I have to confess that I tend to find banking somewhat boring ? at least compared with the subject of the transformational technologies that I normally write about. From my perspective, banking stocks lack the exciting potential of biotech companies working on a cure for cancer or semiconductor plays pushing the technological envelope.
And we must admit, the banking system we are saddled with today is a root cause of much of the economic panic roiling the markets?
On the other hand, a new technology that promises to transform banking?s consumer end is something I can get excited about. Mobile banking and payment plays have been on our radar for quite some time, and I?ve been looking at the emerging field in order to identify actionable opportunities. We?ve even had the chance to converse with a radio frequency engineer who reads this newsletter and who had very helpful insights to share.
I?ve been watching one mobile payments player in particular for nearly a year. At this year?s Consumer Electronics Show, Patrick Cox and I had the chance to interview company representatives in the field at length. I think that the time to invest in mobile payment technology has finally arrived. First, however, I?d like talk about what?s happening in the space.
Paying From Your Phone
Previously, mobile phones have helped us satisfy our need to communicate. Now, however, they are beginning to satisfy the need to engage in commerce by providing a convenient means of exchange. Smartphones are becoming a tool to accomplish what has previously required the use of cash, checks or credit cards.
As their name implies, however, smartphones aren?t dumb like these legacy payment options. Unlike a piece of plastic with a magnetic stripe, a payment system based on an intelligent, networked device has the advantage of providing real-time feedback on account and payment information. Combine these advantages with the fact that most of us are carrying a mobile device anyway, and a virtual wallet could eventually make credit cards as uncommon for retail transactions as personal checks are today.
Despite the obvious advantages, mobile wallets have seen slow adoption in the United States compared with elsewhere. Other places that lack the banking system the U.S. enjoys, but have cell phone coverage, have led the way in using mobile payment technology. In locations in Africa, Asia and Latin America, money is often stored in a mobile account and transferred to another one during a purchase by bringing the buyer?s and seller?s cell phones into close proximity. This is done by means of a short-range wireless connection called near field communications (NFC). Just as elsewhere, NFC will lead the mobile-transaction revolution in the U.S.
NFC is a set of radio communication standards that allow devices to communicate with each other over short distances. It is also very fast at establishing a network connection, taking only a fraction of a second. If you?ve ever used a contactless payment system before, such as the kind that you can attach to your key ring and use at a gas station, you?ve used an early form of NFC.
These objects use radio frequency identification (RFID) chips that transmit a unique, secure identification code that performs the same function as the magnetic stripe on a credit card. Unlike NFC on a mobile device, however, these systems allow only one-way communication. As such, these aren?t much more than easier-to-use credit cards.
With major payment processing companies finally signing onto the mobile payments game, the U.S. is entering an inflection point for NFC technology. Much of the infrastructure has already been built?
In the 2000s, for example, Visa and MasterCard developed payWave and PayPass, respectively, both contactless payment technologies. More recently, Visa, MasterCard, Discover and American Express have licensed these systems to Google for use in smartphones with its mobile payment system, Google Wallet.
Along with the software and systems sides of the mobile payment equation, we are seeing increasing numbers of smartphone models equipped with NFC technology. 2011 was the biggest year on record for NFC adoption, with 35 million new smartphones equipped with the technology, according to IMS Research.
With this kind of growth and industry support, NFC technology is set to revolutionize the way we pay in a manner very similar to what the credit card industry accomplished in the second half of the 20th century.
Innovators pioneering the transformation with a strong market position should do very well for themselves and their investors.
Ad lucrum per scientia (toward wealth through science),
Ray Blanco
for The Penny Sleuth
Ray Blanco
While other eighth graders were out playing soccer, Ray Blanco was in his basement learning how to build what?s called a ?Wilson Cloud Chamber? ? a supercooled device for detecting particles of ionizing radiation. Now, he is an expert in advanced robotics, avionics, genomics, and biotechnology. Blanco was raised in Miami, FL, after his family fled Cuba in the 1960s. He is co-editor of Technology Profits Confidential and contributes to Breakthrough Technology Alert.
Source: http://pennysleuth.com/how-to-turn-boring-banking-technology-into-riches/
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