Imagine you enter your favorite coffee shop. You approach the barista, utter a few words of acknowledgment, and then exit minutes later holding a perfectly blended drink tailored to your specifications. What is so unique about this exchange, versus any other? With a single scan of your phone’s display, you ordered your beverage, received a reduced rate with an automatically redeemed coupon, paid the difference using your preferred credit card or bank account and, to top it all off, effortlessly gained rewards points to your account. Signing? Waiting? Cash? How passé.
This scenario illustrates the essence of the idealized future of mobile wallet payments, and, it is not a far cry from our current situation. Yet, the past and current development of mobile payment technology remains a messy undertaking, and its future is anything but certain.
Take Google Wallet for example; what could have been a breakthrough in consumer behavior ended up an ambitious experiment gone awry. Back in 2011, the media hailed Google’s mobile payment system—one that syncs mobile devices with users’ debit, credit, loyalty, and gift cards— as being “the future” and “tomorrow’s billfold.” Fast forward to 2015, and many merchants and carriers still do not support near-field communication (NFC) the technology that allows smartphones and other devices to establish radio connection at close proximity. Without this technology, mobile payment applications are not supported; and, in turn, there is little potential for traction among consumers.
But with the boundless potential of the mobile wallet industry waiting to be tapped, several other companies have rushed to the scene. Just months ago, Apple unveiled its latest innovation, the digital wallet system “Apple Pay.” Now, with a broad network of top banks and credit card companies, a zealous fan base, and over 220,000 NFC supportive merchants on its side, Apple Pay’s prospects look promising.
But even a tech giant so formidable as Apple faces challenges in making the technology widely accessible. For one, it has competition; Walmart, Target, CVS, and a host of other retail giants have attempted to block NFC-based technology in favor of “CurrentC,” a mobile payment platform that bypasses credit card fees. However, the biggest challenge lies within consumer behavior: is using your phone really any more convenient than swiping a credit card?
For Tufts University professor of economics David Dapice, it may not be. “Why fix it if it isn’t broken?” he says. “For the future, I suspect we will get better credit/debit cards that are harder to hack, and some version of Apple Pay (maybe not from Apple) will make inroads but not sweep away the existing alternatives.” Thus, a radical overhaul of physical cards remains questionable.
But mobile wallets constitute just one half of the story; over the past few years, the true star of this generation’s payment trends has been peer-to-peer, or P2P, payments. Sound technical? If you have ever used the app “Venmo,” then you are already familiar with P2P technology. Whereas digital wallets offer an alternative to traditional cash/credit card payments, apps like Venmo solve an actual problem . What do you do when you need to split a cab fare or pay a friend back for Thai food, but lack the exact physical change? For this generation, one simply need utter a nonchalant “Just Venmo me,” and in seconds funds can be electronically transferred. Hence, with its own artificially derived verb (i.e. “to Venmo”), Venmo steals the spotlight with $2.4 billion in transactions in 2014, beating out Square Cash, Dwolla, and of course “Snapcash,” the attempt of Snapchat to venture outside its niche into the unfamiliar territory of P2P payments.
So why then has Venmo struck such success while Google Wallet lags behind? The answer lies within consumer psychology. Venmo is not only incredibly easy to use (all one needs to register is a bank account and email), but also caters to its younger target demographic by integrating intuitively familiar aspects of social media like a “newsfeed.” While both a physical check and a Venmo transaction require a designation, there is something so much more gratifying about writing a witty designation laced with meticulously-selected emojis on Venmo than filling out a “Pay to the Order of” section on a check. It is increasingly evident that consumers are moving closer and closer to a society in which old school payments like checks and cash become increasingly irrelevant.
If you think that the idea of a society devoid of any tangible currency sounds vaguely unsettling, you have reason; every dime to your name would be relegated to a number on a screen. Luckily, this shift would not occur overnight. According to MasterCard Advisors, “…even in the most cashless countries on Earth, like France and the Netherlands, cash still accounts for 40 percent or more of all consumer transactions.” Because of the potential benefits associated with going cashless, however, some international governments are pushing this trend.
Such benefits to eradicating paper currency are varied. Among the most interesting are reduced criminal activity and drug trafficking, greater financial inclusion to disadvantaged individuals, and economic expansion due to an increase in individual-to-individual transactions with P2P technology.
Yet it is impossible to ignore potential negatives to the technology. Putting all of your credit card and bank information in one place is risky, with the potential for hacks lingering as a constantly ominous threat. The truth is, however, that Apple at least will have little difficulty convincing consumers to relinquish their information, especially considering that the company already has millions of credit card numbers in the iTunes database.
The use of P2P technology is not limited to the most technologically-advanced nations; developing countries are the ones rapidly updating infrastructure to shortcut their way towards a cashless society. According to a study done by multinational corporation Capgemini and the Royal Bank of Scotland, it is not the US or any first world country paving the way in mobile payments, but Kenya—with $24 billion, over half its GDP, in transactions executed via cellphones in 2013.
This trend owes itself largely to the ubiquity of cheap phones. For many in developing countries, traditional bank accounts are secondary in usage to mobile accounts. Business magnate Bill Gates predicts that “By 2030, two billion people who don’t have a bank account today will be storing money and making payment with their phones.”
At the same time, these are the very people who could be exploited most severely as they lose control of their tangible finances. In fact, this has already happened. In the aftermath of the Cypriot government looting a multitude of citizens of their savings in 2013, analyst Lars Seier Christensen writes, “If you can confiscate 10 percent of a bank customer’s money, you can confiscate… 100 percent.” Consequently, serious concerns remain over the security of accounts, as it may allow corrupted governments to more easily access people’s finances. Unfortunately, however, if one does not conform to the newest standards and surrender his/her identity, s/he may face disadvantages or inconveniences in choosing not to participate in the newest trend.
As both enthralling and dangerous as the future may seem, the fact remains that a cashless society is an imminent possibility dangling above our heads. Choose to use Venmo with friends if you will, but take caution. For years we, as Americans, have produced cutting edge technology to make the world a more efficient place—whether it makes it a better one is only for time to tell.