Opinion: Why your next phone will be a wallet

Anything that's data could be carried on a phone, and everything in my wallet is just data

I carry only the essentials in my wallet: a Starbucks debit card, California driver's license, a few credit cards, two ATM cards, a Costco card, business cards, a AAA card and some cash.

I try to avoid George Wallet Syndrome. But it seems that every electronics superstore, bookstore, grocery store and department store I shop in wants me to carry yet another card (either as a credit card or some kind of "membership" card that gives me a discount). If I accepted every offer, the stack of cards I carried would probably be three inches high. So I always say "no" to these cards.

I work hard at minimizing the stuff I carry in my pockets. I have the smallest smart phone in the world. I'm constantly removing receipts and other junk from my pockets. I avoid coin change like the plague.

I try to move everything I can from my wallet to my phone, namely photos of my wife and my kids. In fact, anything that's data could be carried on my phone, and everything in my wallet is just data.

So why am I carrying that data in a stack of obsolete and insecure data storage technologies, all wrapped in dead cow skin? How weird is that?

What's wrong with your wallet

Each credit card, ATM card and store "membership" card represents a huge quantity of useless plastic with a very thin magnetic strip on it. The magnetic medium stores a tiny amount of information -- so little you could write it all out on a single piece of paper. (By contrast, you could fit the Encyclopaedia Britannica on a MicroSD card the size of a thumbnail.)

Your wallet contains the keys to your life's savings and other vital information, but are "protected" by laughably feeble authentication schemes, such as your signature, or a three-digit number on the back. My Costco card sports an alarming, black-and-white photo of my face that nobody at Costco ever checks. These schemes are easily overcome: All you need at most is possession of the plastic to gain access to a card's purchasing power (and at a minimum, the number pressed into the plastic).

The absurdity of wallets, and what's inside them, goes largely unexamined by the general public. Most of us happily carry around growing quantities of these stupid plastic cards, completely unaware that software innovators in Silicon Valley, financial giants in New York and cell phone handset makers in California, Finland and Asia are conspiring behind the scenes to kill our wallets and everything in them.

These companies are working to move all that data in our wallets into our cell phones, then using the processing power, screens, Internet connections and keypads of those phones to dramatically improve our lives.

Don't look now, but here comes the wallet phone.

What's a wallet phone?

A wallet phone is simply a phone that can store the same data as the paper or plastic in your wallet -- credit card, ATM and debit card information -- and possibly receipts, ID, coupons, tickets, business cards and more -- in a way that lets you use that data for financial transactions.

They make that data usable through either a wireless chip -- a "contactless," or Near Field Communication (NFC) system; the SMS feature of the phone; or by displaying an on-screen bar code that can be scanned. Note that the industry doesn't need to standardize on one of these methods -- any phone should be able to do all three.

Wallet phones will be able to act both as mobile terminals (conducting secure transfers and transactions over the phone's Internet connection) and also functioning as smart cards, which replace cash even when the phone has no connection or battery life.

Wallet phones can do more than replace cash, credit, ATM, and discount or membership cards. They can also replace train and bus tickets, stadium tickets, student and employee ID cards, discount coupons and more.

The growth of NFC card "swipers," which let you "wave" your card over the reader, rather than swiping it, will help the basic point of sale part of all this. These are being rolled out for use with wireless smart cards. But once it's contactless, the system won't care or even know whether you're using a smart card or a phone.

Wallet phones can and should be more secure than credit cards. Unlike credit cards, wallet phones can be remotely deactivated, and the data on them backed up or stored remotely. The paranoid can add fingerprint authentication or other strong security.

Sounds great, right? But isn't all this far off into the future?

Wallet phones ready for prime time

While most U.S. consumers are unaware of the coming wallet phone paradigm shift, hundreds of companies -- some familiar and others you've never heard of -- are working hard on making that shift happen.

Citigroup has signed a deal with a company called Obopay to enable customers to pay their bills and transfer money from one person to another via cell phone text messages.

PayPal has offered payments via cell phone for more than a year. VeriSign mobile commerce applications let you buy things from stores, pay individuals and let companies roll out coupons.

The wireless carrier Cellular South is working with handset maker Kyocera Wireless to test a system from May to August, followed by a fourth-quarter rollout this year, for customers in Mississippi to use cell phones that work as credit cards.

The credit card company Discover has handed out nearly 100 "wallet phones" to employees in a trial. The phones will work wherever contactless credit or debit card transactions are enabled.

Visa is partnering with VeriSign, as well as with mobile wallet software company Ecrio and handset makers Qualcomm and Kyocera.

Nokia and MasterCard are also conducting multiple wallet phone trials.

Motorola is running three such trials.

A company called CellTrust now offers a beta version of what it calls CellTrust WALLET, which is a subscription service for cell phone users that lets them securely make purchases "anywhere," according to the company. The service is accessed through a CellTrust application installed on the phone. CellTrust recently acquired Canadian company PrimeMessage, which came with the infrastructure to conduct all kinds of financial business through secure text messages.

A company called Vivotech is testing a service that lets you use some Nokia phones for contactless transactions.

Marcus Theaters and Mobile Candy Dish are piloting a cell phone movie-ticket service. Movie fans use a cell phone application to check movies and showtimes. When they find the movie they want, they click a link to buy the tickets. The app gives them turn-by-turn directions to the theater. When they arrive at the megaplex, they tap the phone on a wireless pad and walk in. No paper tickets, no credit cards. Once inside the theater, they can buy fattening, overpriced junk food with their phones, too.

While dozens of wallet phone tests or trials are going on around the world, other implementations are being used for real.

The Atlanta Hawks stadium enables fans to buy beer using special Nokia cell phones. Nightclubs in the U.K. and elsewhere are starting to distribute VIP passes via cell phone. The passes show up as on-screen bar codes, which are scanned by the bouncers. And in Australia, a wide variety of bars and other businesses enable cell phone purchases.

While drunken people in the English-speaking world seem to be early adopters of the wallet phone, they are in fact way behind Japan, where hundreds of thousands of cell phone purchases happen every day. Japan is already using the technology as a common, predictable and widespread alternative method of payment for making everyday purchases like food and train tickets. And South Korea is right behind them.

Why wallet phones are 'inevitable'

Visa U.S.A. President and CEO John Philip Coghlan said in his CTIA keynote this week that wallet phones are "inevitable." And he's right.

The reason is that everyone benefits.

The client-side electronics for NFC transactions cost only pennies. Once public awareness grows about wallet phones, handset makers like Nokia, Motorola, LG, Samsung, Palm, Research in Motion and others will be compelled to add this functionality because demand for it will be high, and the costs are low.

Carriers are highly motivated to provide them. Sprint, AT&T, Verizon, T-Mobile and others are always looking for ways to make "recurring revenue." It's a hard sell to do that by selling ring tones and wallpaper. By enabling transactions, carriers can operate as the credit card company, with purchases showing up on the phone bill, or, at least, skimming pennies off each transaction handled by a real credit card company.

Financial services companies like Visa, MasterCard and Citigroup love the mobile wallet idea because it's cheaper to provide better services. Plus, the improved security of wallet phones means they have new tools to cut fraud.

And wallet phones are better for you and me: They can show your account balances and payment histories, and enable you to communicate directly with the bank. Best of all, they eliminate something physical (your wallet), without adding anything, assuming you're already carrying a cell phone.

All the technology for mobile wallets exists. The only remaining barrier is consumer acceptance. The banks, handset makers, carriers and retailers are all ready to get rid of your wallet.

Are you?

Mike Elgan is a technology writer and former editor of Windows Magazine. He can be reached at mike.elgan@elgan.com or his blog: http://therawfeed.com.

Copyright © 2007 IDG Communications, Inc.

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