To borrow from a long-running campaign from a credit card company, “What’s in your wallet?” Most of us are toting around some cash, some credit and debit cards, maybe a photo or two, reciepts, and a few items that we probably don’t need.
The truth is, we’re getting very near to the point where you won’t need the wallet itself. In fact, this is very likely the year that you’ll stop carrying one everywhere you go. It will be replaced by your smartphone.
The technology that is intended to make this ubiquitous is running a little behind in adoption. It’s called ‘near field communications’ (NFC) and it’s a relatively simple solution that gives your phone the ability to communicate wirelessly (and without a cell network) over a very small distance; say a few centimeters. With NFC, your phone is paired with your bank account. When you step up to the cash register, your phone then talks directly to the retailer’s point of sale system and authorizes the transfer of funds from your account to theirs.
There are a few hurdles, as you’ve already guessed. Security is an issue that still needs to be solved, as these little radio frequencies are vulnerable to a variety of attacks. Not to mention the problems that come with misplacing your phone. There are fixes that can be put in place, of course, but each of these potential snags are slowing down adoption. And like the proverbial chicken and egg, this entire process needs to start with the smartphone manufacturers. There are currently less than 40 NFC-equipped phones on the market, none of which include the iPhone.
Still, mobile payment systems are quickly transforming the business environment. According to investment bank Barclays Capital, U.S. purchases made on smartphones and tablets hit $5.3 billion in 2011, up 83% from the year before.
The market correctly sees an opportunity, and some very interesting solutions are emerging to fill the void. They range from retailer-based solutions like Apple’s iTunes to card-based concepts like Square to complete mobile payment systems.
Odds are that you already know how iTunes works. In fact, since Apple has more than 100 million credit cards on file, you’ve likely used it to download songs, movies, books, or apps. But Apple has taken it a step further. With their Apple Store app, you can walk into your local store, pick up an accessory off the shelf, scan it with your phone, process the payment and walk out without ever talking to an employee.
Starbucks rolled out a similar approach with their Starbucks Card Mobile App. You can use it to find local stores, make payments for orders, or keep track of your loyalty cards. It operates by presenting a barcode that is associated with your pre-loaded card. When the clerk scans the code, the money is deducted from your card. As of December 2011, Starbucks reported more than 26 million transactions had been processed.
Square has taken a different approach in an attempt to bring payment processing to the masses. When you sign up for a free Square account, they will ship you a small card reader that plugs in to the headphone jack on your phone. You swipe a card, enter the payment amount, and the cash is transfered from the card to your account. (You can also use the app to enter the information by hand instead of using the card reader.) Square is awesome for things like garage sales, settling small debts between friends, and even small businesses. They currently have nearly one million card readers issued and are on track to process $2 billion in payments annually.
Extending into the arena of point of sale, Square recently launched Card Case, an iPhone and Android app that essentially eliminates the need to swipe your card or enter your information. As you walk up to the counter, Card Case notifies the merchant that you’re there, tells them your name, shows them your photo, and (if you like) has your ‘usual order’ displayed. The merchant then confirms the payment and the transfer takes place behind the scenes. Anyone can become a merchant with Square, and enabling your business to accept Card Case payments is amazingly simple.
Another emerging concept is integrating those odd-looking square images (called QR Codes) with payment processing. Cambridge-based LevelUp associates a peronalized QR Code with your bank account. Properly equipped merchants simply scan the code to tansfer the money between accounts. A digital receipt is instantly displayed confirming the transaction. To increase adoption, LevelUp is also pushing loyalty aspects of repeat transactions and even offering credits to entice shoppers to try new merchants. Currently, LevelUp is available in about 650 merchants, primarily located in Boston, New York, Philadelphia and San Francisco, but is aggressively looking to expand.
Not to be left behind, Google entered the fray in late 2011 with Google Wallet. Currently available on the NFC-enabled Nexus S phone (or by adding a sticker to another device), Google Wallet works with MasterCard and Citibank to process payments. PayPal also unveiled a version of app-based mobile payments that allows you to scan product bar codes in stores and check out with your PayPal account.
Two things seem clear: There is a huge opportunity here and no single solution has emerged as the market leader. But you can be certain that the days of carrying a wallet are fading fast.
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