The end for debit and credit cards?

Wi-Fi and cell phones could spell the end of debit and credit cards in the ever-changing financial services environment, says Deloitte.

The financial services firm says that near field communications (NFC) – the ability to carry out everyday banking transactions with a swipe of a cell phone – will be the next major step in the evolution of financial services and the banking systems, as increasing convergence of financial services with mobile technology takes place.

It also follows a study from Juniper Research which finds that near-field communication (NFC) retail payments will bring in over $180 billion globally by 2017.

The report looked at NFC in 2011 and noted a growing trend in the adoption of the technology by almost all handset manufacturers, as well as mobile operators and financial institutions committing to NFC pilots.

Jonathan Houston, digital marketing lead with the Deloitte Consulting Technology Division, says that rival technologies are already beginning to square up against each other as tentative steps are taken into a world where mobile phones will be a passport to making transactions.

The result, he says, could be that current retail payment systems will be pushed into redundancy and even bank-issued cards will be a thing of the past.

Going geo with Gust

But, says Houston, although a payment pilot project has been launched in Stellenbosch and is linked to a Wi-Fi network that covers the entire town, the everyday adoption of the technology could take several years.

The major technologies presently testing out the new mobile playing field are near-field communication (NFC) applications and the Mxit cellphone-based geo payment system named “Gust”, launched in May 2012.

“Gust burst on the scene while business was still trying to get to grips with the NFC technology. Essentially the difference between the two is that with NFC, a mobile phone has to be enabled with an NFC chip and mated with an NFC reader to facilitate payments. The paying party, however, does not require a credit card to make a payment, only a bank account that has eWallet functionality.

“The NFC-equipped mobile communicates with another device with NFC capabilities. When within a certain distance of each other, the field within range is activated and payments can be made. After communication is established electronically and the identity of the parties is established, payment is made after the phone is placed on the NFC reader and the payment is expedited,” Houston said.

Geo payments, the lead said, has an advantage over NFC technology as it can be linked at two different levels, namely GPS and Wi-Fi.

Wi-fi pros and cons

Deloitte noted that the GPS application is limited by the fact that its coverage can be lost in areas covered by a roof-making use in shopping centres and malls problematic. In the “open” GPS transactions can be made over a distance of about 500 metres between devices, it says.

The increasing popularity of Wi-Fi within centres and its spread outside these sites makes processing transactions much simpler, the financial services firm says. The Mxit Gust application only requires authentication on the Wi-Fi system to operate effectively.

In the case of a GUST Wi-Fi transaction, Deloitte points out that once authenticated on the Wi-Fi network the name and photo of the user are all that is required to make payment between devices on a common Wi-Fi network. Payments are authenticated quickly and payments are rapid.

“The advantage of Wi-Fi is that, unlike NFC, a device can be a generation or two old and still log onto the system. No special chip is required. It is because of this advantage that geo-payments, as launched in Stellenbosch, will probably win the day in South Africa.”

Advances in security

A major plus of the new systems is security, says Houston.

“Geo payments are secure as they are password protected on the mobile phone and require user information for transactions to be made. Once outside GPS or Wi-Fi zones, the system transactions simply cannot be authenticated. As systems become more sophisticated, so the transaction distance of 500 metres will reduce, making transactions even more secure.”

“Advances in mobile payment systems represented by these technologies represent a huge advance for society as they herald the approach of a truly cashless environment.

“The benefits will not only be felt by consumers who will be able to make payments using their phones and no longer carry cards. Merchants will be able to operate more securely as the spectre of crime will recede as the volume of cash on premises is vastly reduced.

“Ultimately, the pressure will be on financial institutions, business and retailers to prepare for the coming payment revolution. There is no doubt that consumers, especially early adopters of technology, will be demanding these services the minute they become commercially viable,” Houston concluded.

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