Will That Be Cash, Credit, Or Cell?

Finally, the technology is at hand to turn phones into virtual wallets

For years, techies and wireless phone companies have coveted a dream: turning the ubiquitous cell phone into a virtual wallet. In the late 1990s everyone from Nokia Corp. (NOK ) to Visa was plotting to roll out services in the U.S. that would let people use their cell phones to buy everything from soft drinks to cars. Startups such as 724 Solutions Inc. teamed with banks to let people check balances and transfer funds from a phone. But pokey technology and tepid demand snuffed out the market.

Now, so-called mobile commerce seems poised to make a lasting comeback. Services are already up and running in Japan, South Korea, Germany, and elsewhere. And starting next year, a wave of new services is expected to roll out in the U.S. -- some could be launched by wireless carriers, such as Sprint Corp., some by small technology outfits working with the phone companies and banks. One such company, C-SAM Inc., a tiny, privately owned software developer in Oakbrook Terrace, Ill., is expected to announce plans on June 20 to roll out a service early next year that will allow people to use their phones as credit cards. Says C-SAM CEO Sam Pitroda: "I believe the whole concept of money is going to change."

He may be right, but he and other evangelists of mobile commerce face formidable challenges in the U.S. Americans love to talk -- but haven't warmed to using cell phones for much else yet. They have legitimate concerns about security and how easy it will be to make a transaction. Moreover, retailers and banks will have to spend hundreds of millions to upgrade systems before the technology goes mainstream.

Still, analysts and wireless execs believe the time is ripe for mobile commerce. Cell phones have become one of the few items that many people -- nearly 2 billion worldwide -- rarely leave home without. Pitroda admits phone wallets won't interest everybody. But he argues the technology is much better than even a few years ago -- and if he and others get just a fraction of the wireless market, a big business awaits. "I see this really beginning to take off," says Christopher J. Bierbaum, head of Sprint's mobile commerce business.

As it develops, the market could get crowded. Wireless operators from Sprint to industry leader Cingular Wireless are seeking ways to boost revenues as the prices for their voice offerings flatten. The carriers are currently weighing whether to offer the service themselves, as NTT DoCoMo Inc. (DCM ) is doing in Japan, or to partner with a software provider or a bank. But some banks will want to go it alone and launch their own branded service. Even retailers could step into the fray.

The renewed interest has software vendors developing a rash of different technologies. Some require buyers to dial a phone number to authorize payment. C-SAM, on the other hand, lets users navigate through a cell phone menu. Pitroda, who is talking with Citibank (C ), Sprint (FON ), and others about licensing his technology, is shooting for ease of use. India's former telecom czar first aimed his technology at Indians who work in Dubai and wire money home. With his system, you simply click on an icon to start a money transfer or pay bills. At retailers, shoppers will use the phone to beam their card data to an electronic checkout system.

User-friendly technology will be the key to success. During trials last year in Japan, Visa International found that customers dismissed the technology because it was too much work to punch tiny phone buttons. "For U.S. consumers, it has to be simple to use," says Tom J. Manessis, Visa's head of emerging opportunities. "To click through six menus is not simple." It may be a few years before Americans are as comfortable with phone wallets as with leather ones, but the mobile commerce revolution finally seems to be coming.

By Roger O. Crockett in Oakbrook Terrace, Ill.

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