Banks slow to embrace mobile commerce

Imagine waving your New York subway pass in front of the cash register at a 7-Eleven convenience store to buy a sandwich. Or paying for items you found while surfing the Web on your cell phone by sending a text message.

Such futuristic exercises in the U.S. are already a reality in many Asian and European countries.

For example, Hong Kong residents can use the local subway pass, called an Octopus card, to pay for purchases at fast-food restaurants, convenience stores and vending machines. And Tokyo-based phone operator NTT DoCoMo Inc.offers mobile phones with embedded chips that can serve as either a rechargeable repository of stored money or as a credit card.

In the U.S., meanwhile, there have been only sporadic experiments in the use of next-generation payment schemes. Experts blame the slow U.S. adoption on the tentativeness of banks.

“Banks have given up ownership of some of this space and allowed third parties to proliferate,” despite apparent interest from consumers, said Ray Mulhern, president of M-Consulting Group in Charlotte, N.C.

Indeed, technology vendors are beginning to roll out such services to a few U.S. users.

The developers include start-ups such as iBreva Corp., which is piloting a mobile-phone payments service in several small Silicon Valley stores, and larger companies such as PayPal Inc., a division of eBay Inc. In April, it unveiled PayPal Mobile, a phone-to-phone payments service that allows users to pay for merchandise via text messaging. Neither service uses a bank to clear payments.

Waiting for customers

Some bank executives say they are waiting for customers to become more comfortable with the concept before offering such services.

“You have to understand the comfort level of the average American,” said Judd Holroyde, a senior vice president for global product management at Wells Fargo & Co. “He or she is still writing a tremendous amount of checks. I can’t imagine a baby boomer being comfortable paying by phone.”

Wells Fargo does not yet offer e-payment or mobile payment services.

Mulhern, a former senior executive for payments at Charlotte, N.C.-based Wachovia Corp., noted that banks are also held back by strict government regulations.

“Banks are looked at as keepers of safety and soundness in the payments world,” Mulhern observed. “They are much more constrained. As a result, they are not going to move fast.”

“Innovation is not a bank’s strong suit,” added Clayton Giordano, CEO of Palo Alto, Calif.-based iBreva. “They are highly motivated and interested, but they also realize it’s a high-stakes game.”

Other observers noted that the back-end IT architecture at many banks is siloed and inflexible. “Most banks still have dedicated, hard-wired payment systems that they bought 10 to 15 years ago,” said Matt Ellis, U.S. president for Clear2Pay NV/SA, a Brussels-based provider of back-end payments software to banks.

Some banks, such as Sioux Falls, S.D.-based First Premier Bank, have inched into mobile payment services. It offers a MasterCard-branded prepaid debit card linked to a cell phone payment service that was launched in March by Redwood City, Calif.-based Obopay Inc.

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