e are living in a time that is defined by exciting, innovative and even pivotal new technologies that are having a sudden and dramatic impact on our daily lives. Among these is the continued evolution of the practice of sending information via something other than electrical wires or pieces of paper.

Counted in a long list of practical communications applications is the ability to make wireless, "person-to-person" (P2P), electronic payments - that is, payments made to stores, other persons, vending machines, toll booths and ticket counters, unencumbered by a clutter of machines and wires or pockets full of checkbooks, cash and plastic cards.

P2P is sometimes referred to as a short-range financial transaction or SRFT and is characterized by the buyer and seller both being physically proximate. SRFT does not deal with online payments (as in paying a Web merchant using a credit card or Internet check) but rather with wirelessly passing value and payment information between individuals and point-of-sale (POS) devices such as those listed above.

And, by the way, this also could include transmitting to an individual PC as if it were a traditional POS device (in effect, replacing the manual component of performing an online payment). In short, simplified payment is coming your way thanks to the magic of light and radio waves. As wild and science fiction-like as the scenarios discussed here may sound, the underlying ideas are not necessarily new.

Over thousands of years, and through several different methods, there always has been some form of wireless exchange of data. An early example is communication via unique patterns of drumbeats wafting over savannas and through triple-canopy jungles.

Later examples include using light beams for communications between sailing ships, sending voices through optical fibers and unlocking the music impressed on small plastic discs. More recently, using radio waves to open garage doors, send images to television sets and buy cans of soda from standalone vending machines have become common daily events.

What is notable in all of this is not that the technologies are new or that a payment application is particularly revolutionary. The great departure is that a community of interested individuals and companies is beginning to catch the public's eye through a project founded to create one worldwide standard upon which hardware and software manufactures can base universally applicable wireless payment solutions. This band of aspiring revolutionaries got its start in the context of the Infrared Data Association (IrDA).

A Wireless Payment Standard

IrDA's claim on history is its wildly successful program to define and promulgate a specification for sending and receiving messages using infrared light waves. Originally convened by large technology companies such as IBM and Hewlett-Packard, the IrDA has succeeded in influencing inclusion of infrared communications ability in laser printers, laptop computers, handheld computers, personal data assistants (PDAs) and mobile phones worldwide.

In all, the estimates are that more than 200 million computing and communications products are infrared capable. Especially important for the wireless payments case is that the major mobile phone and PDA manufacturers have become aggressive about equipping their devices with infrared transceivers as well as adding a payments feature to their product lines.

Against this backdrop of a widely accepted standard and alluring financial service application opportunities, the IrDA reviewed and accepted a white paper that became the foundation for its wireless payment standardization project. Thus was born the Infrared Financial Messaging (IrFM) Special Interest Group (SIG), otherwise known as the IrFM SIG.

One of the IrFM SIG's first moves was to define a charter and scope for the project, and in so doing it took a major step forward in laying the groundwork for making it universally possible to execute short-range financial transactions.

The essence of the IrFM protocol is that it is the definition of the form and sequence of messages exchanged between two transceivers in a payment transaction. IrFM SIG's objective is to create a standard for this interaction that meets at least three criteria:

First, the protocol must allow for any two transceivers to work together (i.e., for one of any variation of portable handheld personal devices to be able to talk to any of the large selection of POS terminals available now, or in the future).

Second, it must support a capacity for the parties to a transaction to agree on, and use, any available payment instrumentality that they may choose (i.e. electronic cash, debit card, credit card or even electronic coupons and loyalty points).

Finally, it must be fully compatible with existing payment infrastructures and still be sufficiently flexible to adapt and operate in those same structures as they evolve. Sounds simple, but remember that "portable handheld personal devices" covers a host of sins in hardware and operating system (O/S) designs. Likewise, POS terminals can mean literally hundreds of hardware and O/S combinations. Consider also the fact of transacting in a different currency each time a national border is crossed.

Had enough? No? Then, think about the 96, or more, national banking and regulatory systems within which a global standard must operate. The challenge is one of reconciling a jumble of hurdles ranging from matters of privacy and transaction integrity to software system interfaces. Nonetheless, an interesting fact in this effort is that while it seems to take on the whole world of payments, the truth is, it doesn't.

In fact, IrFM is concentrating on a small, but incredibly important, element of making a payment. To be precise, it deals with what happens in the airspace between a consumer's device and a merchant's terminal.

Think of it as the dialogue between yourself and a store clerk, which begins with a request for a certain amount of value (money) and ends with your handing it over - simple on its face but quite complex on closer inspection.

In fact, several things happen that are so familiar that they hardly get a moment's thought. It is also a question of the many alternatives and capabilities that must be handled in the flow of the buying and selling process. Bankers and lawyers think of this part of a commercial transaction in terms of "offer and acceptance" and "escrow."

Decisions and Responses

There are a handful of choices when it comes time to pay for the things you buy. It is a decision between cash, checks, credit cards, ATM cards (also known as debit cards), store credits, gift certificates or any of several other forms of alternative money (for example, buying airplane tickets with frequent flyer points).

A particular choice is often governed by one or more of a number of factors, including liquidity, the size of the payment, balances in loyalty program accounts and, especially, what you remembered to bring with you.

Regardless of your decision, however, one thing will be consistently true. You must always have, in your possession, the whole array of plastic cards, paper and even coins before you can choose from among the options.

Would life be better if all these things could be consolidated? Incorporated into a single payment tool, if you like. Would life be even better if you could use that one payment tool anywhere in the world you happened to be? How about if your payment record were created, tracked and stored as an automatic part of the act of making your payment? And, while we're at it, would you like fries with that?

Many think the answer to these questions is "definitely, yes." And the coin has two sides.

Related to the buyer's dilemma is that of the seller, or merchant, who is daily faced with the complexity of managing so many payment methods. In a nutshell, the merchant must be equipped with a virtual carload of equipment and software. This means installing cash registers for cash, checks and coins; a system of protections for accepting check-based payments; equipment connected to a variety of electronic networks to handle credit cards and debit cards; and, finally, systems to handle gift certificates and the like.

All in all, the merchant has major challenges in logistics, accounting systems, training and support, all to assure that no sale fails because of something "simple" like not having the capacity to accept a particular payment type.

Seen in another light, the merchant is doing only one important thing, and that is selling product. Is it not in the merchant's interest to be able to comfortably accept any of the many different ways of paying? If, in addition, this broader capacity comes at minimal cost - and possibly even lower cost - is the merchant better off? Again, many think the answer is "definitely, yes."

IrFM is tackling the tedium that buyer and seller must endure to reach that special moment known to most of us as: "It's bought and paid for!" IrFM's success will mean simplicity, speed and universality - well worth the time and effort.

In the next installment, we'll take a closer look at the IrFM SIG team structure, methodology and work product.

Editor's note: This is the first of a series of articles that will review the concept, creation, evolution and potential future of a project to standardize an important component of payment initiation systems. What you will be able to take away from this first part of the story is an understanding of a wireless payment protocol's place in the global scheme of things relating to paying for goods and services.