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Wells Fargo to Employees: Leave Wallets Home, Pay by Phone

Using 200 of its San Francisco staff, the bank will test mobile-phone payments for six months—and may launch a commercial service soon after

Wells Fargo (WFC) is again trying to make mobile payments at restaurants and retailers mainstream, three years after an earlier attempt lost steam. Peter Ho, product manager of card services at the bank, led a test several years ago that let executives use a Nokia phone, rather than a debit or credit card, to pay for fast food and other items. While he liked the convenience, Wells Fargo didn't end up offering the service to customers, partly because only the one handset was capable of transmitting payment information at the time. This month, Ho gets another chance as the bank kicks off a mobile-payment trial with 200 employees in San Francisco using a technology that can be inserted into existing phones with microSD cards. To make payments at participating retailers, employees will simply open the Wells Fargo Mobile Banking app, select the pay-with-phone button. and wave the phone in front of special mobile-payment readers. "We have made an investment in this technology, and we hope this investment pays off," says Ho, who declined to give the amount of the investment in so-called near-field communications (NFC) technology that uses short-range wireless connections to transfer payment or other information between devices. Here Come the NFC Phones

While mobile handsets with NFC chips have been in short supply, that's about to change. Shipments of NFC-enabled phones are projected to rise more than 50 percent this year, from an estimated 52.6 million in 2010, according to researcher ISuppli. Worldwide shipments will increase to 220.1 million units in 2014. These mobile devices will drive more than $22 billion in payment transactions by 2015, up from practically none last year, according to a November report by Aite Group, a research firm in Boston. "We're starting the evolution away from plastic credit cards to the mobile phone," says Bill Gajda, head of mobile innovation at Visa (V). Research firms, including Aite, say that 2012 will be the year when these payments start to ramp up, because phones with NFC will become widely available and more retailers will be giving customers the option to pay with them. Mobile-handset manufacturers and service providers are moving in a direction that would let consumers make payments with their devices. Nokia, for example, has said it will support NFC in all new smartphone models introduced in 2011. On Nov. 16, AT&T Mobility (T), Verizon Wireless, and T-Mobile (DTEGY) announced a partnership called Isis to create a national network over the next 18 months that uses NFC technology on mobile phones to let consumers make purchases. "Mobile operators are positioning themselves to be the equivalent of a card network," says Nick Holland, senior analyst at the Yankee Group, a telecommunications market-research firm. A Commercial Launch in Six Months?

Meanwhile, traditional card networks, such as Visa and MasterCard (MA), have been working on their own NFC initiatives. On Dec. 7, Visa said it supported commercialization of a technology from DeviceFidelity that puts NFC capability on microSD cards, which can be inserted into certain existing smartphones. Visa tested the technology for 18 months with such banks as Wells Fargo, JPMorgan Chase (JPM), US Bancorp (USB), and Bank of America (BAC). This is the technology that Wells Fargo plans to test with its employees in the first six months of this year. "We plan to be commercially ready to launch by the end of the first half of 2011," says Visa's Gajda.

Wells Fargo's Ho says he considers DeviceFidelity's microSD cards to be a transition technology while the industry waits for mobile phones with NFC chips to proliferate. Last year, only 4.1 percent of mobile phones shipped had NFC capabilities. That's estimated to triple to 13 percent in 2014, according to ISuppli. For the top 100 phone models to be equipped with NFC could take five to 10 years, says DeviceFidelity Chief Executive Deepak Jain. During its test, Wells Fargo will give 200 employees microSD cards to use with their BlackBerry Bold 9650, BlackBerry Bold 9700, BlackBerry Tour 9630, iPhone 3G, iPhone 3GS, and iPhone 4. While Apple's (AAPL) iPhone doesn't accept microSD cards, employees will be able to use special cases with them that have been designed to accept the cards. One of the benefits of this approach, says Ho, is that many employees already carry these smartphones. When Wells Fargo gave employees Nokia 6131 NFC phones during the last NFC test in 2007, many forgot to carry the devices with them. "It wasn't the most attractive phone," says Ho. After the last trial, he says the bank learned "we needed phones that matched our users' taste and lifestyle." Merchant Resistance

Analysts note that challenges are ahead, including consumers who are concerned about the security of using mobile devices to make payments. Also, more merchants would need to install payment readers, known as contactless point-of-sale terminals, that would let consumers make such purchases. Today, contactless payments involve tapping a credit card to a small box or terminal at the cashier. So far adoption of the terminals, a necessary step to move to payments with mobile devices, has been sluggish. "Contactless payment is the foundational piece," says Ho. "If you can't support it today, then you can't support mobile payments." About 5.9 percent of merchant locations will be accepting contactless payments by 2015, up from 1.8 percent in 2010, according to Aite Group. "We do expect it will take a few years for volume to ramp up," says Gwenn Bézard, the firm's research director. In San Francisco, home to both Wells Fargo and Visa, more than 100 locations let customers tap their Visa cards, including outposts of McDonald's (MCD), Chevron (CVX), Sports Authority, 7-Eleven, Office Depot (ODP), Whole Foods Market (WFMI), CVS (CVS), Foot Locker (FL), and Noah's Bagels. "We are also seeing a push to get more contactless readers," says Wells Fargo's Ho. "Overall, the biggest challenge is going to be merchant acceptance." When 90 Million People Aren't Enough

Today, restaurants—particularly quick-service ones—account for about 43 percent of locations accepting contactless payments. The prevalence of fast-food chains means that some small towns are already equipped with the technology to process mobile payments. The McDonald's in Willits, Calif., a town in Mendocino County with a population of about 5,000, lets customers with specially equipped Visa credit cards tap to pay. Merchants told Verizon Wireless that they wanted to make sure any mobile-payment effort by the provider was large enough to warrant investment in payment terminals and that Verizon Wireless' 90 million-plus customers weren't enough. Now, with Isis, Verizon Wireless, AT&T, and T-Mobile have 230 million customers among them, says Ryan Hughes, vice-president for business development at Verizon Wireless. "We are strange bedfellows that have come together and struck a partnership," he says. Isis is working with Discover Financial Services' payment network. Barclaycard US, an arm of Barclays (BARC:LN), is expected to be the first issuer on the network, Isis reported on Nov. 16. For the Wells Fargo trial, the bank wants to get feedback from employees about what they think of mobile payments using this technology. "We know that security is a concern," says Ho. The bank hopes to see what the customer experience might be if it were to offer this as a service to customers. After years of waiting to use his phone to make purchases, Ho says he's more optimistic now because of the many announcements from handset manufacturers that plan to support NFC technology this year. Says Ho: "I feel like a kid in a candy store."

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