Your mobile phone started out as just that, a phone. Then it was a phone and a crummy camera and Tetris player in one. As phones got more advanced - smarter, if you will - they've evolved to take over more and more functions that used to require their own devices.
An iPhone can be an ereader, video camera, GPS navigation system, music player, games console… even a level to help you hang pictures straight. But has it ever bought you lunch?
New technologies, apps and add-ons let smartphones both receive and make payments, and the next generation of phones in the coming years will go further than ever to letting your mobile replace your wallet.
Taking cards on iPhone
Cash transactions are getting rarer with debit and credit cards being accepted nearly anywhere, but you still run into places that stubbornly remain cash-only, whether it's a lunch wagon, a little independent café, or even an artist selling paintings at a market.
Lately, several solutions have popped up for small businesses - or anyone, really - to accept card payments by attaching a card reader to their iPhone, iPod touch or iPad, or other smartphone.
Square, one of the most recognisable, is a small, square dongle that plugs into the headphone jack on an iOS or Android device, and lets the merchant swipe a customer's magnetic stripe card, converting their account data to an audio signal.
The corresponding app software encrypts it and sends it to Square's servers, which communicate with the card-processing companies to complete a transaction. The customer signs their name with a dash of their finger on the touchscreen, and they're able to have a receipt sent to them over email or SMS text message.
The main advantage to using the headphone jack rather than the iPhone's 30-pin dock connector is that the dock connector is only on iOS devices, while every mobile has a headphone jack. This meant Square could roll out its system to Android by simply writing compatible software.
Using the dock connector is also more expensive, manufacturing-wise, and would require Square to get a licence from Apple, undergoing a pretty rigorous testing and certification process. Plus, now merchants can use a battery case with their devices or keep them plugged into power.
But you won't see Square - or its many competitors, including the GoPayment, Intuit Credit Card Reader, Mophie Marketplace, VeriFone's PAYware Mobile, the MagTek iDynamo and others - in use at your local pub, since the UK, as well as all of Europe and most of Asia, has moved to using Chip and PIN.
Chip and PIN (also called EMV for Europay, MasterCard, Visa) is more secure, since magnetic stripes are more easily read and cloned by black-market devices, and signatures can be forged. The chips in these cards are much more difficult to clone, and even if a card is lost or stolen, it can't be used without the matching PIN. It's been standard in the UK since 2004, but it isn't widespread in the USA, with both banks and merchants reluctant to invest in the new hardware required.
But one iPhone-based card reader does support Chip and PIN transactions: the iZettle, a free EMV chip card reader with accompanying app that connects to an iPhone or iPad's 30-pin dock connector.
New company Card.io is even offering mobile developers a new way to accept card payments within their apps without needing a scanner at all. Users take a photo of their card and the account number is read and captured by the software.
An SDK is available for Android and iOS developers to add it to their apps, and Card.io gets a small fee for each transaction.
Paying with your iPhone
Of course, those solutions all require a credit card, so they haven't replaced your wallet at all; instead they're replacing a traditional card terminal for merchants. But mobile phones can make payments and otherwise move money around in a convenient, wallet-free way.
PayPal's iPhone app, for instance, lets users send payments to other individuals, and even bump phones to transfer money from one person's PayPal account to another's. Your PayPal account is linked to a bank account, so all you need to fund a transaction is your username and password.
The app even lets you deposit cheques to your PayPal account by snapping photos of the cheque - a great way to then deposit them into your normal bank account, if your bank doesn't already offer such high-tech tricks.
Pizza Express recently rolled out an app that lets you pay for your meal from your phone using PayPal. At 370 participating Pizza Express locations, your bill contains a code that can be entered in the iPhone app when you're ready to pay; you can also add a tip and use offer codes and coupons. The app shows a confirmation that you've settled up from your PayPal account, and a message is sent to the restaurant's registers.
Even if you don't have a smartphone, some places let you pay by SMS from any mobile. Websites for charities such as Women's Aid and BBC Children in Need, social sites like Friends Reunited, and ringtone and game sellers including Jamster and Puzzle Pirates accept small payments by SMS, using top-up credit on a pay-as-you-go plan or adding a charge to your mobile bill.
And once you sign up for an account online and link up a traditional bank card, both Transport for London and the Newcastle Parking Services accept payments by SMS, too. Transport for London lets drivers pay the congestion charge by texting 81099, while Newcastle's car parks let registered users text the parking location's ID number, how many minutes are needed, and the bank card's three-digit security code.
NFC: Next Futuristic Coolness
Every four years, the eyes of the world rest on whichever city is hosting the Olympic Games, and that's London in 2012.
Samsung and Visa recently announced plans to roll out the Samsung Olympic and Paralympic Games mobile handset, a phone equipped with NFC (near-field communication) technology. The phone will have a Visa-enabled SIM card, and it'll be provided to sponsored athletes and sold to the public as well.
To use it, you'd just open the Visa payment app and tap your phone against the reader at the register. Contactless payments are already accepted at 60,000 locations in London alone.
If NFC sounds unfamiliar, the concept shouldn't be foreign to anyone who's used an Oyster card for public transport in London. Oyster cards include a smart chip activated by the electromagnetic field in a contactless reader, using technology called RFID, or radio frequency identification. The reader gets information from the card about how much credit you have, calculates how much is needed, and then writes your new balance back to the card.
NFC works in the same way for mobile payments from the consumer's end, only you're tapping an NFC-equipped phone instead of a smartcard.
But NFC has a lot of other applications too - devices can be tapped to each other to share files, link up for a multiplayer game, or even act as a identification card or keycard. You could tap your phone on an NFC tag in a poster or outdoor advertisement to load up a coupon.
Samsung and Visa aren't the only companies working on NFC in the UK. Orange recently launched Quick Tap, a contactless payment service that works with MasterCard PayPass terminals at McDonalds, Walgreens, Subway and other retailers, but the service launched with several caveats.
So far, you need a Barclaycard or a card directly from Orange. It launched on a single handset - the Samsung Tocco Lite Quick Tap version, with a preloaded Quick Tap app. You can load up £100 maximum to the Quick Tap app, and can only make single transactions of £15 or less. Still, NFC is a promising future for mobile payments.
Nokia, Samsung, LG, Motorola, BlackBerry and Google each make at least one NFC phone, with many more on the way. Rumour has it that Apple plans to add NFC hardware to a future iteration of the iPhone; the company recently hired an NFC expert named Benjamin Vigier, and Apple loves to boast about the millions of iTunes Store accounts that have linked credit cards on file.
Once the iPhone gets NFC, any merchant could get in on Apple's system by upgrading to an NFC contactless terminal. More than that, Apple can't really sit on the sidelines, because its main competitor in the mobile space - Google - is already in the game.
The recently launched Google Wallet payment system lets Android users store cards in a virtual 'wallet' on an NFC phone and use MasterCard PayPass terminals. The system is still young; at launch the Google Wallet app was only on the Sprint Nexus S 4G, and only accepted two payment sources, a Citibank credit card or rechargeable Google GCard, although Google has plans to include all your credit cards, loyalty cards, and even gift cards.
Security and privacy concerns
NFC only works over a small zone - say, a few centimetres - and most NFC payment schemes require a PIN, making this closer to the Chip and PIN system than to the more easily breached magnetic stripe card swipe.
In Google Wallet's case, the app requires a PIN to activate the phone's NFC chip antenna for security - the NFC chip is off otherwise - and the account information is stored encrypted.
Of course, security breaches are still possible. Proof-of-concept attacks for NFC phones have been demonstrated, but as new attacks are uncovered by security researchers, new strategies can be developed to protect against them.
NFC has benefits besides convenience and speedier transactions. The data gathered can be used in new loyalty programs. Google Wallet isn't shy about its motivations, saying in the official FAQ, "Google does not want your money but your data… about you and your spending habits/trends." After all, Google's true customers aren't the people who uses its products, but the advertisers.
Privacy lovers might find this potential for hyper-targeted advertising disturbing, but anyone truly afraid of advertising probably has trouble leaving the house these days in any case. If you're going to be marketed to every day anyhow, why not get offers more relevant to your exact taste?
Will NFC and mobile payments instead trigger a society-wide paranoia of ever losing our phones? Perhaps not, since you'd need a PIN to buy anything, and it's easy to lock your phone with another PIN.
Lose your wallet and anyone can take your money - this is like a wallet with two locks on it. Then again, your wallet never needs charging.