A cash call: The future of money

The Economist: A cash call: The future of money (Subscription Required)

SOME of the hottest nightclubs have a new trick for checking the identity of their VIP guests: they send an entry pass in the form of a super barcode to their mobile phones. This is scanned by the large gentleman who lifts the velvet rope. Even those who must pay to get in may need their handsets: at a recent clubbers' night at London's Ministry of Sound, students were offered discounts if they used their mobile phones to buy electronic tickets.

Mobile phones are becoming an increasingly popular way to make all sorts of payments. In America fans of the Atlanta Hawks have been testing specially adapted Nokia handsets linked to their Visa cards to enter their local stadium and to buy refreshments. Elsewhere schemes are more advanced. You can already pass the day in Austria without carrying cash, credit or debit cards by paying for everything, including consumer goods, with a mobile phone, says Arthur D. Little, a firm of management consultants. It reckons worldwide payments using mobile phones will climb from just $3.2 billion in 2003 to more than $37 billion by 2008.

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Pre-paid or “smart” cards, like those used by Hong Kong's Octopus and London's Oyster for travel on subways, provide a lot of convenience—and for operators as well as passengers, because money is expensive to handle. Transport for London says in the three years since it introduced Oyster, the cards now account for three out of four journeys on the underground and buses. Cash payments for tickets have fallen to just 5%. It has helped to boost usage with differential pricing: tickets bought for cash cost a lot more than using a smart card.

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Having spent fortunes on branding, credit-card firms and banks do not want to see other payment systems gain ground. This presents a threat to banks, says Dan Schatt, of Celent, a research company. Historically, banks have controlled both the hardware (chequebooks and debit/credit cards) and the distribution (branches, websites, etc). Mobile-phone banking and contactless smart cards could escape some of their control. Banks could lose customers, says Mr Schatt.

Or will they? Banks and credit-card firms say that if cash is replaced by mobile phones, they intend to be part of the transition. A decade ago some observers predicted that internet banking would render retail banking from high-street branches obsolete. But JPMorgan, Bank of America and others are adamant that people are nowadays using bank branches more than ever. Even if the phone and the smart card replace cash, who gets to collect the fees remains open to contention.

Update: Usually I just link articles that don't require subscription. The Economist has a mixture of free and subscription only articles. I link these to encourage others to check out the article. I goofed and thought this was free. The article is in the print edition but is lengthy. Here is a bit more about the technology.

The various “contactless” payment systems rely on a technology called “near-field communication” (NFC). The NFC device within the cards reacts when placed close to a reader or touched onto one. The machine induces an electrical circuit in the NFC device, which allows a short exchange of data to effect a transaction, such as deducting a fare from the stored value.

As NFC devices can cost only a few cents they could be inserted into every mobile phone. The idea is that instead of carrying another piece of plastic, just the phone will do. Payments made from those using stored-value are seen as relatively low-risk. Merchants are guaranteed payment and if the cards or phones are lost or stolen the cost to users is limited.

But mobile phones can be much smarter than smart cards. They can be de-activated remotely; they have a screen which can show information, like a credit balance and product information; they have a keyboard to enter information and they can communicate. This means they can also be used to authorise larger payments by entering PIN codes directly on the handset or topped up with stored credit from an online bank account without having to go to an ATM.

 

Comments

[swampthing]

It makes me wonder how "disruptive" the Qode platform will be you can click the pick of an object you want, surf the web for the price on that product, comparison shop for that product, get a cheaper price, get a dmobile coupon directly from the manufacturer, and pay for it on your phone.

This article is really good. It should have been posted as a whole.

There may have even been a hint about Qode and a ONE Water Campaign in Africa, by Vodafone.

I may be reading between the lines though.

I hope I am not the only ONE that caught that.

[Michael W. Kruse]

Sorry about the excerpts. I thought I was linking a free article.

I added a couple more paragraphs about the technology. No mention of Qode or ONE Water in the article.