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Mobile Payment Apps Put Wallets In Phones, Not Pockets

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The use of smartphones as e-wallets has caught on elsewhere; now it's spreading in America.

The new Google Wallet app lets shoppers who own Android smartphones pay at the counter with a mere wave at the cash register and without a pocketful of change in return.

The app uses near-field communication technology to beam customers' payment info from newer-model phones to a cashier reader. And as Bloomberg technology columnist Rich Jaroslovsky tells NPR's Ari Shapiro, it's a sign that we're likely to see more people waving their phones around at the checkout counter.

Google describes the Wallet app as being part of "the next big shift" in currency, which has evolved from metal coins to paper bills and credit cards.

"The money comes from a couple of different sources, depending on how you've got it set up," Jaroslovsky says. "You enter your credit card information into the app, and it's stored securely on a chip inside the phone. But there's also the option of putting a gift card on it."

In addition to not having to visit an ATM or use a credit card to make purchases, Wallet users get access to special discounts and deals at retailers.

In California, Jaroslovsky has been testing the new Google app in the field — or, to be precise, to find a good deal on smoothies. The app lured him to a Jamba Juice store, with the promise of paying $2 for a 16-ounce drink.

"This is really the secret sauce in mobile payments, because while, yeah, it is kind of a little bit more convenient, that isn't really what's going to get people to use it," he says. "What's going to get people to use it is the possibility that they can save money."

At Jamba Juice, Jaroslovsky says, "when I tapped the phone to the reader, it automatically applied the discount. So, I got my $2 smoothie."

Asked about the security of using a cellphone as a wallet, Jaroslovsky says, "My conclusion was that it is certainly no less secure than a credit card and probably more so."

For instance, the wallet must be unlocked by entering a PIN, and the chip is designed to make it hard to extract the credit card info if the phone should fall into the wrong hands.

The Google Wallet app, which was announced in May and instituted last month, is the product of a partnership between Google, Citibank, MasterCard, First Data and the Sprint wireless carrier.

"But the other three U.S. mobile carriers — Verizon, T-Mobile and AT&T — have formed their own plan, called Isis," Jaroslovsky says. "It's not yet out in the marketplace, and nobody is quite sure yet how that's going to work. What you do know is, there's a lot of money at stake here."

Other competitors vying for a share of that money include PayPal and Square, which announced this week that its mobile payment readers will be available at Walmart stores. Instead of using near-field communication, the system uses a small plug-in device to make payments over phones' Internet connection.

Square has made inroads by targeting small businesses that are drawn to its mobility and low costs. It also offers a solution to users whose phones lack NFC technology. Users can also open a "tab" with its Card Case app, which lets them use their stored credit card information to pay for items over the Internet. Cashiers then access the customer's paid "tab" via their own Square app at the register.

As Jaroslovsky says, the open question is which business model will prevail.

"You've got all these big players — the mobile companies, the banks, the credit card companies, the technology companies, the device manufacturers — and all of them want a piece of this pie," he says.

Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.

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