Boston’s First Trade Union Bank will soon become one of the few banks to offer its customers a mobile app for making purchases at brick-and-mortar retailers using their smartphones.
The community bank, which has two branches in Boston and two in New York, will launch the app early next year through a partnership with Scvngr Inc., a Boston start-up that operates the LevelUp mobile payments platform. The bank’s app will let customers use their iPhones or Android phones to pay at any of the 4,000 merchants nationwide that are on LevelUp’s network.
While Bank of America and Barclays are testing mobile wallet technologies in select regions, First Trade could be the first to market with a mobile payment app for all of its customers.
“We think we’re the first bank that’s going to take this to a broader level,” said Mike Butler, president of First Trade, who acknowledges his bank cannot compete with the likes of Bank of America when it comes to scale. However, he said, “We do feel like we can compete in the technology space.”
In many ways, banks are being nudged into offering mobile payment apps in hopes that upstarts outside the traditional financial industry, such as Square Inc. or PayPal, do not elbow them out of the payments loop. What’s more, consumers are already using mobile banking apps to scan checks for deposit, transfer funds, and pay bills.
Butler said that paying for items with the phone is the natural next step. First Trade’s new app will link up with a customer’s debit card, using a special code that appears on his or her smartphone screen. When making a purchase at a participating store, users will show the code, and the cashier will scan it to complete the sale.
The growth of mobile payment technology is being fueled by the rise of start-ups in this field such as Scvngr, San Francisco’s Square Inc., and Paydiant Inc., which is based in Wellesley and is working with Bank of America and Barclays. Last month, Starbucks Corp. began accepting mobile payments using Square at 7,000 locations.
But with banks such as First Trade and financial giant Bank of America beginning to adopt mobile wallet apps, the technology may begin gaining mass appeal, said Seth Priebatsch, Scvngr’s chief executive officer.
“It will help a lot of mainstream consumers get over some of the anxiety they feel about mobile payments,” he said. “It’s starting to feel to consumers like this is a very real thing.”
And it’s not just banks that are racing to develop the technology. Visa and MasterCard are testing similar products, as are wireless providers such as AT&T and Verizon Wireless. Computer giants Apple Inc., Google Inc., and PayPal have mobile payment products, too.
Merchant Warehouse, a Boston credit card processing company, is developing a system that would allow merchants to accept a variety of mobile payment apps at the point of sale, including LevelUp. It is expected to be available in January.
Even with upstarts LevelUp and First Trade jostling alongside Internet and financial services giants in the nascent mobile wallet marketplace, few consumers are using smartphones to buy stuff at physical stores. Only $150 billion in transactions have come from mobile devices this year, compared with $3.6 trillion processed through debit and credit cards, according the the Electronic Transactions Association, a Washington-based industry trade group for financial services companies.
Part of the reason that plastic remains king is that consumers still don’t have compelling reasons to pull out smartphones at the register.
“Swiping a card actually works,” said Chris Gardner, cofounder of Paydiant.
The real value in mobile payments isn’t the cool factor, he said, but having access to instant discounts, gift cards, and loyalty programs that can be delivered to consumers and used instantly via mobile wallet technologies.
And it’s safer, said Gardner, since payment apps hide consumers’ credit card information. “Mobile is dramatically more secure than the existing state of the art, which is a magnetic stripe.”