Mom-and-Pop to Try Cellphone Payment

Chevy Chase Grocery Among First In Area to Take Up New Technology

At a local neighborhood grocery store, customers may soon be able to pay for their purchases with a quick wave of their cellphone, doing away with the need for wallets, loyalty cards and even cashiers.

Family-owned Chevy Chase Supermarket is one of the first businesses in the Washington area to begin putting in place a pay-by-cellphone system. Using radio frequency identification (RFID) chips, customers will be able to store credit card and bank account numbers in their cellphones and charge their bill by swiping the phone across a sensor in the checkout line.

U.S. merchants and mobile device makers have been slow to catch on to the pay-by-cellphone concept, although the technology has been in use in Asia for over a year. Now a few U.S. fast food chains, gas stations and public transportation systems in scattered metropolitan areas are starting to experiment with payments that don't require cash or cards.

It's a big step for the 50-year-old mom-and-pop store that started using computers just two years ago. Kevin Kirsch, 39, who co-owns the store with his father and brother, is hoping to ease customers into using their phones as a shopping tool by first sending coupons, giveaways and store updates via text messages. He'll roll out the pay-by-cellphone system in about a year, "once people are more comfortable using their phones to do more than just talk," he said.

But it may take twice that long for handset makers to deliver devices equipped with the RFID chips and for retailers to install sensors that can read them. Less than 5 percent of the world's cellphones will be embedded with the chips by 2007, according to ABI Research. That number is expected to reach 30 percent by 2011. Only about 50,000 payment terminals currently accept this type of payment.

"We're a very landline-based culture here in the United States," said Mike Liard, who studies the payment market for ABI. "The credit card magnetic strip is very well-entrenched in the retail environment and there will have to be a lot of infrastructure changes before [cellphone payments] can become pervasive."

Retailers, credit card companies and cellphone makers are aggressively testing several forms of contactless payment. Like Chevy Chase Supermarket, several independent grocery stores, florists and coffeehouses in Dallas, Boston and Chicago are preparing to roll out pay-by-cellphone programs through MobileLime, a Boston-based company that helps businesses distribute mobile loyalty rewards and alerts to customers. ExxonMobil gas stations, McDonald's restaurants and public transportation turnstiles already let patrons pay by touching a device or card to a sensor, and American Express, MasterCard and Visa have been marketing credit cards that don't need to be swiped. Nokia, Samsung and Motorola are pilot-testing RFID chip-equipped cell phones in the United States and plan to release a few models early next year.

But adoption of these technologies has been sluggish. Wireless carriers and financial institutions are still debating the best ways to extract fees from the service, and it is unclear how banks will approve cellphone transactions. Americans are also wary of using their cellphones as a digital wad of cash and retailers are reluctant to replace their current payment systems.

As handset makers strengthen security measures and widely market RFID-enabled devices, carriers and retailers will work out the kinks in order to tap into the potential revenue rewards, said Dan Schatt, an analyst with Celent, a Boston research firm that studies the payments market. Wireless carriers have not yet made this option accessible, however.

"We're finding that the added convenience actually spurs sales and it can be a two-way communication medium," he said. "This is going to change the whole dynamic of the card industry."

In Chevy Chase, the Kirsch family is taking it one step at a time. So far, customers have responded favorably to the store's promotional text messages. Walter Kirsch, 64, who took over the store in 1963, has never sent a text message before and doesn't use a cellphone, but he said learning along with the customers will only strengthen the relationship with the neighborhood.

"We have to stay ahead of the curve of Giant and Safeway," said Kevin Kirsch. "This is our way of standing out, or we'll go by the wayside."