Even for low-price purchases, a new generation of mobiles could eventually mean the end for coins and notes
Get ready to start paying for sandwiches, magazines and pints down the pub with nothing more than a swipe of your mobile phone as a payment revolution hits Britain's high streets.
The idea is that your mobile phone will be embedded with a chip that contains your credit and debit card details. For low-value items, selling for no more than £15, all you will have to do is wave the phone in front of the shop's sales terminal. For higher priced goods, you'll have to punch a pin number into the phone as well.
Orange last week unveiled its Quick Tap service, while rival O2 says it is lining up for a major launch in the autumn. Meanwhile, Google this week launched Google Wallet for Android phones which might soon make the traditional wallet stuffed with cards, notes and coins a thing of the past.
The UK Payments Council – which represents banks and card companies – also announced it was undertaking a major project into how to make paying by mobile "as easy, efficient and secure as any other way to pay".
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The transformation is going to happen with extraordinary speed, according to one thinktank, The Future Foundation, which, in a report this week, predicted that the "majority" of Britons will be using their mobile phone to purchase goods, pay bills and manage their bank accounts by 2015.
Will the revolution really take place? Will it make your phone even more of a target for thieves? And does it mean that every purchase you make, from a bar of chocolate and a newspaper upwards, will be logged and tracked? Money tried to find some answers.
Orange is the first company out of the blocks. Its Quick Tap system will let you buy goods up to £15 at "wave and pay" contactless readers already installed in 50,000 UK stores. But the system will initially only work with one handset – the Samsung Tocco Lite – though more are promised later, and is operated only through Barclaycard.
O2's more advanced offering will let your phone host several bank and credit cards and permit purchases above £15 while inputting a pin. It will also allow you to text money, so if you owe someone a tenner you'll be able to send it from your phone to theirs
The banks are hoping that the new mobile phones will kick-start contactless payments, which has until now been rather slow to take off.
Outlets such as McDonald's, EAT, Wilkinson, Pret a Manger and Subway, and some Boots stores already allow consumers to use their contactless credit and debit cards to make payments of up to the £15 limit. But so far these tills have yet to grab the public, perhaps a little fearful of security risks.
Orange's Jason Rees says mobile payments are set to take the sector to another level: "Users will be able to check their balance on the mobile phone's screen to see how much they are spending, which you cannot immediately do when touching your debit or credit card on contactless readers. Feedback from the trials we have done are overwhelmingly positive."
Alastair Lukies, chief executive of Monitise, which provides mobile banking services to high-street banks, says: "The driving forces are clear: people wanting to manage their money more closely; the arrival of the smartphone; and the development of 3G networks which transfer all information quickly, plus the creation of new apps and services by banks and retailers.
"Mobile banking has truly come of age as people no longer see the ability to effectively manage their finances by mobile as a novelty or a 'nice to have', but increasingly as the norm."
What about theft or misuse?
If you lose your phone, or it is stolen, the phone companies say you will report its loss in the same way as before, and the card balance is protected. They say you will not be liable for purchases that you can prove you didn't make; in the case of Orange, Barclaycard bears those losses.
Telefonica, O2's parent firm, says mobile phone users, on average, report their handset stolen within 13 minutes of its loss; it takes much longer for bank card users to realise that their purse or wallet has gone.
The O2 system the Guardian saw being trialled in Spain was designed to ask for a pin every few transactions, to prevent a thief making a series of small purchases in quick succession.
Phone companies also argue that smartphones already have a higher level of security, with most requiring a pin to be activated. Orange will require customers to select a new pin when they set up a Quick Tap account. Users can require a pin to be inputted on every purchase, including those under £15, but it is not mandatory.
When will it be on every new phone?
The mobile industry knows that the key to making this a success rests on the ability of the phone suppliers to offer "near-field" technology in a big range of handsets. Apple is understood to be working on introducing it in its iPhone range. Currently, Samsung is leading the way, but expect a raft of new handsets offering the technology over the next few months.
Google recently launched a Samsung-manufactured smartphone – the Google Nexus S – that contains the technology required to make wireless payments. The new Nokia C7 also has it. O2 says that it will offer a "range of handsets" when it launches its mobile payments offering, but could not give any details this week.
Where will I be able to use it?
Contactless payments are currently limited to certain food outlets and stores, but the idea is that eventually, the majority of point-of-sale tills will feature the technology. It's ideal for pubs – though many rounds will break the initial £15 barrier which has been set by the card industry. Expect to see that raised in line with prices, and as more stores come online.
In the Telefonica trial in Sitges, Spain, visited by Money last year, around half the contactless items were made in the supermarket. The 2012 London Olympics has been targeted as a major contactless event, and with Visa a major sponsor, expect further announcements soon.
Earlier this year Transport for London announced that customers will be able to make contactless payments (using Visa) for pay-as-you-go journeys on 8,500 London buses from February 2012, with the underground following soon after.
How much will it cost?
Orange customers will have to purchase the Quick Tap-enabled Samsung Tocco Lite phone, available at £59.99 on pay-as-you-go or free from £10 a month on 24-month contracts. There are no additional costs for using the payments service; you will not be charged any data charges for accessing the Quick Tap Wallet or the Barclaycard payment application when you are in the UK. O2 users will also need a new handset, but again these will probably be free to those on longish contracts.
The drawbacks
Anyone who has had to report a problem with mobile companies will question if their customer service will be up to this. We get lots of complaints about mobile phones, though the fact that Barclaycard is managing Orange's payments app may create more confidence. Several stories about poor service following a payments problem could set the project back years in the mind of consumers already rather distrustful of changes.
Could this be the end of cash?
Young people who have grown up with mobiles will not think twice about using these systems, but it remains to be seen whether older adults will embrace it in big numbers. Though you are no more at risk of fraud by embedding a bank card in your handset than you are using a traditional card, there are clearly perceived security issues. There's a feeling that there will have to be some benefit – faster-moving queues in shops or a discount to encourage people to go contactless. Also, the industry is going to have to avert concerns among some mobile users that this does not represent an extension of the "Big Brother" surveillance.
Banks and store chains prefer electronic payments because handling large amounts of notes and coins is expensive and time-consuming. They will be keen to get consumers to switch to contactless payments wherever they can. But any likelihood that notes and coins will disappear altogether is probably a very long way off.
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