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Secure Transactions News

Mobile payments not to happen soon in the US

Thursday 3 June 2010

The Federal Reserve identifies conditions that have facilitated some success in other countries and barriers to the adoption of mobile payments in the United States. On the demand side, consumers and merchants are well served by the current card system, and face a low expected benefit-cost ratio, at least in the short run. On the supply side, low market concentration and strong competitive forces of banks and mobile carriers make coordination of standards difficult. Furthermore, mobile payments are characterized by a network effects problem: consumers will not demand them until they know that enough merchants accept them, and merchants will not implement the technology until a critical mass of consumers justifies the cost of doing so.

The report highlights some of the barriers blocking NFC mobile payments, including the lack of a business model that would benefit card brands, issuers, mobile operators and handset manufacturers. That fact has hampered the ability of one company or a group of firms from taking the lead with NFC, the report says. NFC chips add an estimated US$ 10 to US$ 15 (EUR 8.10 to 12.20) per phone. Another adoption barrier is the high consumer and merchant cost to upgrade their technology, the report says. The bank believes an even bigger obstacle is the widespread installation of contactless readers, which has stalled. The report estimates the additional cost of a contactless reader at US$ 200 (EUR 162) per terminal. While some large merchants have deployed the terminals, many merchants will not invest in an upgrade until it is absolutely necessary, the bank argues. The Boston Fed believes a public transit system could lay the foundation for mobile payments in the US Such has been the case in Hong Kong, Japan and the United Kingdom, where consumers can pay transit fares with their mobile phones. A closed-loop transit environment at first might be best option for NFC in the US

The Paper can be downloaded from