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AT&T and Verizon Team Up to Test Smartphone Payments, Ending Card Dominance

iphone paying for purchaseThe still-nascent field of smartphone payment systems may be getting a lot more crowded, since AT&T and Verizon Wireless have become strange bedfellows in testing a new system that allows store customers to pay for products with their smartphones. According to sources close to the deal, the test system would be similar to those already implemented in the U.K., Turkey and Japan, where contactless technology allows consumers to instantly purchase items merely by scanning their phones. Sources also say that the payments would be processed through Discover's network, with T-Mobile U.S.A. acting as a minority stakeholder.

The tests will reportedly be held at stores in Atlanta and three other U.S. cities, and, if they prove successful, could bode ominously for major credit card companies. Visa and MasterCard may be the world's largest credit card corporations, but when it comes to mobile payment technology, telecommunications companies have a significant advantage. In an interview with Bloomberg, industry consultant Richard Crone claimed that phone companies could easily control the U.S. payments market, simply because they have access to their clients' mobile numbers and banking information. "A mobile device is online, real-time interactivity that changes the customer relationship," Crone says. "A card is dumb."

Retailers, on the other hand, may also warm up to the idea of a plastic-less world -- or at least a world without exorbitant transaction fees. Merchants have long bickered with both Visa and MasterCard, who often impose hard interchange, or 'swipe' fees, on any completed transaction. Although these fees typically comprise only one- or two-percent of a given purchase, the charges can add up quickly, often exceeding $40 billion per year. At this point, it's still unclear how much AT&T and Verizon's new system would charge merchants, but the mere prospect of increased competition should be welcomed by most retailers.

Ultimately, though, the success of any mobile payment system remains dependent upon consumer confidence. The personal finance sector never changes overnight, and consumers tend to be wary of new technology and any potential security threats it could pose. Brick-and-mortar businesses, meanwhile, will likely have to spend some time testing the waters to determine consumer sentiment before investing in a new system. We're still pretty far away from a completely card-less existence, but, with more big-name corporations entering the game, it seems like major changes are afoot. [From: Bloomberg]

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