Mobile wallet adoption could get boost from deadline on retailers to upgrade terminals

Retailers have until October 2015 to upgrade security on point-of-sale terminals

Mobile payment systems in the U.S. have been long on promise and short on reality.

The launch Monday of the Isis system in Salt Lake City and Austin will promote the adoption of mobile payments among users of nine smartphones that support Near Field Communication (NFC) technology and run on the networks of AT&T, T-Mobile USA and Verizon Wireless, several analysts said.

While Isis could provide a spark for mobile wallet adoption, another factor that could help further expand the technology's footprint is a potential penalty facing retailers if they don't upgrade to NFC-ready point-of-sale (POS) terminals. An October 2015 deadline for U.S. retailers to upgrade to POS terminals with better security should help promote mobile payments made from smartphones equipped with NFC chips, according to Randy Vanderhoof, executive director of the Smart Card Alliance.

Credit card issuers American Express, Discover, Visa and MasterCard are pushing the 2015 deadline on retailers to upgrade their payment terminals to accept contactless smart card payments as well as payments from smartphones with NFC chips, Vanderhoof said in an interview.

The newer POS terminals would be more secure than traditional magnetic swipe credit card terminals, which have been subject to fraud, primarily abroad. Both NFC smartphones and contactless smart cards, which are payment cards that store data on chips rather than magnetic stripes, use the ISO 14443 standard for extremely short-distance contactless payments, with the wireless connection over the 13.5MHz radio spectrum.

There are already 200,000 of the newer POS terminals in place in the U.S. While that number may sound high, it represents only a fraction of the retail stores where NFC smartphones could be used, Vanderhoof added.

Some of the 200,000 terminals can handle smart cards equipped with chips that meet the EMV (Europay, MasterCard, Visa) specification for authentication -- a specification that credit card companies are imposing on retailers. The credit card companies say retailers must upgrade their POS terminals to support EMV technology "or they will face the possibility they will be held responsible for fraud" from older magnetic stripe card technology, Vanderhoof said.

"As the picture takes shape for EMV payments, and the timelines for EMV adoption start to cause retailers [to take] action, then this [POS] infrastructure change will bring more acceptance points for [payments via NFC mobile phones] as well," Vanderhoof said.

Like many other experts in the payments field, Vanderhoof said mobile payment systems have matured more slowly than expected in the U.S. "There's been so much overhyping of mobile payments that people get fatigued by it," he said. "Also, nobody sees it happening around them."

The Isis launch in Salt Lake City and Austin on Monday will likely spur adoption of mobile payment systems, Vanderhoof said. With the Isis system, users of nine models of NFC-ready smartphones on the three Isis wireless carriers can make contactless payments at retail outlets that have NFC-ready point-of-sale terminals.

A similar service from Google, called Google Wallet, started more than a year ago, using the Galaxy Nexus smartphone on Sprint's network. It has since grown to include 10 more devices. T-Mobile and Virgin Mobile each support one Google Wallet phone.

Vanderhoof commended the Isis launch, but said the nine smartphones capable of working on the Isis system won't be enough to support a robust adoption of mobile payments nationally. However, there should be 20 phones that support Isis by the beginning of 2013, and "that will be a good start," he said.

"Isis will spell problems for Google if Google doesn't become more open," Vanderhoof said, suggesting that Google needs to add more phones and carriers.

A Google spokeswoman, in a statement Monday, welcomed the Isis launch. "Competition is good for the ecosystem," she said in an email. "We're happy to see other companies investing in digital payments. This will create more choice for both consumers and merchants and, in the end, we believe choice is a good thing."

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen, or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

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