Editorial Policy

Google’s Android Phone to Take Credit Cards

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By Eva Norlyk Smith, Ph.D.
December 3, 2010

The battle of the smart phones versus credit cards just took another turn with Google’s recent revelation that their soon-to-be-released Android 2.3 phone—with the code name “Gingerbread”—will enable users to pay with their smart phone during checkout.

The iPhone 5, expected to be released early next year, is rumored to also contain the NFC technology for credit card payments, but Google’s Gingerbread may beat the iPhone to the punch—the Google Android 2.3 phone is predicted to be released within just a few weeks.

According to Google CEO Eric Schmidt, who made the announcement at the recent Web 2.0 Summit in San Francisco, Google’s much anticipated bid to move into the smart phone market will feature a near-field communication (NFC) chip, which allows users to ‘wave-and-pay’ with their phone at cash registers, instead of swiping their credit cards. A specialized memory card is inserted into the phone and can be linked to the user’s bank accounts and utilized in mobile payments. Using the technology, Google Android users can also “check in” at venues using additional sensors, and the phone will track their shopping preferences.

Schmidt also predicted that in the future, smart phones will be playing an increasing role in e-commerce, based on the phone’s ability to tune in to you and your environment 24/7.

“Imagine I’m walking down the street and, instead of typing my search, my phone is giving me information all the time; it knows your store preferences,” Schmidt said at the Web 2.0 Summit. “It is likely to drive a very, very large mobile e-commerce business.”

Indeed, Schmidt anticipates that the technology will launch a slew of mobile payment start-ups, and could even render credit cards irrelevant: “This could replace your credit card,” he said. “The reason this NFC chip is so interesting is because the credit card industry thinks the loss rate is going to be much better. [N.F.C. chips are] just more secure.”

It may sound counter-intuitive that wireless transmission of card data would be less vulnerable to credit card fraud, but most experts agree. The NFC chip is similar to RFID chips used in some credit cards and in electronic toll collection devices like EZ Pass to make automatic, wireless data transfers. Unlike the RFID technology, however, the NFC device’s range is very short (only a couple of inches), making it much more difficult for someone with an illegal “skimmer” to catch the data in transit. In addition, for NFC transmissions, both the person and the phone must be present in order to complete a transaction.

Schmidt predicts that NFC-enabled mobile devices and apps will be game changers: “I don’t think people understood how much more powerful these devices were going to be than desktop computers,” he said. “There are probably very interesting digital goods and commerce types of businesses that could be built on top of the platforms we’re discussing.”