Imagine yourself in line at the local coffee shop. You're getting impatient because there are nearly a dozen people ahead of you before you can order your morning wake-up call. Suddenly, the line starts moving faster. It's not that the barista has six arms; it's that a few customers are speeding things up paying by waving their smartphones in front of a scanner.
Later that day, you stop by a colleague's desk when he tells you to hang on for a second while he pays his mortgage, electric bill, phone bill and car payment. You think you'll both be late for a meeting, but a few clicks of the mouse on a single website and the payments are complete and you're ready to go.
After work, you attend your kid's PTA meeting. As in many school districts, funds are pretty tight. To help, the principal asks parents and school supporters to sign up online for electronic Scrip programs with the local grocery store.
On your way home, you stop off at Home Depot to pick up a new doorknob to replace the broken one that's been bugging you for months. It's getting late, so it's nice that you can pay simply by entering your mobile phone number and PIN code - without ever having to pull out your wallet.
That night before bed, your son is playing his favorite video game, when he shows off a new avatar he purchased right in the game with tokens using his online account.
Time To Throw Away Your Wallet?
These are but a few examples of transactions that historically would have required cash, checks or credit cards. Whether using a PC or a smartphone, more customers than ever can now purchase goods and services online, pay in a retail location or transfer money without ever touching their wallet.
While it's not yet time to throw away your wallet, more people than ever are using e-wallets or "stored value" cards as a convenient one-step way to pay. A 2012 Pew Internet and American Life Project report found these digital accounts allow customers to also transfer money, purchase goods, and engage in other types of financial transactions. By 2020, 65% of people are expected to have embraced the use of smart-device swiping for completing their purchases, nearly eliminating the need for cash or credit cards. Not surprisingly, younger shoppers are already more comfortable with the technology.
Don't worry, though, the arrival of digital payments doesn't spell the end of other payment methods. “When credit cards arrived, checks did not disappear, and neither did money,” said Amber Case, anthropologist and CEO of Geoloqi, a company that creates location-based software. “There are [currently] three main methods of payment. If another method of payment is added, we will likely have four methods of payment and retailers and businesses must accept another form of payment. Some systems may emerge that use completely smart payments, but there will still be other forms of payment available.”
These e-payment systems are expected to further online spending. Customers would spend $109.8 billion annually if offered a "no credit card required" way to pay online and at merchants, according to a 2011 Javelin Strategy and Research report. Four out of five of those surveyed in the same report said they would spend more online if they considered credit cards safer and had payment alternatives.
Getting Over The Fear Factor
Even as the use of electronic payment systems and e-wallets grow, some customers have legitimate concerns - mostly concerning security.
Recent accusations of cyber attacks on U.S. banks by the Iranian government, as well as high-profile hacking incidents such as the publishing of more than 400,000 credit cards online by a Saudi hacker, do little to ease customer fears that their digital wallets could get cleaned out.
For customers to confidently adopt these new payment methods, currency systems need to resolve safety, security and privacy issues, and just as important, remove the perception of risk. “There will always be people who are concerned with the security of their transactions,” wrote Laura Lee Dooley, a strategist for the World Resources Institute in the Pew Internet report. “So the concern of someone hacking into your financial flows will continue to grow, and personal security and device-tracking companies will become an integral and major component of the marketplace.” On the other hand, Lee Dooley also noted that consumers’ fears offers opportunties for businesses to succeed by solving these problems.
Putting Customers In Control
As the future of electronic payments plays out, customers will ultimately determine which systems survive and prosper.
“I already see the growing use of digital monetary transactions in my world," said Jon Lebkowsky, president of the Electronic Frontier Foundation-Austin in Austin, Texas. "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.”
The technology innovations are already coming fast and furious. Person-to-person (P2P) payments can let you send funds to a friend. Retail POS (point-of-sale) systems can be activated using smartphones, merchant cards linked to your digital wallet or online checkout. Mobile checkin lets you connect with a store via a mobile app, sending your picture to the cashier's screen for identification and letting you pay directly from an online account. Near Field Communications (NFC) allows you to wave your smartphone over a scanner to pay for a cup of coffee.
A similar method currently being tested involves transitioning payments between the accounts of individuals - or Account-to-Account (A2A) transactions. These low-cost transfers could go viral as smartphones users increase their use of short-range file transfers. This so called "bumping" lets smartphones make payments to merchants - or to each other, simply by touching the devices together.
What could be easier than that?
Image courtesy of Shutterstock.