Smartphones may replace your credit cards soon

With all the capabilities of smartphones these days, why can't we use them like a credit card? That's something that a new mobile payment system venture between AT&T, T-Mobile USA, Verizon Wireless, and Discover Financial Services is looking into. Such a development could make our wallets (physically) thinner and keep us from losing credit cards.

According to Bloomberg, the companies are attempting to develop a mobile payment system that will compete with Visa and MasterCard by incorporating a contactless payment mechanism directly into smartphones. Such a system would likely include an RFID or other electronic chip like an EVM microchip, already used in Europe. The mechanism allows for secure transfer of an accountholder's information to the payee.

Right now they are piloting the system in Atlanta and at least three other U.S. cities, Bloomberg reported. The site added that the companies are searching for a CEO to grow the joint venture.

The new payment system would replicate those in place in the United Kingdom, Japan, and Turkey. Payments under the venture are being processed through Discover's payment network. If successful, it could challenge the stranglehold Visa and MasterCard have on payments in the United States, according to Obopay, a mobile systems payment company.

As of now, the trial represents the largest trial to replace the 1 billion plastic credit cards lurking in wallets throughout the United States. And the volume of money passing through those cards is staggering. Bloomberg said it represented $2.5 trillion worth of United States' consumer spending in 2009. Bloomberg cited Nilson Report data showing that Visa and MasterCard have more than 82 percent of the payment-processing market in the United States. On top of that, the companies have seen their earnings increase by humongous amounts since 2005, with Visa seeing 600 percent growth to $3.5 billion in 2009, and MasterCard seeing 500 percent growth over the period to $2.3 billion in 2009.

With such a large sector of the credit and debit payment processing market, this venture could be welcomed by merchants as a way to help leverage more control over the fees they pay to Visa and MasterCard for using their payment networks. On the other hand, Obopay asserted that this effort may spur Visa and MasterCard to speed up their efforts to bring payment systems to smartphones.

-Chris Meehan