New innovations in mobile banking are making it possible to transfer the entire payment experience from the plastic credit card to your mobile device. New upstarts with funny names that sound nothing like typical financial names – like Dwolla, Venmo and Square – are going far beyond just enabling you to use your mobile devices to check balances on-the-go: they are transforming mobile devices into payment mechanisms at point-of-sale destinations around the nation. New geo-fencing technology is making it possible for apps loaded on your smart phone to “communicate” with the payment systems of retail stores, eliminating the need to stand in line to make a purchase or even to interact with a sales clerk. So at what point will mobile devices end up killing off the $2 trillion credit card industry entirely?
When WIRED previewed The Future of Money nearly two years ago, it was clear that financial start-ups were already chipping away at the hegemony of the big credit card players, who essentially collect a “tax” of as much as 3.5% on every single transaction that passes through their payment networks. (Ever wonder why some stores prefer that you pay cash?) By making the payment process as fast, flexible and frictionless as possible, these financial upstarts can reduce the fees charged to merchants. Maybe not as low as zero, but significantly lower than 3.5%. By finding ways to embed payment information within the mobile device itself instead of on plastic cards, they can bypass traditional payment networks entirely. This may be a rough analogy, but it’s equivalent to the difference between using Skype to make phone calls over the Internet or using a traditional phone provider and their legacy network to make that same call.
We’ve already seen the first glimpses of the future of mobile banking, most notably the much-hyped launch of Google Wallet earlier this year. Google Wallet is the next step in weaning customers away from credit cards and teaching them new behaviors – such as storing all their payment card information and loyalty card information in one place — on their mobile phone. Instead of deciding which credit card you are paying with at a store, you simply pay with Google Wallet. When you get to the checkout counter of a merchant that accepts Google Wallet, you’ll now see the Google logo next to the logos of other payment providers.
One startup that is scaring the big credit card companies right now is Square, launched by Twitter co-founder Jack Dorsey. Square enables anyone – not just an official credit card merchant – to accept credit card payments with a mobile device in exchange for a 2.75% transaction fee (perhaps not optimal, but still lower than the standard 3.5% rate). The latest innovation from Square is CardCase, which enables you to walk into a retail location and pay by saying your name aloud. Yep, that’s right, thanks to the magic of geo-fencing technology, an app that’s loaded on your smart phone already knows where you are and auto-fills all the payment information for you on the fly, eliminating the need to pull a credit card out of your wallet at all.
The digital wallet has always been the Holy Grail for mobile tech innovators – and it’s not surprising that the major credit card players are running scared. After all, moving the payment experience to the mobile device is one of those “disruptive” moments that can shake up an entire industry overnight. What happens, for example, if Apple decides to make it possible to make payments on the iPhone 5 using next generation NFC technology in 2012? It’s one thing to compete with other legacy payment providers, but what happens when you’re suddenly competing with the Googles and the Apples of the world?
Walking around a city like New York, it’s easy to see the potential of a world without credit cards. Hop into a Duane Reade pharmacy, and the Google Wallet logo shows up as a potential payment option. Pick up a coffee at your local hipster coffeehouse, and the cash register has been replaced by a Square payment device. Go out for drinks with friends and somebody mentions using a new payment app to share money with other people in your social network.
Nearly every day brings examples of how startups are creating “magical” experiences around payments that don’t involve taking a piece of plastic out of your wallet. We already live in a cashless society where nobody carries around cash in their wallet. The natural evolution is toward a cardless society as well, where nobody carries around wallets anymore — all the payment information is stored, safe and sound, on your mobile device.
Image: Young Woman With Credit Card and Cellphone / Shutterstock