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mattclough

The State of Mobile Payments

Given the direction technology in the commerce space is moving, mobile payments, or paying for things using some kind of personal device – whether that will be a phone or watch, or something else entirely – are an inevitable fact of the future that cash-carriers everywhere will bemoan to the end. But let’s face it, cash is already on its way out. Most payments today are made using a plastic card or an online service that utilizes a card without having to take it out of your pocket. Even more nefarious and historically low-profile markets like the drug trade are making use of digital cryptocurrencies.

The big leap that will allow us to keep even our cards at home and consolidate them all into the one thing that has become so ubiquitous, our phones, is mobile payments. There’s an app for everything, so what’s the hold up? Why aren’t we already making mobile payments?

Well, believe it or not, the bits and pieces needed to make mobile payments are already in use. The problem is that there are a few different ideas about how this new payment method should be carried out, and a lot of different players with an interest in bringing it to fruition, not unlike the Blu-Ray versus HD DVD war, or if you really want to reminisce, think VHS and Betamax.

One of the major methods for mobile payments in the works is called NFC or Near Field Communication. You may not have heard of it, but chances are, you’ve seen it in action at least once or twice, and you’ve almost certainly seen a payment terminal that accepts it. Heck, you may have already used it. Ever see someone go through a transit turnstyle or pay a bus fare just by tapping their transit card? That’s NFC. Ever see this picture on top of the credit card swipe terminal?

You probably have, and you probably didn’t pay attention to it, but there’s a host of credit cards that have been around for years now that will blast your money into the cash register just by tapping it on this little picture. That’s NFC. This concept would work similarly with smartphones. When you’re ready to pay, simply unlock your phone, tap, and enter your pin.

The other method of mobile payments that’s picking up steam is a kind of network based handshake between you and the merchant. It works like this: unlock your phone and open up a payment app that lists the merchants accepting your mobile payment. Find the merchant you want to pay and tap to check-in. When you check-in, your name and face are added to the pool of customers on the merchant’s screen, and when you’re checking out, you simply tell the person at the register your name, they select you from the pool of customers, and your payment method will be charged.

As I said before, both these methods are already fairly well-rooted and in use in some form. NFC is used for tap-to-pay credit cards, transit cards, and other contactless access. It’s firmly rooted in the physical world and is a natural progression for those who are comfortable with cash or cards since it’s used in roughly the same way. The mobile check-in feels slightly less like using currency and fully embraces money for the point system it has become.

You can actually use these payment methods right now. Yes, right now. There are a few major players in the mobile payments space right now. The big issue affecting the progress of mobile payments is that within each competing form of payment, there are competitors. No one can quite decide where to place their chips.

Google was the first major company to throw a punch in the NFC arena. Google Wallet, Google’s mobile payment app, has been around for years now. It allows the user to store all their plastic payment methods, as well as loyalty cards and coupons, and pay with a single tap using an NFC enabled phone. Google’s timing was a little off though. At the time of Wallet’s release, there weren’t too many phones sporting NFC. The other major issue is that there weren’t that many tap-to-pay terminals in stores. There still aren’t. You can find them in a lot of major big-box department stores, grocery stores, convenience stores, and elsewhere, but there are still lots of big guys, and even more medium to little guys that don’t have these terminals.

To compound the issue, three of the largest mobile carriers in the US, namely Verizon, AT&T, and T-Mobile, noticed Google’s move and saw an opportunity to cash in. The three mobile behemoths joined forces to produce their own NFC payment app, Isis Mobile wallet, and in the process, prevented Google from distributing Google Wallet on their networks, ostensibly because of security concerns. Isis is essentially identical to Google Wallet. It has the same functionality, and works for the same devices, however, the trio made a few strange decisions in their launch that ultimately seem to have played against them.

First, as mentioned before, the companies blocked Google in favor of their own app. Forget that it is the same app, or that it’s a payment app, the real mistake was blocking something produced by a company so beloved and so integral to the Android experience as Google. The second strange move was to produce a special sim card that has to be obtained in order to use Isis. The carriers may have severely underestimated the disincentive that actually going to their store and picking up a tiny piece of plastic would be to customers. To top it off, Isis initially launched in only two locations: Salt Lake City and Austin. Granted, sometimes it’s best to start off with a small group in order to fine-tune before releasing to the rest of the world, but the amount of hype the preceded the two-city launch was sort of a let-down when, well, only two cities could take advantage of it. Isis particularly got on my nerves because I had good faith in NFC, and in Google to make it happen. I even used Google Wallet a few times. It worked like a charm. Mark my words though, if it never makes a comeback, Verizon, AT&T, and T-Mobile are to blame.

In the mobile check-in arena, Square broke earth relative ages ago. Since the beginning of their free distribution of headphone-jack compatible card swipe units, Square has virtually owned mobile point-of-sale. It’s a safe bet that a handful out of two handfuls of people has paid for something on an iPad and signed with their finger. For something so different, this model of payment has caught on. It has the benefit of relatively marginal cost to the merchant compared to transaction fees and equipment costs from POS companies of old. There is absolutely no need for huge cash registers attached to computers with separate card-swipe units, pin entry units, receipt printers – it’s actually tiring to think about. The advent and subsequent wildfire popularity of tablets has started burying these dinosaurs faster than they can actually die. This is actually where mobile check-in has one over on NFC payments – it costs mid-size and small merchants a lot less, which, in the end, is what will dictate the future of money.

PayPal also has a stake in this arena. Though they’ve certainly been around longer, PayPal has the misfortune of tying itself very closely to online shopping, and more specifically eBay, which is slowly being supplanted by the likes of independent online boutiques, Amazon, Craigslist, a bad reputation that can’t be ignored, and, chief among all these, time. Both PayPal and Square’s mobile apps give me a map of compatible merchants in my area, and comparing the two is pretty easy. PayPal is pizza, pizza, more pizza, a Thai place, and pizza; essentially any restaurant that accepts online orders via GrubHub, Eat24, or any of the other thousand online food ordering sites, accepts PayPal from your phone. The list of Square merchants, on the other hand, is way more eclectic and interesting – a local coffee place, a comic book store, a gyro cart, an ice cream shop, a hookah bar; I even see a few merchants on the map that just seem to be people, which is a little confusing at first, but makes some sense when you realize that Square is so easy to use, that any individual can start accepting mobile payments within minutes, and start accepting credit cards in as many days as it takes Square to ship a free card swipe unit.

This brings up an aspect of mobile payments that will be crucial to its adoption, and crucial to the future of money in general – peer to peer payments, otherwise abbreviated as P2P. Despite the recent decline of paper cash, and the increased abstraction of money, people still owe other, normal people, money.

PayPal initially made this relatively simple. Simply log in to PayPal, type in the recipient’s email address, and send them money. But it was never just as simple as that, and certainly a far cry from just handing someone cash, which is instantly available and readily spendable. Since PayPal isn’t really a bank and more of a transaction intermediary, the time between paying someone and that person actually seeing their money is kind of grueling when you think about going to the ATM as an alternative. It can be days before the money is readily manipulable and when it is, the money still needs to be transferred to a bank account, for, you know, something other than pizza and eBay. On top of that, depending on your PayPal account status, there are money transfer limits, transaction fees, and fine print booby traps aplenty. So, the rent money you just tried to pay your roommate just cost you a little more, and your roommate might not even have the money in time.

Google, in another Little-Engine-That-Could stride into the mobile payments arena, recently introduced P2P to Google Wallet. It works just like you think it would, except that Google keenly leveraged what it already had – everyone’s email address. With the new Google Wallet, P2P can be made from the mobile app, or right from Gmail. Like sticking a check in an envelope, payments can be embedded right into emails just by clicking a button and entering an amount. Google also has speed on its side. In my own testing, P2P payments could be moved into my bank account in the same day. It’s a pretty slick integration into something I already use all the time, and I really appreciated the speed.

It’s worth mentioning that both PayPal and Google have introduced physical cards that can be used to spend your balance like a normal debit card. Neither PayPal nor Google are a bank, but...they kind of are, and the introduction of a physical means of spending definitely blurs the lines a little bit, as do a number of existing online-only checking account services like Simple.

Money is changing. Fast. Google, Isis, Square, and PayPal are just four of the handful of companies in the race for the future of payments. New companies are popping up every day and dying off just as fast like so many hominids trying in vain to stand up on two feet, and like evolution, the triumphant beast will be able to fully adapt to the new world in which it lives. Right now we’ve got some that can walk, some that can talk, and some that can use tools, but none of them can quite do it all.

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