MasterCard (MA) is promoting a tempting new offer: Instead of using checks or wire transfers to send money, U.S. customers can soon text the funds directly to another person through their cell phones. Dubbed MoneySend, the new service promises to "make it faster, simpler, and more convenient for people to send money to each other using the MasterCard network," according to Art Kranzley, chief emerging-technology officer at the Purchase (N.Y.) company. The question is whether it will finally conquer consumer resistance to mobile banking.
While an estimated 350 million people worldwide now use their cell phones to shop, bank, or transfer money, according to consultancy Edgar, Dunn, Americans have been slow to adopt the technology. One reason is the need for special software on handsets. Another is a persistent worry about the security of moving money around in the wireless realm. "Person-to-person payments are a huge unexploited market in America," says Edgar Dunn director Samee Zafar.
MasterCard is trying to assuage such concerns by using a system that's similar to PayPal (EBAY), which revolutionized e-commerce in 1998 by creating a password-protected site to transfer funds online. With MoneySend, announced on May 13 and launching later this month, customers will use their credit card, debit card, or bank account to sign up for a prepaid account online. They can then transfer funds by sending a text message to a recipient, who must then register to choose which account they want the funds deposited in. The service will work on any phone, thanks to a partnership with Obopay, a Redwood City (Calif.) company that specializes in money-transfer technology. In its initial launch phase, consumers will be able to transfer anywhere from $1 to $500 for a small fee. MasterCard expects some partner banks may waive those fees as an inducement for customers to sign up.
A Call to Confirm
Security concerns are a key factor for consumers. "It's a perception hurdle because people lose cell phones all the time," says Zafar. As with credit cards, MasterCard says customers will have no liability for unauthorized charges through the service. After people send money by text, they receive a call from MasterCard to verify the amount and the recipient after putting in a special PIN number.
Mobile payments so far have had limited reach within the U.S. In recent years, pilot technologies launched by MasterCard, Visa (V), and dozens of smaller startups have tried but largely failed to persuade merchants to take payments by swiping a customer's cell phone instead of a credit card. "It's a chicken-or-egg problem," says Kevin Fu, an computer science professor at the University of Massachusetts who specializes in electronic commerce. "It's hard to convince merchants they need to accept mobile payments when people don't have the necessary technology in their cell phones." Another challenge is getting phone operators, credit-card companies, and banks to agree on how to split the revenues.
For all the challenges, though, mobile banking is fast gaining traction in other parts of the world. East Asians have a long tradition of using cell phones for everything from entertainment to shopping, and the existence of fewer banks has made it easier to forge deals. Mobile banking has also boomed in developing countries, where cell phones have enabled entrepreneurs and banks to reach customers who don't have traditional accounts.
Texting Money Back Home
Analysts say MoneySend could prove to be a hit within families and for small businesses that now wait weeks for checks to clear. Nick Holland, a senior analyst at advisory firm Aite Group, argues that "Mastercard is paving the way for greater acceptance of mobile payments in the U.S." If it works, executives say they hope to roll out a global service that may prove appealing to foreign workers who want to send funds back to their home countries.