Will smartphones one day render our wallets obsolete? Shutterstock

You call your friends with it, you take pictures with it, you write e-mails on it, you schedule events and play games on it – and soon you may be buying your groceries or even paying your bills with it. Your smartphone could soon become your new wallet.

New advances in telecommunications and banking are making the prospect more likely. The key technology is near-field communication (NFC), which enables people to place their phone next to a reading device that connects to a modified SIM card housing your account data. Faster and more reliable than the now-commonplace Bluetooth technology, it could be set to revolutionize shopping.

NFC has become a hot topic recently as banks and mobile operators battle to find ways to stay competitive. Pilot tests of the new service involving the four major mobile network brands in Poland (Orange, Plus, Play, T-Mobile) and several major banks, are now under way or are scheduled to take place soon.

T-Mobile, for one, plans to launch a mobile wallet option in the fourth quarter of this year and is currently completing testing with Inteligo Bank.

Orange, which is working on similar plans with Bank Zachodni WBK, had planned to finish its testing and assessment in July, but has now decided to extend the finish date until October.

Smartphone stronghold

Smartphones equipped with proximity technology – which includes special microprocessors that communicate with in-store terminals – are still rare in Poland, with the Samsung Avila, until recently, the only one currently available. Another similar smartphone from Samsung, named Wave 578, has just hit Orange stores in France, and will soon be available in Germany, Spain and Poland.

This year in Poland some of the country’s largest telecommunication firms have already increased their smartphone sales by 20-50 percent, according to figures cited by Dziennik Gazeta Prawna.

New players, including Dell and Acer, are also joining the game. Dell’s Venue Pro has been on the Polish market since April, while Acer plans to launch a new product in the third or fourth quarter of this year. These introductions are finding an eager customer base: according to an Aegis Media study, Poles will buy more than 11.6 million phones this year, nearly 5.4 million of which will be smartphones.

Indeed, mobile communication has taken a strong foothold in Poland. Not only does the country have over 48 million active SIM cards, with a penetration rate of around 125 percent according to Poland’s statistics office, but data from the UK’s broadcasting and telecommunications regulatory authority, Ofcom, shows that in 2009 more than 82 percent of all voice connections in Poland were made using mobile networks. That amounts to the second-highest percentage in the world, surpassed only by India.

It also turns out that one in three Poles use only their cellphone to make calls, compared to one in eight British people and one in 20 Germans.

Another alternative

NFC is not the only option allowing for payments with a cell phone. For example, Poland-based SkyCash, which was established last summer, allows any cell-phone user to connect to the internet and download an app which then serves as a payment instrument.

With a client base of several thousand users (the exact numbers are not available), SkyCash is independent from mobile operators as well as banks, acting more as a clearing house that monitors transactions and does the accounting. An average SkyCash transaction involves around zł.70, said Dariusz Mazurkiewicz, the company’s managing director. The most popular services include payments between users, purchases of public transport tickets, games and ring tones, as well as wallpapers and prepaid top-ups, he added.

But SkyCash founders are preparing another offensive by teaming up with Novitus, a Nowy Sącz-based manufacturer of cash registers. The purpose is to install GPRS modules in cash registers to allow SkyCash payments to be made at supermarkets or bookstores.

The technology works like this: after goods are scanned by a cashier, the client types the store number and total cost of the purchase into their cell phone. The client confirms his or her PIN and waits for the cash register to receive confirmation and print the receipt.

For merchants, the system is seen as a simpler and cheaper alternative to traditional credit-card payments and it could be a game-changer if it catches on. There are as many as 300,000 Novitus cash registers in Poland, compared to only 250,000 card terminals. The first cities due to try out the new service within the next couple of months include Warsaw, Wrocław and Bydgoszcz.

Cost and security worries

There are, however, still several concerns. According to a Frost & Sullivan study on the subject, these include security issues, a lack of regulation on mobile transactions, quality of service, limited collaboration between different participants and the high cost of solutions.

Security of mobile payments remains a concern Shutterstock

Also in 2009, several partnerships between banks, mobile operators, financial institutions and clearing houses were formed to test NFC and non-NFC payments. But tangible results have yet to be seen.

“Each year forecasters say it has been miserable thus far, but next year will be the year for mobile payments, no doubt,” said Sebastian Konkol, a senior consultant and telecommunications market expert from Cutter Consortium, an IT advisory firm.

“Alas, there is still no business justification, no significant edge in terms of functionality, utility or finance that would influence a payer’s habits and make them abandon cash and credit or debit cards to the benefit of mobiles,” he added.

“Universality is the key. Either you reach all merchants with one smart move, or nothing comes of it.”

Enter the giant

Nevertheless, Marcin Giżycki, director of ING’s retail product management department recently told Puls Biznesu, “I believe that in the near future cell phones will be a subscriber’s financial center.”

“My belief is in one platform that will unite all parties interested in this market,” he added.

But Mr Konkol sees things differently. “In my view, banks pose competition to mobile payments and will defend this market. So, the only way is to compete with them, as well as credit card organizations, but this is not a game for single telecoms, even if they’re huge and global,” he said.

Telecoms are the players who probably care the most about this new form of technology as profits from basic voice or text services are decreasing each year and many will need to seek other sources of revenue. Finding other avenues may be a matter of life and death for firms: recent data from Tellabs/Analysys Mason suggests that mobile operators in developed countries could run out of profit in the next two to four years if they do not change their business models.

So, is Mr Giżycki’s forecast of smartphones as a subscriber’s “financial center” realistic?

“Very realistic,” said Mr Konkol. “But not because of the banking system, or the global telecoms or the collaboration of these two worlds. Only giants will make waves – like Google, who won’t ask if anyone will let them create a revolution. They’ll just do it.”

The internet giant definitely wants a big piece of the pie. In May of this year, a new NFC-enabled application, Google Wallet, came into the picture. The technology is currently in the beta phase, with tests being performed in New York and San Francisco in collaboration with Sprint, Citibank, First Data and MasterCard.

Google’s partnership with MasterCard will make it possible for users to “take” money out of their e-wallets from any PayPass-enabled store around the world, of which there are currently over 300,000.

“You will be able to store your credit cards, offers, loyalty cards and gift cards, but without the bulk. When you tap to pay, your phone will also automatically redeem offers and earn loyalty points for you,” reads a statement from Google’s official blog.

So, despite the lack of progress in Poland recently, with Google on board we all may be saying goodbye to traditional wallets and plastic sooner rather than later.