Show Me the Virtual Money
The hottest trend in money isn’t green.
Whether you’re suiting up for snorkeling in the azure waters of Cozumel, shopping for souvenirs on the isle of St. Thomas, or taking a tour of Old San Juan, chances are that you paid for at least some of your adventures without opening your wallet.
In the very near future, the currency of choice will not be cash, or even debit or credit cards. Increasingly, consumers are tapping into apps. From making bank deposits to divvying up the dinner check, smartphones are becoming on-the-go wallets thanks to platforms like Venmo, PayPal, Square Cash, Apple Pay, Google Wallet, and Facebook Pay.
With more than half of US adults banking online and thirty-two percent using smartphones to make those transactions, experts predict that day-to-day cashless mobile purchases and payments soon will dominate the market. According to the Pew Research Center, a non-partisan think tank, by 2020 most consumers will have switched from cash and credit cards to smartphone swipes.
“Soon, any connected object will be commerce capable,” says Jordan McKee, senior analyst with 451 Research, an info-tech advisory company.
While at the start of the movement, the focus was on American-made apps marketing themselves around the globe, the rest of the world is now connecting to its own cashless commerce via the Internet. China’s Alibaba, Japan’s Rakuten, Argentina’s MercadoLibre, and India’s more local Snapdeal and Flipkart are ecommerce marketplaces that put global buyers and sellers in touch without paper money actually changing hands. When it comes to converting to a cashless economy, many think America is not as far along as the rest of the world—that the US infrastructure makes it difficult to do a quick switch.
“It’s not like China, where Alibaba provided a real opportunity where there was nothing before,” says Karen L. Webster, CEO of Market Platform Dynamics. “There are nine million merchants in America, and you would have to set up the new payment system with all of them. Plus, the habit of using credit cards in the United States has been around for decades.”
The biggest gains, according to info-tech research company Gartner Inc., will be in the Asia-Pacific market. And competition will come from a number of sources, including Bitcoin and Near-Field Communication (NFC) credit cards, which allow two devices to exchange data when they are close to each other.
“NFC credit cards are quite popular in Canada and Europe,” says consulting engineer Bill St. Arnaud. “They will be competition to the iPhone because people are leery of smartphone security.”
McKee says that this is only the beginning. “Smartphones, watches, and automobiles are the first among many objects that will become capable of making transactions anytime, anywhere.” And that ability to transfer money effortlessly will foster a global economy, Webster says, “where there are cross-border opportunities that anyone can discover. Never before has it been possible to leverage mobile devices and the Internet to connect consumers with businesses.”
But the changeover won’t necessarily be as swift as a swipe. “Smartphone penetration is only twenty-five percent for people over twenty-one,” St. Arnaud says. “For credit cards, it’s seventy-five percent.” And not everyone is convinced that cash will go the way of the dinosaurs. “Cash—tangible, hold-it-in-your-hand dollars—has been around for millennia. It won’t go away in a decade,” says Jeff Eisenach, visiting scholar and director of the Center for Internet, Communications and Technology, American Enterprise Institute. “Despite the growing ubiquity of electronic payments, cash still dominates some eighty-five percent of global transactions,” McKee says. “While paper currency is unlikely to fully disappear, at least in part due to the informal and underground economies, the transition of spend to plastic is apparent and will only continue.” Webster agrees, adding that “we’ve been hearing about the disappearance of cash since the 1950s when plastic came in. Perhaps in 100 or 200 years, it will be gone. In the meantime, we will just use it less.”
Way back in the twentieth century, in 1998 when we were Internet babies, PayPal entered our lexicon. The web service taught us how to transfer money online, forgoing paper methods for electronic ones. Our jaws dropped in 2002 when the IPO hit and we thought $1.5 billion was an outrageous asking price when eBay later took over. Today, the PayPal app for iOS and Android boasts 165 million active users around the globe, and unlike its up-and-coming competition, allows users to send payments across borders in twenty-five currencies. Its longstanding, international popularity puts it at the top of the virtual money list, because users like what they already know. Transactions are free if made directly to or from a linked bank account or PayPal account, but a 2.9 percent transaction fee will be assessed for debit or credit card transactions.
This is where it’s at for devotees of the famed brand giant. This digital wallet employs NFC technology embedded in the iOS device and is built with retail purchases in mind. Since the launch in September 2014, Apple has been quite busy building its list of participants, announcing new banks, credit unions, financial institutions, and merchants by the dozens every few months. Although Tim Cook named 2015 “the year of Apple Pay,” the application has been slower to take off with fans than expected. Apple Pay is only available on iPhone 6 or later, iPads, and Apple Watches.
Developed by Google, this payment system was launched in 2011 and claimed it would “kill your wallet.” It runs on both Apple and Android devices and gets little fanfare, even though it can be used to send money in addition to making purchases. Emailing money naturally requires a Gmail account, which can be a deterrent for those with AOL or Yahoo accounts. While setting up an account and linking it to your bank is a bit time consuming, it’s worth it to avoid the 2.9 percent charge for debit cards.
What began as a payment system through text message has transformed into a digital wallet that allows users to easily send money to each other with a quick tap. Think of a girls’ getaway, the guys’ golf tournament, Mom and Dad’s anniversary present, or dinner with close friends—it’s one of many apps making it easier to instantly pay and get paid by friends and family. Free to download on iOS and Android devices, it only requires an Internet connection, not NFC technology in your device. For now, it is limited to the United States, but keep a watch on this one—PayPal became its parent in 2013 and its popularity is on the rise. Create an account and it’s free as long as you use your Venmo balance, bank account, or debit card. But reimbursing your bestie through credit card incurs a three-percent fee. Weekly spending is limited to $299.99, but big spenders can submit to ID verification and get bumped up to $2,999.99.
Mark Zuckerberg and company joined the fray in early 2015 with its own peer-to-peer payment system. The feature—meant to be an alternative to downloading, organizing, and keeping up with yet-another app—connects your debit card to your Facebook account and allows you to swap cash with a single tap through Facebook Messenger. Tap the dollar sign icon in Messenger composer and avoid entering bank account or routing info. In addition to being free, the obvious benefit is ease of use, considering that seventy-one percent of adults online are using the social media site. The only drawback, for now, is that it is limited to Visa and MasterCard debit cards.
In 2009, billionaire Jack Dorsey of Twitter fame cofounded SquareCash, a mobile app that is fast becoming a favorite with peer-to-peer payment users. You probably recognize the small, square attachment that plugs into the headphone jacks of mobile devices, allowing users to swipe a card, choose an amount, and sign. One of the ways it has been earning praise is by allowing payments to flow directly into your personal financial account. (Venmo and PayPal require users to take the extra step of transferring money out of the app into their bank account.) Another plus for this e-wallet is its anonymity factor. Don’t want that man from Craigslist having your full name? Create a user name—or in SquareCash speak, $Cashtags—and invisibility is yours. The biggest benefit: the service doesn’t require the people who are paying you back to sign up for an account. Transactions are free, but it only works with debit cards and has a $2,500 per-week limit.
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