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The Next Credit/Debit Card Could Be A Phone

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Written by Alan Gionet

This story was originally published in February.

DENVER (CBS4) – Ask how people use their phones and the list gets longer every day.

“Music, I manage my bank account, my work e-mail, my personal e-mail, my alarm clock,” one woman went on and on.

The woman’s smartphone is a constant companion. Ask her if she’s ready to use it as a credit card and there’s no hesitation.

“This thing will be gone,” she gestured to her wallet.

That’s next. At least that’s what a lot of experts are figuring. Just travel to La Junta, about an hour east of Pueblo to find out how it works.

“Banks are very conservative,” said Brad Rose, vice president of The State Bank in La Junta. “But when we looked at the technology, the technology is actually more advanced than what Visa and MasterCard, Discover, or Amex were offering to us.”

Rose and his bank began offering customers stick-on tags about the size of a postage stamp from a company called Bling Nation. They’re called NFC tags — the same kind of tiny transmitter chips that have a good chance of being added to the next smartphone.

The iPhone 5 for example, expected out this summer, is widely rumored to include one of the NFC tags. NFC stands for “near field communication.” The little devices transmit a signal about an inch and a half to a device on a retailer’s counter that’s about the same size as a credit card reader. That’s about what it does.

“We’ve been very successful with the technology,” Rose said.

Many people picked up the tags and stuck them on their phones. Brinda DeLeon-Fisher said, “I take my phone everywhere I go and I usually forget my purse.” She was buying coffee at The Barista, a coffee shop in town. “I mean it just comes right out of my account and it’s just so convenient for me.”

DeLeon-Fisher passed her phone with a tag over the machine. It communicates with her bank and like a debit card, deducts the appropriate amount from her account, then it sends her a message as a receipt.

“I like the convenience, the speed,” said Adam Thomson, owner of The Copper Kitchen.

Thomson sometimes waits days for payment from a credit card processor. With the Bling program at The State Bank, he gets the money the same day.

“The bank will say, ‘Yes, there’s enough money in the account,’” Rose said. “And it will electronically debit your checking account like a debit card and it will credit the merchant’s account at the same time.”

Right now merchants pay anywhere from 1.5 percent to 5 percent every time a credit card is used. That means there’s a motivation for merchants to support a change. There’s talk of adding credit. Visa is experimenting. There’s talk of paying through iTunes, or PayPal. Think about that. If the money went through iTunes, it could allow a major technology company to become a huge financial institution. The Apple Bank?   NFC technology is viewed by many in the industry as a done deal.

What about fraud? Thomson isn’t worried.

“It changes the coding every time a transaction is made. So that if I were to lose my phone this hour, I can have the chip on my phone de-activated this hour and when I find my phone this evening I can re-activate that same chip,” Thomson said.

Rose says the possibility of fraud is less than that with a credit card.

“Every time you tap your tag to the merchant device to make a payment it changes all the electronic information in that tag,” Rose said. “It’s good once and it’s good up to a certain limit before they require you to enter a pin number at the merchant, which is an additional layer of security.”

Right now there’s not much room for the middlemen – the big payment processors like Denver based First Data. But there’s bound to be something down the road.

“There is still room for the middlemen because it’s been very difficult for these new technology providers to get their foot in the door with these merchants,” Rose said.

It will mean re-tooling for the future. But there’s likely to be a demand from people who have already placed their family photos on their phones, leaving their wallet or purse without pictures. Add in the profit motivation for merchants and the potential to fight fraud and there’s motivation for something else to migrate to your phone.

“Yes, I’m getting tired of carrying my whole purse around,” Brinda said.

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