Coming soon: the cellphone wallet

Cellphones may never replace ATMs if you want to hold hard currency in your hands, but for other purposes they are rapidly becoming multi-function electronic wallets — even an alternative to the traditional bank account, and to the plastic debit and credit cards so ubiquitous today.

More than 170 million Americans own cellphones, including millions of unbanked persons. Soon they may be using their phones to store funds, order merchandise, and pay their bills.

It is already happening in Japan, where there are 81.5 million cellphones in a nation of 127 million people. A new generation of phones that went on sale in Japan this summer carry an embedded computer chip that can be loaded with electronic cash, up to a 50,000 yen ($450) limit. (For now, the only way to load them is at special machines that accept both the phone and cash currency, but eventually preloading by electronic transfer will be feasible.)

Once loaded, the phone can be used like a debit card in stores, theaters, restaurants, vending machines, and commuter trains. Your purchase appears on a special display, you wave the phone in front of a scanner, and the amount of the purchase is deducted from the embedded chip. You can also use the phone to pay bills — and for myriad unrelated purposes, from downloading music to filming short videos. (Yes, you can even use it to make phone calls.)

Cellphone technology is more advanced in Japan than in most of the world, thanks in part to adoption of a standardized cellular language that facilitates high-speed Internet communication. But other countries are moving ahead with developments that are creating new opportunities for unbanked persons.

For example, the largest cellphone company in the Philippines recently launched a phone-based remittance service that allows Filipinos working abroad to send money home more quickly and at a lower cost than through money-transfer companies. The potential market is huge: 8 million Filipinos working abroad sent $7.6 billion home last year, and about 30 percent of the country’s 84 million people use cellphones.

The worker abroad goes to any of the phone company’s remittance partners in 17 countries, pays to preload the phone, and sends a text message to the recipient in the Philippines, advising of the transfer, which is instantly credited to the recipient’s account with the phone company and to a “smart” debit card that enables withdrawal of the money at ATMs around the country, using a PIN to guard against fraud.

And in some traditionally cash-dependent (and robbery-plagued) African cities, a new system called Celpay — which advertises that “your phone is your wallet!” — enables consumers with specially equipped cellphones to put money into their accounts either via a transfer from a bank account or, if unbanked, by depositing cash at a partner bank. Using the phone, the consumer enters the amount to be paid to a merchant, also inputting an invoice number if applicable, and authenticates the transaction with a PIN. Celpay instantly transfers the money to the merchant’s Celpay-enabled account, sweeping the funds to the merchant’s main bank account if so instructed. Both payer and payee receive a confirmation of the transaction, with full details available online.

The cellphone as electronic wallet appears to be an idea whose time has come, although technical, security, and regulatory concerns may slow its adoption in the United States. Even in Japan, where a lost phone can be ‘locked’ by the wireless carrier to prevent unauthorized access to the cash-dispensing chip, consumers are advised not to put more money into their phones than they can afford to lose — just like cash in an old-fashioned leather wallet.