October 23, 2012, 11:37 AM — 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.