The end of cash

The end of cash

Adam Theobald needed a caffeine fix, but the long queue at his favourite cafe put him off. There had to be a better way. Theobald set up Beat the Q, a service that allows people to order and pay for their morning coffee from a mobile phone.

To use the service, people register online for an account and top up their account balance using PayPal. They can then order and pay for their coffee from their desk or when they’re still on the train, have their order accepted by the cafe and collect the coffee a few minutes later. It means no more queuing and fumbling for coins when you want to buy your morning coffee.

The service is currently available in 80 cafes around Australia and Theobald claims 10,000 registered customers. Cafe owners in the scheme pay a licence fee and a clip on the ticket price of each coffee, but Theobald claims they get a better cashflow and don’t miss out on orders that might otherwise just walk past.

Beat the Q iPhone app screenshot 1Beat the Q iPhone app screenshot 1

However, this service isn’t the only example of mobile payments at work. Say you want to make a payment to your babysitter. You don’t know her bank account details, but you do have her mobile phone number – you might simply open an app on your smartphone, tap in the mobile number and the amount you want to pay, and click send. It’s already possible.

Or on your way to dinner you remember it’s BYO and pop into a bottle shop, select a nice pinot and pay for it by waving your mobile over a payWave EFTPOS terminal. That’s already possible.

Or you might be on the train browsing Facebook on your smartphone and decide to do some banking without ever leaving the social network. That will be possible by early 2013, says the Commonwealth Bank, which has a Facebook banking app under development.

It started with banking apps

The advent of Near Field Communication (NFC) technology and improvements in the security of networks used to facilitate mobile payments means the smartphone is about to go head to head with cash. Smartphones can now serve as digital equivalents of credit cards, loyalty cards, travel tickets and loose change.

The banks already provide apps for accessing your bank account. For instance, ANZ pioneered mobile payments back in September 2010 with an iPhone app called goMoney. The next frontier is to turn your smartphone into a digital wallet, where you pay directly at the counter when you’re buying something.

Clive Whincup, the group chief information officer of Westpac and St George, believes that all it will take for mobile phones to become widely accepted as digital wallets is for consumers to develop the ‘muscle memory’ that makes us reach for our smartphone instead of our wallet when making a payment.

Westpac is working on building up that muscle – it has a trial running that will turn a smartphone into a contactless payment device using NFC technology. That’s the technology that’s currently used in Visa payWave and MasterCard PayPass cards – it lets you simply tap or wave your credit or debit card over an NFC-enabled card reader. Those credit cards feature a special NFC chip.

The first bank to go this route was the Commonwealth Bank, which launched its Kaching payments application in 2011. It announced that iPhone users prepared to fork out $54.95 for an iCarte (a case for the iPhone with a built-in NFC chip) could use the iPhone to make contactless payments (for items up to around $100) by waving the phone over an NFC payments terminal.

The iCarte was always seen as a stop-gap measure, with Apple expected to launch an NFC-enabled iPhone. Even after the launch of the iPhone 5, we’re still waiting. Apple has instead released Passbook – essentially a digital replica of that part of your wallet or purse where you store tickets or loyalty cards – but no NFC and no way to make payments. Some argue that Apple isn’t convinced NFC is ripe or necessarily the right technology for contactless payment.

Contactless payment trials

The banks aren’t waiting for Apple; for example, Westpac has embraced the many Android phones that now ship with NFC. The bank has a trial under way with Oberthur Technologies and Optus, which will allow it to turn Android phones into contactless payments devices.

Because the technology in most chipped (rather than magnetic stripe) debit or credit cards is functionally very similar to that in a phone’s SIM card – even down to the operating system – it’s possible to program the card details into the secure element of the SIM card with the co-operation of the issuing telecommunications carrier (Optus in this case).

In the Westpac pilot Oberthur, which provides what’s known as a Trusted Service Manager (TSM) platform, encodes a customer’s debit MasterCard information on the secure element of the SIM card in the phone. The mobile payment application is loaded onto the phone and when making a payment, the phone connects the NFC antenna inside the phone to the SIM card and allows a contactless payment to occur.

The debit card details on the SIM are protected as they’re stored in the secure element of the card and protected by MasterCard’s security standards, which is the EMV (Europay, MasterCard and Visa) standard. As soon as a phone is reported lost or stolen, the card details will be blocked.

In October ANZ also announced a trial of an NFC-enabled mobile wallet on Android smartphones, with Optus providing access to the SIM card and Giesecke & Devrient providing the TSM (the same company that’s behind CommBank’s Kaching).

It’s scheduled for general release in 2013, like Westpac’s wallet.

How long?

Despite all the activity, Guy Cranswick, a technology analyst with IBRS, believes it will take at least three years for the business case for mobile payments to stack up. He thinks that while people are generally happy enough to use their smartphones to access bank web sites and check balances, it will take longer for people to view their mobile phone as a digital wallet and a replacement for cash.

At the very least, the vast majority of Australia’s 750,000 EFTPOS terminals will need to be upgraded to be able to accept contactless payments and handle people using discount vouchers or loyalty points stored in their digital wallet.

Cranswick thinks an interbank real-time payment capability will also be needed to drive digital wallets. Real-time payments are possible within the four walls of most banks – if you go online and transfer money from one St George account to another, that shows up immediately. But if one person involved in a transaction has their accounts with a different bank, the payment loop can’t close before the overnight interbank batch processing run.

Alternatives to banks

Smartphone-centred payment platforms from non-banks such as PayPal, Google and Square in the US are also emerging, and will help develop the ‘muscle memory’ Clive Whincup talks of. But where local banks may have something of an advantage over the internet giants is the ability to keep payment charges low.

For example, Facebook charges 30% on the clip of anything paid to merchants using Facebook credits, while PayPal’s rack rate is 2.4% of the transaction plus 30c per transaction. But PayPal still reckons the convenience it offers stacks up. In March last year, it announced a free app and dongle that turned a smartphone into an EFTPOS terminal. Called PayPal Here, the system is aimed at small businesses and market stall operators.

PayPal dongle

The banks are in on the act, too, creating their own smartphone-centred payment platforms systems. Commonwealth Bank has unveiled a payment platform called Pi and two devices – a case that turns a smartphone into an EFTPOS terminal and a tablet that can be used to accept payments. Meanwhile, ANZ has FastPay, which lets businesses collect credit or debit card payment details before 6.30pm and have the cash credited to their accounts on the same day (although that’s a manual input system – there’s as yet no swipe dongle for this process).

Cash will survive for some years yet, but it’s feeling the hot breath of the smartphone on its neck already.

User story:

James Ashton works on soundtracks for feature films and is a self-confessed early adopter of new technologies. Ashton banks with NAB and uses its mobile banking apps – now on an Android device, although he started off on an (now lost) iPhone.

photo oj James Ashton

It’s the convenience of anytime, anywhere banking that Ashton likes – the ability to quickly send a payment from his mobile to a friend to buy a ticket for a show, or check his account balance before making a major payment. When he lost the iPhone he wasn’t too worried – he’d set up the security so that after 10 failed attempts to get into the phone all the information would be wiped. In any case, his financial information wasn’t stored on the phone, but remained secure in NAB’s data centre. Ashton also uses the phone to make payments using PayPal, generally when he’s buying from eBay, and would like to be able to use the smartphone to make contactless payments. However, to date, NAB is the only one of the big four banks that has yet to declare its contactless payment plans. So could the phone replace cash and his wallet? Ashton’s not so sure. “The biggest issue is whether every company or provider could use it. And you may end up with 30 different apps to scan… But if there was a unified system then I’d definitely be interested in giving it a go.â€

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