Pay With Your Phone- The New Banking

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With smart-phone applications now ranging from text messaging to marine navigation, people are using their phones for a wide variety of things thought impossible just years ago. "It's clear the American mobile phone subscriber is beginning to expect more from their phones ."

This comment came from Kay Nichols, executive vice president of FIS Channel Solutions. The group, which is part of payment processor Fidelity National Information Services Inc., shares a view with an increasing number of people who believe smart-phone capabilities are reshaping social and business norms.

One practice that is gaining popularity with mobile devices is now available through a variety of applications- mobile banking.

That's right - we're talking about making purchases with your phones. I remember when online banking was a new hit. Now the hype is surrounding mobile banking. And the industry is expected to grow extremely fast in coming years.

The chart below, taken from a report released by the Mobile Marketing Association, shows the upward trend in mobile banking projected over the next six years.

Charles Landry, executive vice president at Syniverse Technologies Inc., suggests that around 1,000 banks out of the 30,000 financial institutions in the U.S. offer mobile banking. He believes "...there is still a lot of room to grow" .

According to research firm Thomson Reuters, a majority of respondents in a recent survey said they're interested in using their phones to make in-store purchases just as they would with a credit card. There are currently 10 million mobile banking users in the U.S., and the practice could become increasingly popular due to its simplicity and convenience.

*** Bank of America Corp. ( BAC ) , the largest consumer bank in the U.S., has joined forces with payment processor giant Visa Inc. ( V ) to allow customers with smart-phones to make purchases in certain stores with mobile devices. Bank of America introduced mobile banking back in 2007 and now has over 5 million customers that contribute $15 billion in transactions. Most of these transactions are bill payments and account transfers.

These two companies are testing this payment method in the New York City area from September to the beginning of next year.

Visa and its technology vendors are expected to install small chips in stores and smart-phones over the next few weeks. These chips will emit a radio signal over a short distance. In order to make a purchase, customers will have to wave a phone over the chip. The chip will collect bank account data and allow the customer to complete the purchase.

This could be the future of shopping - and there are already a few companies within the industry that small cap investors could jump on for potential profits.

The first company is VeriFone Systems, Inc. ( PAY ) and it focuses on developing electronic payment solutions. VeriFone offers products that use near field communications ( NFC ) - a wireless communication technology that allows devices to exchange data over about a 4-inch distance. In this case, a signal would be transmitted from the smart-phone to the electronic device in the store. The convenience of these transactions will allow customers to move in and out of stores quickly and easily as they make purchases.

VeriFone Systems has a market cap of $1.93 billion and closed at $22.60 on Friday. Analysts expect earnings to increase 35 percent this year and 21 percent in 2011. The stock has been moving higher since early 2009, posting a return of 110 percent over the last year.

***As more people use smart-phones to make payments, listen to music, watch videos, or surf the web, companies are trying to accommodate the massive bandwidth demands of customers. Bandwidth refers to the data transfer rate on a specific network, and these tiny devices eat up large amounts of it.

I recently uncovered a tiny Israeli technology company that develops technology specifically designed to manage bandwidth use. The company's solutions are critical for Internet Service Providers (ISPs), cable companies, landline operators, mobile phone companies, businesses and governments.

I pulled the trigger and added this small cap stock to the Small Cap Investor PRO portfolio . The company just reported earnings a couple of weeks ago and I'm currently up modestly on the position.

In the first and second quarters of 2010, this tiny tech company reported greater than 30 percent revenue growth over the comparable quarters in 2009. It is profitable on a non-GAAP basis, and is sitting on $55 million in cash. This company is a play on the future growth of smart-phones, and the near certainty that service providers will segment bandwidth in order to design service plans tailored to customer behavior.

If you're interested in getting my full research report on this company, I encourage you to sign up for a trial subscription to Small Cap Investor PRO . The service is only $199 a year and I offer a 30-day money back guarantee. Click here to get started today.

***These are just a couple companies you should consider if you think the mobile-banking industry will grow in coming years. One is a direct play on mobile payments, and the other is a play on the increasing popularity of smart-phone applications in general. Either, or both, are great ways to gain exposure to a growing industry.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: BAC , NFC , PAY , V

Wyatt Investment Research

Wyatt Investment Research

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