While paying with cash or credit cards won't go out of fashion anytime soon, but they're getting some serious competition. Online payments and e-wallets are about to shape not only how, but where and when we buy things. Even more important, they will give consumers the power to choose the payment methods that work to their advantage.
Catching Up To The Future
Advanced payment systems are not a new concept. Science fiction writers like Arthur C. Clarke and Ray Bradbury predicted electronic commerce and futuristic payment systems long before they existed. Both men pointed to a time when people and machines come together, exposing the possibilities of individual identity within a larger ecosystem.
In 1974, Clarke predicted personal computers, the Internet and online banking. Bradbury's Guy Montag from "Fahrenheit 451" used an ATM years before they were invented.
Today, futurists today like Ray Kurzweil opine about the "Eternal E-Customer" offering tantalizing glimpses of how devices and people combine in symbiotic relationships. Take the world's current fascination with smartphones. The fact that we can check our bank balance, pay for groceries and give our kids their allowance all with one small device that we carry around with us all day, indicates the intense desire for a simple, portable and personal way to interact with our finances.
What's Possible Now
A variety of companies and industries have been working hard to transform online and mobile systems. The larger credit card issuers have recreated their services online, while companies like PayPal transcend the traditional approaches to online payment. Mobile device makers, telecom carriers and others are now weighing in, with the likes of Google Wallet, Apple Passbook, ISIS Mobile Commerce (a collaboration between AT&T, Verizon, and T-Mobile), and Visa's E-Wallet making the most noise.
As more providers enter the fray, the benefits to consumers become clearer, including electronic coupons, discounts and reduced fees. In the U.S. alone, the redemption value of “deal-a-day” offers – offers distributed via digital channels that typically expire within a few days – will reach $3.9 billion by 2015, according to a McKinsey research report. These coupons are partially a result of brand loyalty, according to Jip de Lange, a consultant at Innopay.
"We see payment methods that were originally offered online are now being offered in offline contexts as well, as the PoS [point of sale] terminal functions basically as Internet-enabled device," de Lange wrote in the Ecommerce Europe: Online Payments 2012 report. "This move not only secures growth potential for years to come, but also increases the relevance of these payment methods as they become part of consumers’ day-to-day routine."
Many governments are already moving toward supporting online payment systems. The U.S. Government's Pay.gov service lets citizens pay and be paid by the government using online accounts. People in Latin America, China, India and Africa are even more likely to incorporate mobile devices in their online payment transactions. Europeans trend toward using online accounts for shopping the Internet, with 58% having done so in 2011, Ecommerce Europe notes.
Not all online payment technologies will emerge at once, and not all will eventually succeeed. Researchers at Gartner estimate that Near Field Communications (NFC) is at least five years away from mass adoption. In the meantime, security concerns and the lack of immediate adoption is making many companies disillusioned with aspects of NFC as a payment method: Google is all in, while Apple and PayPal are not.
Perceptions of security and privacy remain key issues for all online and mobile payment systems. A recent study by Edgar, Dunn & Company and sponsored by MasterCard noted that the lingering negative public opinion associated with online payments is hindering broader adoption.
Even as the industry finds ways to address these issues, experts agree that the potential benefits are too great to ignore. So just about every company in the financial industry is doing what it can to explore the concept with early adopters and build products that will eventually appeal to everyone.
Toward A New Normal
A $5 bill in your pocket may not buy much these days, but it still comes in handy when you want to leave a tip or buy a bag of fruit at the farmer's market. The need for cash will be around for a long time, but over time it's likely to become the exception rather than the rule.
The ascendancy of mobile and online payments will be clear when we stop talking about "online payments" and "mobile payments" as something different or exotic, noted Innopay's de Lange in his report. It will just be another way to buy stuff:
"The world is becoming more and more ‘e.’ So the merger of offline and online is basically the disappearing of the first and the latter taking over. In a few years’ time, we will not be writing about e-payments or online payments because it will no longer be a meaningful category. We do still recognize channels and contexts and online payments will diversify to cater for all these channels and contexts."
As buyers and sellers become more and more comfortable with the online and mobile payments, the more likely they will reach for their digital wallets over their real ones. Without even noticing that they're doing anything noteworthy.