Consumer Comeback Blog

Cellphones to replace credit cards… Is this a good idea?

It’s coming. In fact, it’s already here (it just hasn’t totally caught on yet). Cellphones will be used as, and perhaps eventually replace, credit cards. It’s already a widely accepted practice in Europe, Asia, and even some countries in Africa. So for the past couple of years the question hasn’t been about if it would take off in America, it was a matter of when? Well, that when is now.

In the next year or two, you’ll find that your credit cards and debit cards themselves will go through a major change. You know that magnetic strip on the back? It’s about to be replaced with an electronic chip that’s far more secure. They’ve been using it for years in Europe, so we’re a bit behind on that too. But this very same technology is also starting to find it’s way into cellphones across most of the carriers in the U.S. And it’s going to change the way people pay for EVERYTHING.

The technology has been around in the U.S. for a while already, though on a relatively small scale. There are some well established companies getting in on the mix early and already some start-up failures in the space as well. But when AT&T, Verizon Wireless, and T-Mobile announced the development of their cellphone payment system called ISIS Mobile Wallet, suddenly it started to look like the inevitability many have been predicting. Isis has teamed up with Visa, Mastercard, Discover, and American Express and the technology may be available in phones as early as this year. For a better look at how ISIS is supposed to work see the video below:

But what if you’re a Sprint customer you ask? Fear not, Sprint has teamed up with Google who has already released their new Google Wallet limited (for now) to the Nexus S 4G. Google has been able to get in the game before ISIS, however it is not yet known how many devices Google Wallet will be compatible with, particularly those from ISIS backed carriers (even though they essentially use the same technology). So with a larger share of the U.S. cellphone market, ISIS may still have the upper hand despite being a bit late. For more on Google wallet, see the video below:

Another player in the cell phone payment revolution is Paypal. They’ve taken a completely different approach to the problem, however. Instead of using chip technology (like ISIS and Google Wallet) they’ve been able to come up with a solution that requires no special hardware. Instead, customers can scan items and pay for them directly on their phone without (sometimes) even waiting in checkout lines at the store. While the idea certainly looks intriguing, it definitely has its own challenges with both security and logistics. Not to mention the fact that the PayPal name isn’t exactly the most trusted brand in the payment market. For more on Paypal’s service, see the below video:

This all just seems too incredibly convenient to be a good idea…

Cell/Smart Phone Security Issues & Concerns

It’s no secret that cellphones and smartphones are the target of hackers. All sorts of information can be (and has been) extracted from phones of all types. It’s (apparently) so easy to do, that news publishers and journalists have even done it to obtain information for their stories. And despite very real efforts to keep your information safe, it seems almost every week there’s a new device with a serious security flaw.

But even if the new technology is 100% safe, one of the biggest hurdles for this new trend, is convincing people that it is. The fact is, people don’t trust the security of information on their phones…and for good reason.

So what are the security concerns? Are they legitimate? And what can be done to minimize them?

Near Field Communication (NFC)

The technology that’s been used in other markets and we will soon find in our credit/debit cards and most of our cell phones is remarkably secure. In fact, it’s actually safer than the magnetic strips that are currently in use on most U.S. cards. By design, the transmission signal itself is of such a short range, that intercepting it is near to impossible. Even if you somehow manage to collect the signal, however, with EMV-level encryption, decoding it could prove to be even more difficult.

Putting this technology into a cellphone, then, may (at first) seem like one more way to lose your credit cards, but (in fact) it essentially provides an extra level of protection. If someone gets a hold of your credit card, for example, there’s nothing stopping them from using it without too much hassle: a simple swipe is all it takes. With a cellphone, however, a user will be required to go through at least one more security measure (PIN, etc.) on the phone itself. So in essence, the phone can actually be more secure than the card. But unfortunately, the story doesn’t end there…

Other Security Issues

Google Wallet has come under fire recently about it’s security flaws particularly when it comes to four-digit PIN authentication which can be relatively easy to hack. But even beyond this flaw, there is always going to be concerns about having financial information stored on a device that can be extracted remotely. Facing these criticisms head-on is going to be vital for competitors in this space as well as the smart phone industry as a whole.

Of course, there are steps you can take to keep the information on your phone safe and secure, but perhaps the scariest scenario for this trend, however, isn’t as much about the information on your phone at all. Instead, could this new technology create a powerful tool for identity thieves and scammers? What would stop someone with your information from turning their phone into a tool capable of the purchasing power of your finances? You could essentially become a victim of this technology without ever using it!

I cannot deny that it would be incredibly convenient to buy groceries with my phone and leave my wallet at home, but convenience you don’t fully understand can be deceiving. Could this be too good to be true?