Could your smartphone replace your credit card?

Smartphone payment technology appears simple, easy and maybe the way forward? However, industry experts say it is unlikely that the phone will take over from the credit cards due to factors such as costs, internet reliability and security.

Anonymous industry sources recently revealed to Bloomberg that phone companies AT&T, Verizon and T-Mobile are developing “contactless” payment technology for their mobile phones.

The technology is thought to be one of the biggest developments in this form of contactless mobile payment. Could credit card comparison be replaced with smartphone comparison?

The smartphones would be embedded with a secure near-field communication (NFC) chip that would allow you to buy items simply by hovering the item over transaction machines.

But many factors will hold the smartphone back from replacing credit cards.

Firstly the reliability of the internet. Aaron MacPherson IDC Financial Insights practice director for payments and security stated on Wired.com that it will be almost impossible to compete with Visa and MasterCard. The internet is generally insecure and therefore cannot substitute for the reliability and speed of credit card networks.

There will also be no benefits cost-wise as the charges and fees of credit cards are likely to be transferred onto the smartphone, again due to the power Visa and Mastercard hold over the payment market.

In fact, since there may be fewer deals available this way, it could be bad for consumer choice in the short term. For example, if you need a use abroad care but can’t get the Post Office Credit Card on phone.

It’s also likely not to favour bad credit rating credit cards.

The three percent charge that credit card companies bill merchants for a card purchase will be applied to smartphones as merchants are charged for these transactions no matter how payment is made.

Costs that are added to credit cards for the cohort of missed bills and ‘chargebacks’ (when money is paid to a customer following fraud) are also likely to remain. These are both a massive expenses to credit card companies who must add this to the bill of their customers to make up for the company’s losses.

Wired.com states that these same middlemen will remain with the smartphone. This is again because no start-ups will be able to offer a solution to these costly charges due to the power of Visa and Mastercard.

Then there’s security issues. If you end up switching your credit card for your phone you need to take a few precautions as the phone technology has potential to be vulnerable to theft and fraud.

Khoi Nguyen, the group product manager for the Mobile Security Group at Symantec says on Macworld.com that smartphones will need to have a remote-wipe application installed so that data can be erased if the item is lost or stolen.

As the user you will also need to be careful with the applications you download and make sure that you install antivirus programs.

But Kurtz stated that smartphones have the potential to be safe and popular if carriers, device makers and users take all these precautions.