The Future of Money
The way that you pay for things will change in the near future, but perhaps not in the ways that everyone excepts. High-tech mobile phone payment systems like Google Wallet have made headlines, but it will be several years, at least, before we know if Wallet and its peers are viable tools or merely fads that will fade away after the novelty wears off. What will be in your wallet a few years from now? Here are some likely possibilities.
Formerly marketed to the un-banked sector of the population, prepaid debit cards are beginning to grow in popularity in other demographics as well. As banks begin to charge more fees for basic services and free checking accounts become a thing of the past, prepaid debit cards have widened their services to include things like direct deposit and the waiving of their monthly fees for people who deposit a certain amount of money each month (essentially making the card free for anyone who uses it as a checking account stand-in).
American Express launched its prepaid debit card earlier his year. It is geared towards people who already have bank accounts but are looking for another way to carry money. Unlike its peers, the AmEx prepaid doesn’t charge fees or have monthly requirements, making it a convenient stand-in for cash and an alternative to regular bank-issued debit cards.
While most of the rest of the world has already given up on magnetic strip credit cards in favor of cards that have a computer chip and require users to enter a pin number, the old style cards are still the only option for consumers in the US. Why is one of the world’s most modern countries still in the dark ages of the credit card industry? The infrastructure in the US is set up for magnetic strip cards and retailers, already at odds with credit card companies because of high “swipe fees,” are unwilling to change to new terminals that can read the chip-and-pin cards.
Visa and MasterCard, the two dominant card-processing companies in the world, are intent on changing the situation in the US in the next few years because the chip-and-pin cards are much more secure than the magnetic strip variety. Visa is offering incentives to retailers who get chip-and-pin processing systems and MasterCard is trying to get all its ATMs nationwide to accept chip-and-pin cards by 2013. An interim step will probably be to have cards that have both chips and magnetic strips that can be used at either type of payment processing terminal.
Despite all the advances in banking and payment processing, cash is still the currency of choice for many people. It may even be more popular now that it has been in the past decade or so. As people get fed up with banking fees and debit card fees, they are switching back to hard currency because it carries no such pitfalls. No matter what payment methods are in the future, they will almost surely require a third party processor who will take a fee either from retailers or from customers. Cash will carry no such charges and will most likely find its way into the wallets of a large sector of the population.
Google Wallet is already in limited release (on one phone with one carrier, Sprint), but there are other cell phone payment systems in the works. It remains to be seen if AT&T and Verizon also team up with the internet giant or if they use someone else’s technology or even develop their own system in-house. Paypal is said to be planning some sort of contact-less payment system that has a chip that will stick on the outside of a cell phone. A couple of major retailers like Subway are already accepting Google Wallet, but it will take a much, much wider range of companies to come on board before Wallet takes off. Any cell phone system will run into the same problem as chip-and-pin cards: they will have to build the infrastructure before people can easily use their service to make payments.
American Express and the social site Foursquare are working together to offer deals on a local level. Retailers can offer discounts on Foursquare that people with AmEx cards can take advantage of. This may be the future of rewards cards. The social element and local focus means that you won’t have to redeem your rewards points for airline tickets or gift cards, you can get your rewards up front in the form of discounts. It remains to be seen if the AmEx and Foursquare deal can be local enough and have enough listings to seduce more people into signing up for a card from the underdog issuer. If the social media effort is successful, other card issuers might be looking to social sites to create a network retailers that offer discounts.
About Josh Lew Josh Lew lives in the Midwestern US when he is not traveling. He is a columnist for Gadling and has contributed to Hackwriters and Skive Magazine.