Your Smartphone as Your Wallet: 3 Companies That Will Cash In

It goes without saying that smartphones are here to stay.

A whopping 491 million smartphones shipped in 2011, according to market research firm IDC, and 2012 is shaping up to be a similarly strong year, with 145 million smartphones shipped in the first quarter alone.

It's no surprise that in the 10 years since smartphones first hit shelves -- and 5 years since Apple's (AAPL) iPhone appeared -- nearly 50% of U.S. mobile-phone users already own a smartphone, according to Neilsen.

And it's unlikely that the growth will halt.

But now, another epic shift is occurring -- one that could not only affect your mobile habits, but also have you tossing your wallet away. It's also one many believe has the potential to make investors a fortune -- so long as they're looking in the right places.

Paying With Your Phone

Tech insiders are scrambling to make smartphone technology render wallets obsolete. A recent Fortune magazine cover story predicts this may ultimately result in "the death of cash" -- a bold prediction, sure. But mobile-payment upstart Square already processes $6 billion worth of transactions a year. Online-payment giants like eBay's (EBAY) Paypal and Google's (GOOG) Wallet are also seeing impressive growth.

Credit card companies Visa (V), MasterCard (MA), and American Express (AXP) are quickly trying to prevent their own obsolescence in the wake of an emerging technology.

Meanwhile, there's also the emerging field of near-field communications technology, which enables you to pay by merely touching your phone to a compatible register.

Confused yet? You should be. Because with so many competing technologies vying to be the next payment standard, the future isn't all that clear.

It Starts With Changing Ingrained Behavior

Part of the problem is that it takes a lot to convince people to change.

Credit cards saw strong growth in America in the mid-20th century, but it wasn't until rewards became commonplace that plastic became a preferred paying mode.

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So the difficult questions that arise along with these technologies are: Do they really make life significantly easier? And, since humans are creatures motivated by incentives, are the rewards great enough to convince them to change?

The answer to both is no.

Carrying a just a phone instead of a phone and a wallet doesn't improve someone's quality of life all that much -- nor are there significant rewards attached to paying with your phone.

Of course, this isn't to say that the possibility isn't there. Once driver's license information is stored on smartphones and your homes or cars can be unlocked with a swipe of the phone, the perks of only carrying a phone will be clear.

And when your cellphone receives targeted deals based on your spending habits or local sales -- available only if you pay with your smartphone -- individuals will begin to consider the swap.

Mainstream? Maybe

Although the benefits of the technology are unclear, that doesn't mean there's no opportunity for investors. And I'm confident the companies that will benefit from the eventual go-to mobile-payment technology will be eBay, through Paypal, Amazon (AMZN), thanks to its Payment platform, and Apple, via its iTunes Store.

Why these three companies? Because they've already developed a level of trust with consumers.

According to numbers IDC released earlier this month, a surprising 33% of U.S. residents are already using some form of mobile payment. An impressive 56% of those who have used it made a payment through PayPal. Following not far behind were Amazon Payments and Apple's iTunes Store, which both clocked in at about 40%.

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Your Smartphone as Your Wallet: 3 Companies That Will Cash In

Expect to see these gain popularity over the next 12 to 18 months. Augmented-reality apps offer consumers rich content -- be it on an item's features and benefits, or information that compares and contrasts various products to help shoppers make better on-the-spot, informed shopping decisions.

So in theory, a supermarket shopper with health issues debating between several cereal brands could tap an augmented-reality app to pull up product information and "compare this product versus three others," Fry says.

And AR apps will likely move beyond the supermarket aisle: There are whispers that Walmart (WMT) and Best Buy (BBY) will soon be launching augmented-reality apps.

These apps are one way retailers are fighting showrooming, when shoppers use brick-and-mortar stores as showrooms to check out potential purchases, only to buy later from online merchants at a lower price, Fry says.

"Information is value. Consumers aren't just buying on the basis of the lowest-possible price, he says. "Augmented reality apps will allow [retailers] to make a showroom that Amazon [for example,] will have difficulty duplicating."

Fry says augmented reality-apps offer a more sophisticated evolution what retailers have been attempting with QR codes, the black-and-white matrix bar codes that have been popping up on everything from product displays to store windows.

Lusting after a cool blouse or a sleek flatscreen TV but can't justify paying the steep price? Well, just as sites like alert travelers when airfares drop, clothing store Bebe (BEBE) and Best Buy now offer apps that will alert shoppers when an item goes on sale.

"Essentially, by using the retailer's app, a user can mark an item as a favorite and choose to be alerted when the product goes on sale, or reaches a price point specified by the user," Scott Gamble, vice president of digital solutions for AllianceData, which issues retail credit cards for stores like J. Crew and Pottery Barn, tells DailyFinance. "Specialty, electronic, and hard goods retailers would be most likely to implement this type of tool moving forward."

Alliance Data is now developing a "virtual gifting" mobile tool that it plans to launch as a pilot program later this year.

"The general idea behind this capability is that it would allow a cardholder of one [retail store] brand to send a virtual 'gift card' via a mobile device to another cardholder of the same brand," Gamble says. "The gift could be redeemed in-store via the recipient cardholder's mobile device. Women's specialty retailers will likely be among the first to launch this sort of tool."

While the jury is still out on how tablet computers will ultimately figure into the shopping experience, retailers are already starting to capitalize on tablets' advantage over smartphones, most notably, their larger screen size.

Retailers are now leveraging tablets to help consumers do more than simply make purchases; the goal now is to help people solve more complex shopping problems like how to redecorate a room or piece together a wardrobe. The right tool for those project-sized tasks: Magalogs, hybrid magazine/catalog mobile sites that offer how-to advice and rich content, Fry says. "It's about providing better context to make it easier for shoppers to purchase from these retailers," he says. The consumers can conceivably use retailers' mobile magalogs to walk them through a project in a store. They'll use their tablets to "give me ideas and tell me how to execute a project," Fry says.

Cosmetics chain Sephora, for one, announced this week the test roll out of iPads to 20 stores, where they will give shoppers another way to navigate the retailer's thousands of products and interact with the menu of services offered by its Beauty Studio.

Sephora just updated its online and mobile sites. Now, each product on is tagged and indexed with 25 different characteristics, from data like target age group, to specific ingredients, formulations, fragrance, price and more, in a bid to offer shoppers a targeted, personalized shopping experience.

Some women's apparel chains are strategically placing QR codes in their stores -- in fitting rooms, for example -- so that shoppers can sign up for store credit cards on the spot, assuming that the shopper has both a camera and a QR-code reader on their smartphone.

A shopper can scan the QR code, which connects them to the retailer's mobile-optimized website, where they're asked a few questions to apply for the store card, Gamble says. If qualified, "they would receive approval within a minute or less."

"The QR code makes the application process very quick and convenient for the customer and, upon approval, almost immediately specifies their buying power -- their credit limit -- so they can immediately take advantage of the benefits of instant discounts and rewards that typically come with the initial card purchase," he says.

Obviously, an early lead is a good thing. But the most positive takeaway of this data is that these three mobile-payment processors (regardless of how they're being used) have already garnished a significant amount of trust.

So whether you seek to profit from "the death of cash" (if it ever comes) or to invest in these exciting technologies as they emerge, these are the three companies you should be looking at.

This article was written by Motley Fool analyst Adam J. Wiederman, who owns no positions in the companies mentioned above. The Motley Fool owns shares of Apple, Google, Mastercard, and, and has created a bear call spread position in American Express. Motley Fool newsletter services have recommended buying shares of Apple, Visa,, Google, and eBay, as well as creating a bull call spread position in Apple and writing a covered strangle position in American Express.

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