As if financial reform hasn't given credit and debit card companies enough to worry about, they must now grapple with an entirely new threat. The billion plastic payment cards we carry may soon be obsolete, their functions incorporated into cell phones.
Credit cards are certainly worth trying to steal business from. Just look at these staggering annual revenue levels:
(NYSE: V): $8 billion
(NYSE: MA): $5 billion
If smartphones could siphon off just 10% of that, they'd rake in $1.3 billion.
Don't hold your breath
This brave new world might not arrive anytime soon For one thing, the estimated costs of $200 per reader add up to a lot for major retailers. If each of Sears Holdings'
Including this functionality will make the phones cost more, too. And consumers will have to prove willing to adopt the new technology. Some may worry that stolen phones could pay for a thief's purchases, though perhaps the system will feature PINs or other security measures. In addition, stores may not want to install readers until they're sure they'll be used, while consumers may not sign up for enabled phones until they're sure they can use them in many places.
Big in Japan
Then again, this method of payment has already caught on in tech-savvy Japan. Retailers may not love paying to install readers, but they really hate paying swipe fees (also known as interchange fees) for credit/debit transactions.
In 2005, supermarket chain Kroger
Paying by smartphone could get a lot more tantalizing for shoppers if retailers promise to pass on the card-fee savings in the form of lower prices. That sounds like a win-win situation -- unless, of course, you're a credit card company.
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Longtime Fool contributor Selena Maranjian owns shares of American Express. American Express and Discover Financial Services are Motley Fool Inside Value choices. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.