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Andrew Harrer/Bloomberg Increasing numbers of retailers are moving away from credit cards and into smartphone payments, but consumers still love their cards, researchers say.
Merchants, phone carriers want to shape how you pay
First Published Apr 22 2014 08:49 pm • Last Updated Apr 24 2014 07:20 am

Atlanta » It’s the closest many of us have ever come to mobile payments: Watching the person ahead of us at Starbucks buy a latte with a smartphone. Or seeing someone at Chipotle skip ahead in line. Or watching over some dude’s shoulder at Rite Aid, as he taps his Android smartphone against the card machine on the counter.

But these aren’t just blips: They signal a concerted campaign by major companies — from some of the biggest big box retailers to the mobile phone carriers — for more control over how our money moves.

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Those companies are poaching on turf long claimed by payment networks such as Visa, MasterCard and Amex and the industry of processors that handle credit and debit card transactions.

"The digitalization of money is a great leveler," said Nick Holland, ?a senior payments analyst at Javelin Strategy & Research. "The way that CDs have gone to MP3s and photos have gone digital, the payments industry is at an inflection point where there is the potential for the old guard to get cut out of the equation."

Or not.

"The one thing I have always said is that consumers love their cards," said Drew Sievers, the former CEO of mFoundry, the company that made Starbucks’ mobile payments possible. After all, Visa and MasterCard basically work everywhere.

The merchants have a huge incentive to bypass the networks and the "interchange fees" they charge by hooking directly into our wallets. The mobile carriers want to insinuate themselves deeper into our pockets.

How eagerly consumers will adopt their new technologies is an open question.

One thing, though: The players are giants. The fight promises to be epic, with plenty of potential for collateral damage.

A plastic primer

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If technologists and payments experts are correct, both merchants and mobile carriers will succeed in reshaping how we transact. In itself, that’s nothing new.

Retailers actually invented credit cards at the turn of the 20th century. Long before Visa and MasterCard, there were Macy’s cards, Sears cards and the like. The difference was, they were only good at the store that issued them.

When the payment networks came on the scene, phone carriers (then only landlines, of course) were an integral part of their business model. Card processors used phone lines to verify that you had enough money remaining in your credit limit to make a given purchase.

Things began to change at the beginning of last decade, when Exxon came up with Speedpass, a device that uses a unique radio signature to let you pay at the pump without swiping a card.

Around the same time, cellphone companies in Japan and South Korea introduced successful mobile payments products.

In the U.S., a new era began with the launch of the iPhone in 2007, Sievers said.

First, there was mobile banking, which offered banks the promise of eliminating branches and cutting costs by allowing people to move money through smartphone apps.

Enter Starbucks

Retailers entered the picture in 2009, when Starbucks began working on a pilot that used 2-D QR codes displayed on mobile screens to transact.

The system launched nationwide two years later. Within months, more than 3 million people had paid using the app, according to reports at the time. The payments, of course, are only good at the coffee retailer.

Today, 10 million people have installed Starbucks’ payment app. They use it to make about 5 million transactions each week. That’s 14 percent of the chain’s in-store purchases.

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