What will money look like in 2020 and beyond? Will smartphones, smart cards and digital wallets kill the paper bill? The infrastructure needed to change the nature of transactions is already being built. There are issues to be tackled. The evolution of currency is not something that will happen overnight. But if the technologists and transaction companies have their way, the new era of currency will be embedded within a smartphone. How will it come to pass?
In Part 2 of analyzing the future of money report from Pew, we take a look at the specific comments of the experts and examine them against the reporting we have done on this topic. For instance, Rob Scott of Nokia said:
"The primary impediments to adoption have been, and will continue to be, the participants (and wanna-be participants) in the payment value chain. Operators will continue to attempt to insinuate themselves into the process at a premium rather than simply accepting their long-term fate of being minimum-margin bit pipes for the masses. Transaction processors will continue to assert they are adding value when, in fact, they add none. Banks, if we are lucky, will be once again tightly hamstrung into serving their original intended purpose, leaving opaque and exotic financial instruments to the likes of Goldman Sachs and Morgan Stanley who have long since shed the term 'bank' specifically for this reason."
Of the many comments within Pew's report, this one strikes to the heart of the issue. The name of the game is infrastructure. When the payment processors and banks put a debit and credit card in the hand of every consumer and a card reader in every retail location, that is when the first evolution of digital currency occurred.
"I don't think it will be security concerns that will stall the adoption of NFC so much as the effort involved with getting the infrastructure for its use in place on a national scale in the United States," said Steve Jones, professor of communication at University of Illinois-Chicago.
Banks are in danger of becoming the dumb pipes of the mobile payment industry. To a consumer, banks serve a purpose. Hold onto my money, loan it to me at times and protect me against bad guys. The question for the next evolution of currency becomes: What value do they add?
As Scott notes, the payment processors think they can add value. Where the Visas, MasterCards and American Expresses of the world will be most beneficial in this next evolution is providing the terminals that will be the entrance point to consumers and mobile payments. Can they give retailers in-depth analytics into how users interact with their brand? These aren't services they offer traditionally.
"The driver here will virtually 100% be whether or not the credit card industry decides it can make more money through changing technologies," Jonathan Grudin, principal researcher at Microsoft, said in the report.
The Value Chain
As it stands now, many consumers will say, "what is really the difference between a swipe with my card and a tap with my phone?"
This will be one of the greatest barriers to widespread adoption of mobile payments and changing the nature of currency. The concept of a mobile payment - a digital payment made from a device - is foreign. No matter how much the financial institutions and payment processors want to move consumers to a new form of currency, consumers will go with what is easy, what is trusted, what is convenient and what gives them the most value.
"A smart phone that can swipe me into the subway, buy my latte and bagel, and serve as an ID to get me into my building may well be a privacy nightmare, but it's also a harried urban commuter's dream," said Perry Hewitt, director of digital communications and communications services at Harvard University.
The best scenario is a smartphone that is not only your wallet, but has access to multiple accounts and can offer value other than the simple role of being a pipe from one portal to another.
"Perhaps we'll have cards that contain a key to multiple accounts. There are some serious discussions of alternate forms of currency, growing in volume as economies seem increasingly shaky. I suspect there'll be innovation here - evolution not just of the medium of exchange but also of the value it represents," said Jon Lebkowsky, principal at Polycot Associates and president of the Electronic Frontier Foundation.
Trust is also a significant issue. According to Opus Research, 35% of consumers have concerns about handing their phones to cashiers. Security is a genuine concern. Banks and payment processors and the makers of the digital wallets need to ensure the viability of the transaction and that a consumer can trust their money on their smartphone. Security, while a less glamorous portion of the currency equation, is probably the biggest entity within the value chain.
"This is a tough one, but it seems that convenience and a guarantee of privacy and security is enough for most people. We went from holding our own money, to trusting banks, to trusting credit card companies - an even more convenient way to spend will be welcomed," said an anonymous commenter to Pew's report.
The experts have weighed in, courtesy of Pew. What do you think? Is 2020 too early for the next revolution of currency, based around mobile technology and the cloud? It is less than eight years away. Checks and cash still dominate the landscape. Is 2030 more likely? 2040? When you step up to a cashier in the next couple of days, think about the currency that you are handing over. Can you imagine doing it another way? Let us know in the comments.