Will The U.S. Embrace Cell-Phone-As-Wallet?Will The U.S. Embrace Cell-Phone-As-Wallet?

In 18 months, consumers might not need their wallets to pay for movie tickets or gas at the pump. They'll be able to use their cell phones instead--a concept that is already gaining popularity in Europe and Asia.

While today cell phones are mostly used as communication tools in the U.S., in the future they will be used as payment tools in places where there are transaction terminals, says Johan Valentine, general manager of the Americas for SmartTrust, a global mobile device management company. Smart phones and PDAs are expected to lead the way, with feature phones following thereafter. The cell-phone-as-wallet application is likely to be driven by feature-rich mobile devices in the hands of young people, Valentine says.

In South Korea, E-commerce features already let consumers pay for things using their cell phones. Many of the phones have been integrated with banking systems so people already are buying groceries and soft drinks from vending machines with them.

Japanese consumers also use "wallet phones" with contactless FeliCa cards from NTT DoCoMo, Japan's leading mobile communications company. Wallet phones are not just used as credit cards—they can contain entrance tickets, metro tickets, loyalty cards, air tickets, and employee ID cards, according to SmartTrust's recently published "Mobile Trends" guide.

The technology will likely make its debut in the U.S. in the next six to 18 months, says Osmo Hautanen, CEO of Magnolia Broadband Inc., a chip developer that puts "smart" antennas into cell phones sold by top service providers in Asia.

In fact, earlier this month Motorola unveiled its M-Wallet product, which will let people make purchases using their cell phones. Additionally, the technology will allow merchants to issue virtual loyalty or gift cards to customers' phones. Motorola says the M-Wallet will work with almost any device or cellular network.

That means cell phones will become much more valuable not only because they'll come with more capabilities, but also because they will contain sensitive information like payment mechanisms. "People will value and guard their phones the way they guard their wallets," says Valentine. So, losing a phone in a taxi will a much bigger deal than it is today.

Therefore, securing mobile devices will become even more crucial, such as making sure that devices have the proper virus software. The market is already gearing up to prepare for the changes to come. For example, this week McAfee started selling a security platform for mobile devices, packaging antivirus, firewall, content filtering, anti-spam, and anti-spyware software.

But before wallet phones become widespread in the U.S., there are technical barriers that cellular carriers have to work through. For one, they have to get good at mobile device management, which includes automatically updating applications throughout their lifecycle. And once third-generation cellular networks are widely deployed in the U.S., carriers will have a common communication layer that will allow them to deploy services like wallet phones.