No Cash, Card? No Problem

Kyle Paoletta used a smartphone to read customer Rebecca Heyl’s credit card at a Bon Me Foods truck at Dewey Square Wednesday. (Barry Chin/Globe Staff)

By Michael B. Farrell |

Kyle Paoletta used a smartphone to read customer Rebecca Heyl’s credit card at a Bon Me Foods truck at Dewey Square Wednesday. (Barry Chin/Globe Staff)

Paying by smartphone is an emerging trend

Is your wallet the next relic of the digital age? Why pay with cash or plastic when you can use a smartphone?

That is what Ainsley Onstott did on a recent afternoon in Cambridge’s Kendall Square. She simply showed her iPhone to pay for a sandwich at Sebastians Cafe. “They scan it, and I get my receipt e-mailed to me,’’ said Onstott, 26, a special events manager at the American Heart Association.

With about 35 percent of Americans carrying smartphones, the mobile commerce market is spreading fast. Anyone with an iPhone, Android, or BlackBerry can download an app for making purchases. And merchants can plug in credit card readers for on-the-spot sales.

The trend is just emerging, but Boston technology start-ups, banks, credit card companies, telecommunication firms, and retailers are making big investments to make it easier for people to pay by phone. Earlier this week, Apple Inc. became the latest firm to make that happen when it introduced EasyPay, an app that enables Apple Store customers to buy products with an iPhone by using its camera as a bar code scanner.

Mobile payments are just a sliver of retail sales. They accounted for $3 billion in sales in 2010, or 1 percent of e-commerce transactions, but they are expected to double this year and reach $31 billion by 2016, according to Forrester Research of Cambridge.

Onstott, the Sebastians Cafe customer, used an app from LevelUp, a service launched in March by Cambridge social media gaming start-up SCVNGR. Its app gives smartphone users individualized Quick Response codes for merchants to scan.

So far, LevelUp can be used at more than 180 places in the Boston area, from coffee shops to upscale restaurants. At Sebastians in Kendall Square, about 5 percent of customers use LevelUp, or about 600 customers a month.

“We are in a digital world right now that will change the way a lot of transactions take place,’’ said Will Graylin, founder of ROAM Data Inc., a Boston start-up that makes encrypted credit card readers that attach to smartphones or tablets and software that supports mobile commerce. “We are getting to a point that you no longer need plastic. Now, because you are carrying around a very sophisticated computer, you can do without it.’’

ROAM Data’s mobile card readers have been used by the Girl Scouts of Eastern Massachusetts to sell cookies. “I have never seen the pace of acceleration as fast as I’m seeing it right now,’’ said Graylin, whose company launched in 2005 and has grown to more than 50 employees.

AisleBuyer is another Boston start-up in the mobile commerce market. Its software lets customers make in-store purchases with a smartphone. Last Monday, the company announced a partnership with Big Y, the Massachusetts grocery chain, to let the store’s customers get product information and coupons on their Androids and iPhones while shopping. Some Stop & Shop customers have been able to speed up checkout by paying with smartphones using the grocery chain’s SCAN IT! app.

Square's founder Jack Dorsey

For smaller merchants, mobile commerce can make it easier to accept credit cards. When Patrick Lynch, a co-owner of Boston’s Bon Me Foods, needed a way to take plastic at his food truck, he signed up for Square, a San Francisco company that gives customers free card readers and charges merchants 2.75 percent per swipe. Square, launched by Twitter cofounder Jack Dorsey, processes the transaction and deposits the money into the merchant’s bank account.

The list of big names in mobile commerce is growing. Google Inc., Inc., and eBay Inc. are invested. MasterCard, Visa, and Citi also have mobile payment platforms.

Google partnered with MasterCard and Citi to launch its e-wallet in September for Android phones. The app uses a short-range wireless technology called near field communication, or NFC, to let users pay with MasterCard’s PayPass system.

There’s a gee-whiz element that is attracting early adopters. But for mobile payments to gain traction, consumers will need more incentives to use smartphones instead of plastic, say analysts. “Once you get over the cool factor, it really doesn’t do much for you. They have to make mobile payments work for the consumers,’’ said Aaron McPherson, an analyst at International Data Corp., a research firm in Framingham.

LevelUp gives built-in discounts and coupons to its users. “I don’t think it’s any faster than paying with cash. I think it’s the reward system people like,’’ said Mike Follen of Area Four, a Cambridge coffee shop and restaurant that accepts LevelUp.

Seth Priebatsch, SCVNGR founder, admits there is a “geek value proposition’’ to paying with smartphones. But, he said, what should interest consumers is security.

“Thirty-five percent of fraud happens because your credit card is taken from you at restaurants,’’ he said. LevelUp, said Priebatsch, doesn’t access card numbers. Its system acts as a digital conduit between the merchant, customer, and the customer’s bank.

But for mobile commerce to take off, say analysts, consumers and merchants have to trust that it is safe.

“It took 10 years for consumers to get accustomed to buying products on their PC,’’ said Sucharita Mulpuru, an analyst at Forrester, in an e-mail. “I don’t think it will be so long with mobile devices, but I would suspect that security will continue to be a concern for at least the next three years.’’