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May 18, 2014 2:31 pm
Tech companies might have invested millions in persuading people to make payments with their mobile phones, but the closure of a high-profile app launched by Twitter’s co-founder suggests too few are willing to listen.
Mobile payments start-up Square – launched by Twitter’s Jack Dorsey and valued in January at $5bn – this week abandoned its three-year-old Square Wallet app. It had aimed to revolutionise payments by allowing users to activate the app when entering a store and then pay by giving their name to the cashier, who simply confirmed their identity by checking a photo online.
However, the problem, according to analysts, is that consumers prefer to use the credit cards that have served them so well for decades. Mobile wallet apps that let consumers pay via smartphones are “a solution in search of a problem”, says Kebbie Sebastian, who runs payments advisory firm Penser Consulting.
Alongside Square, corporate groups including Google, Visa, PayPal, AT&T have all tried to devise a popular mobile payment system – which would enable them either to profit from commissions on transactions, or to glean valuable customer data.
But all have struggled to convince consumers to start paying in stores with an app or a tap of their phone on a specially-enabled cash register.
As a result, many new start-ups seeking to change the way people pay for goods are turning back to the plastic rectangles first devised in the 1950s: credit cards.
“People view . . . their phone as a content and media and communications tool,” says Jeff Mullen, founder of card start-up Dynamics. Essential personal items, such as wallets and house keys, “are things you want to keep separate”, he argues.
Some technology start-ups are developing ways to make the use of credit cards more secure following large-scale theft of credit card data from retailers including Target and Neiman Marcus. One of the cards made by Dynamics, a company backed by Bain Capital, uses embedded electronics to re-encrypt data after each use, making the cards harder to copy.
Other start-ups are trying to using smartphones not as a way to pay directly, but as a way to give consumers greater control over use of their card.
Start-up OnDot is developing an app that links with cards – making it harder for a thief to use a stolen card. The app lets cardholders put limits on where and when their card may be used – which would also enable companies to prevent corporate cards being used in Las Vegas, for example.
Coin, which raised more than $15m last year, makes a credit-card shaped device that stores data from multiple cards, cutting down the number of cards someone needs to carry. Like OnDot, it also has an app that can alert users, and deactivate a card, if the card is too far from the phone.
OnDot’s founder, Vaduvur Bharghavan, suggests the banks that issue cards have more incentive to promote systems like these to their customers than they did for mobile wallets. He argues that the app reduces fraud and helps the companies distinguish their cards from competitors, meaning the card gets used more frequently – earning more fees for the issuing banks.
“From a consumer perspective, [mobile wallets] are convenient, but banks don’t like it because they become commoditised,” says Mr Bharghavan. He suggests users of Square Wallet or PayPal are likely not to care so much about the bank they use.
Other card-based technologies being launched include one that links up with Bitcoin to enable people to pay with the cryptocurrency anywhere that normal cards are accepted.
Even so-called disruptive tech companies still rely on the popularity of plastic cards when designing payments systems. Airbnb, for example, which has shaken up the home rental market with its online platform, issues rechargeable cards to people who rent out their homes but who do not want to receive payments via a bank transfers.
“There’s just so much infrastructure that is already deployed,” says Nate Blecharczyk, Airbnb’s co-founder and chief technical officer, of card payment systems. “To upgrade that stuff will take a long time.”
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