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Are mobile wallets really in our future?

A fragmented industry and other obstacles mean it could be a distant future

Right now you probably carry your credit cards in a wallet. In the future, will you carry them in a smartphone?

You might. A few early adopters are giving it a try, with recent applications like Google Wallet, LevelUp and Square. These applications reside on your smartphone and store your credit card information. When making a purchase the data is transmitted electronically from your phone to the register.

“Some of the more common things you'll see with a mobile wallet is some kind of application you can use on your phone to store payment information and maybe some other things like rewards cards and coupons,” said Lisa Gerstner, who has written about mobile wallets for Kiplinger.

At least that's the ideal. Right now it's a very fragmented landscape with different players employing different platforms. It's reminiscent of the early days of the PC, when compatibility among manufacturers was a major obstacle. It took the dominance of Microsoft and the unversality of the Internet to make compatibility as an issue go away.

Cloud and NFC

Right now there are two main types of mobile wallets – those that operate in the cloud and those that are chip-based, using something called near field communication (NFC). Google Wallet, rolled out in 2011, is the latter category. Because the information is stored on a chip, not every phone will work. In fact, Google Wallet only works on Sprint phones because Sprint is the only carrier, to date, that has installed the chip.

To use Google Wallet a consumer simply walks up to the register with their purchase and taps their phone on a payment terminal. The payment information is automatically transferred. Pretty nifty, assuming the merchant has installed the necessary payment terminal. In a way, it's like an automated toll road, where your EZ-Pass transponder pays the tolls as you pass checkpoints while other drivers sit stewing long lines at the toll booths.

The cloud-based wallets store all your data in the cloud, meaning they might work on many different mobile phones. But there are a few more steps in the payment process.

“If you're using one of the cloud-based applications you'll go to the register and click your phone to make the payment.,” Gerstner said. “You might enter a PIN to get into the application securely.”

QR codes

At that point a QR code pops up on your phone. A scanner at the register reads it and loads your payment information. It's simple, and can be even simpler.

“Square is doing something interesting where in certain cases you just walk into the store and your phone talks to the register and when you get to the register all you have to do is say your name and your payment information pops up,” Gerstner said. “The payment then goes through after you confirm it.”

Despite the possibility that your smartphone security could be compromised by downloading malware – and that happens more than you think these days – a mobile wallet might be more secure than your old fashioned one. After all, if you lose your wallet, you must contact each credit card company individually to cancel the cards. With a mobile wallet, assuming you have set up the ability to remotely disable your phone, you simply wipe the information if the phone is lost or stolen. 

Warp speed?

Consumer technology tends to move at warp speed – think about where mobile phones were five years ago – so we could all soon be buying stuff with our phones, allowing men to get rid of that bulge in their hip pocket. However, for now the obstacles are still there.

“We're not there yet, the space is very fragmented,” Gerstner said. “For example, to use Google Wallet you must have a Sprint phone. And when you go to use it, only certain stores accept Google Wallet.”

In fact, Forbes Magazine reported last month that “Google Wallet isn't happening anytime soon” and that retailers shouldn't count on it in their plans for 2013, and maybe not even 2014. Should they ever? Maybe, but even Gerstner isn't sure.

“People are still pretty happy with their old fashioned wallets,” she said. “Most people don't have a problem with pulling out a card and swiping it.”

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