Tap-and-Pay Smart Phones

Does this new technology make credit cards obsolete?

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Swiping a card at the checkout counter too labor intensive for you? The latest smart phones offer you the option of just tapping a button to make a payment. The new phones also let you pay at parking meters; pile up rewards points; buy tickets at plane, train, and bus kiosks; and even get a Diet Coke from a vending machine without foraging for bills or coins. And, in the very near future, you’ll be able to open electronic doors with your trusty phone and even download special offers and virtual coupons by holding your handset up to “smart” posters embedded with special computer chips.

The technology enabling tap-and-pay is called Near Field Communication (NFC). An NFC-enabled phone has a dedicated processor that communicates wirelessly between two compatible devices such as tablets, laptops, and point-of-sale terminals.

Currently only a handful of phones feature NFC including such popular Android models as the Samsung Galaxy Nexus ($300 with a two-year Verizon Wireless contract) and Google Nexus S 4G ($100 with a two-year Sprint contract). But more NFC-ready handsets will arrive this year including the BlackBerry Bold 9790 and phones that run Microsoft’s Windows Phone software. What about the iPhone? The famously secretive Apple has yet to reveal its mobile payment plans. However, the next-generation iPhone, expected to ship by the end of 2012, is rumored to include NFC capabilities.

Tap-and-pay options will be limited at first as wireless carriers, banks, credit card providers, and tech industry titans roll out competing mobile-wallet offerings.

First out of the gate is Google Wallet, the search giant’s new payment service that currently works with the Nexus S 4G phone on Sprint’s network. The free service is compatible with the MasterCard PayPass system, which you’ll find at more than 140,000 merchants in the U.S. At press time, Google Wallet supported only two credit cards: Citi MasterCard and the Google Prepaid Card.

How does a typical transaction work? When the cashier tallies your purchase, you tap your Nexus S 4G on the PayPass terminal. The phone’s Google Wallet app then wirelessly transfers your payment information to the terminal and receives a digital receipt. Presto!

Another mobile-wallet offering, Isis, will be available later this year from three U.S. wireless carriers (AT&T, T-Mobile USA, and Verizon Wireless) in Austin, Texas; Salt Lake City; and a few other places. More competitors are on the way. “Google Wallet and Isis are bringing the players together, but I think you’ll see separate efforts by VISA, MasterCard, and American Express,” says Debbie Arnold, director of NFC Forum, an industry consortium.

There’s more to NFC than simply tap-and-pay. Have an NFC-ready Android phone or tablet? The free Add Friend app allows you to add a new Facebook friend by opening the application and touching the back of your device to the back of your new friend’s. Tap-and-friend may replace the napkin scribble in the not-too-distant future.

Every new technology brings security concerns. Could hackers steal your NFC payment information? Not likely. In most cases, you’ll need to enter a password or PIN to complete a payment. And information sent to and from your NFC phone and a point-of-sale terminal is encrypted—which will block digital snoops from swiping your data. And the same rules and regulations that apply to credit card theft apply to tap-and-pay transactions. “If you lose your credit card, and somebody else gets it, the bank has to pretty much eat the charge, and the consumer doesn’t have any liability,” says Arnold.

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