for BlackBerry, Android™, and other smartphones as well. Companies offering complete mobile payment solutions include: ROAM Data, Intuit and Square among a growing list of others. These companies provide either the card reading hardware that interfaces using Bluetooth or connects to the audio or data port on the phone, as well as the payment application and gateway to securely process the transaction.

The strong social, economic and technological forces propelling mobile payment solutions are unmistakable:

• Consumers today want to pay more of their daily expenditures with debit to get personal finances under control

• Consumers are looking for a familiar, convenient and ever present payment vehicle that minimizes the amount of cash or plastic to carry is very compelling especially when it comes to purchasing low cost items

• Merchants want to increase productivity and customer satisfaction by shortening the time it takes to serve their customers

• Merchants continue to look for robust processes and safeguards are in place to encrypt and securely transmit consumer payment information from a mobile device

• The hardware and software technology enabling consumers to pay and merchants to accept payment via smartphones is available today from multiple quality companies

• The smartphone technology is quickly becoming the ubiquitous personal productivity and communication tool for consumers and businesses to manage virtually all social, business and financial dealings on the go

Mobile payments are growing at a double digit pace benefitting both consumers and merchants alike. Feature rich applications give the consumer better control and greater rewards. Simplicity of operation provides merchants with a quick and efficient check out process further enhanced by improved customer satisfaction. Convergence of technology and infrastructure make mobile payments possible while the consumer adoption of the smartphone and desire for greater utility make them probable.

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Christopher Justice is President of Ingenico North America and is responsible for driving the development of the company's strategy in the US and Canada. He is a graduate of the University of Tennessee, has held several executive positions in the electronic payment industry. Prior to being President and CEO of Merchant Link, Chris was Senior Vice President of First Data, where he led the National Accounts group for various banking relationships including CitiBank and SunTrust. Before joining First Data, he served as VP of National Accounts for Concord EFS, an electronic payments processor and a recent First Data acquisition.