12: Future Payments and Cash--RFID, Biometrics, P2P Micropayments, Digital Cash
(EN: In this chapter, the author is getting into "visions of the future" that I expect will be loaded with speculation and conjecture)
Biometrics: No More Passwords
The author refers to a program at a beach club, where "VIP Patrons" were offered the option to be implanted with a microchip that could be scanned at the bar and other facilities to charge to their account and verify their membership. The author notes it was a "huge success," but people in the general public have been reluctant to accept the same technology (though "chipping" house pets has caught on, people don't want to subject themselves to the same procedure).
A possibly answer to this is biometrics: using a fingerprint, retinal scan, facial; recognition, and/or a voice command to authenticate rather than a physical artifact (payment card) and a password/PIN. These technologies have been around for years, but have not been very reliable (EN: the "Griffin" system used by casinos to identify cheats helps to identify individuals via facial recognition, but is still buggy and requires a human operator to verify the search results the system retrieves).
Biometrics represent a convenience to the customer (no need for a physical artifact and to memories a code) and greater security to the merchant and financial institution (much harder to forge a biometric validation) - but in addition to needing technical requirement, it will require installation of hardware.
Virtual Currencies
The author refers to virtual currency systems like the "Linden" dollar in Second Life and the QQ coin used by a Chinese chat client to purchase game/site enhancements (special avatars, outfits, etc.) The author mentions the potential of these currencies to rival or overtake real-world currencies.
(EN: Much of this is hype and media frenzy - there were some sensational press stories about the value of online currencies, and people actually exchanging real money or goods for virtual currency, much like people will sell "gold" in online games to people who would rather pay a few bucks than invest time to earn it in the game. While it was an interesting oddity, and some politicians who just didn't understand it fed the panic, virtual currencies were never a real threat to real-world currencies, and it's highly unlikely to pose a threat to monetary systems.)
Mobile P2P Payments
The ability to transfer funds from one personal account to another is noting new. It's fundamentally the same as writing a check to another person, only third-party services have made that transaction paperless, and provided applications for mobile devices to transfer funds.
Given the explosion of globalization - people working in other countries- there has been a corresponding explosion in the amount of funds beign transferred from person to person, as these workers send a share of their foreign wages to their families back in their home countries. In 2009, it was estimated at 191 million migrant workers who sent $270 billion through mobile funds transfer.
It's noted that banks largely missed out on this opportunity. The author speculates that this is because banks are married to paperwork and procedure that made it impossible for illegal migrants and difficult for even legal workers to use their services, and tended to regard migrant workers as being "too low margin" to be profitable customers. They've only recently awakened to the potential, and are now having to fight to draw customers away from competitors with whom the migrants have established relationships.
The author lists some of the initiatives underway in the banking industry, largely leveraging the ACH system for cash transfer or partnering with third parties such as PayPal. Meanwhile, companies that started in the P2P venue are migrating toward bank services, offering their customers the ability to bank cash (not just transmit it) and use payment cards - in effect, becoming a full-service retail bank rather than merely a transfer service.
This also touches on the area of commercial transactions using mobile payment systems - such that a person's cell phone is a digital wallet that can be used at local merchants. The author boldly asserts that, within the next two years, banks would be "falling all over themselves" to launch mobile payment technology and the POS infrastructure would "finally" catch up to the promise of mobile payments.
(EN: it's been a year since the book was published, and it doesn't seem to be happening: banks aren't going for it, the POS systems aren't supporting it, and customers aren't demanding it. That's not to say this won't change, but it seems unlikely. What's worth noting is that several companies that manufacture cell-phone skins, and at least one cell phone manufacture, are providing "slots" to carry credit cards and ID with the phone. That could be taken as evidence of motion in the direction of making the phone a payment artifact, or as evidence that customers and suppliers still perceive payment cards and cell phones as two separate entities - much in the way that carrying a pocketknife on a key ring does not mean that car manufacturers should seek to provide a key-knife artifact.)
Point-of-Sale and Credit Card Evolution
The author notes that payment cards are not being utilized. The example he provides is being able to swipe his card at a coffee shop, and the terminal greets him by name and asks if he'd like to order his usual beverage. "It would be pretty cool if it did that."
(EN: A nice idea, but it violates the ritual: a payment card is swiped at the end of the encounter, when the customer has committed to a purchase and needs to render payment. Demanding payment information at the beginning is a violation of protocol that would likely alienate customers. I expect that, once customers understood the reason, they'd be amenable to doing this - but it would require a careful transition. The existing models for doing this ask the customer for some form of authentication that isn't directly linked to o payment: you enter a password at a Web site, or give your phone number when placing a delivery order with a pizza joint - but that's not the same as given them a payment card number up front.)
The author suggests equipping POS terminals with RFID and/or Bluetooth technology to save the customer the effort of even swiping a card. IF these technologies were used to their fullest, a store wouldn't even need clerks the customer could grab merchandise and walk out - RFID tags on the items would communicate the merchandise being purchased, and an RFID tag on a payment card would transmit information for making payment.
(EN: Ironically, AT&T demonstrated this very same notion in 1993, with their "you will" advertising campaign, one of which showed a customer merely walking through an arch, like a metal detector, to pay for their groceries "a cart at a time." Again, technology is not the issue, but culture is: the check-out ritual is technically unnecessary, and has been for almost two decades, but customers want and expect the ritual. This will not be easily changed)
The author mentions the "chip" card, in which account information is stored in a chip that's embedded into the credit card itself. The author doesn't go into detail about why the chip is better, other than it is harder to forge than data on a magnetic stripe, but he seems to think it's the way of the future, though it's generally caught on in third-world countries and the EU, it will eventually make its way to the developed world.
(EN: I don't think the author quite understands smart cards. Their proposed value was that the issuer could store additional information on the chip - a photograph, a signature, etc. - but for payment cards, the chip stored only account number and pin, like the magnetic strip, plus current account balance. It never quite lived up to its potential, but in countries that lacked reliable phone lines, having the account balance on the card made merchants less reluctant to accept them, given that it was often impossible to dial into the bank to ensure there was sufficient credit available for a purchase, having available balance on the card for occasions when the lines were down overcame this problem. In the US, the on-card chip was marketed as a security feature, but it didn't take long for hackers to figure out how to forge chip data, making it no more secure than the data on the magnetic stripe - hence there was no return on the higher cost of issuing chip cards. Presently, no US bank issues a chip card, and merchants do not accept them unless they also have a magnetic strip. This is noted as a headache for travelers on both sites: if a US tourist abroad ventures outside the major cities of developed countries, the lack of a chip-card makes it impossible to make payments at many merchants, and when foreigners from chip-card countries visit the US, merchants cannot process cards that have chips but not magnetic stripes.)
Another option for payment, which the author feels will catch on in two to four years, is the use of near-field communications (infrared, Bluetooth, etc.) to use the mobile phone as a method of transmitting payment information. He mentions the apple iPhone's interest in integrating RFID transmitters, and expects this will occur in 2010, which would make credit cards redundant by 2012.
(EN: hasn't happened, and Apple keeps pushing back the date - presently stating it will be June 2011 at the soonest. It will take more time for other phone manufacturers to follow suit. And then, there's still the problem of getting merchants to buy new POS terminals that will support RFID payments - it's going to take a lot more time than the author suggests.)
Even without NFC, phones can be used for payment, as there are services in place that enable a cell phone user to pay via SMS. For retailers, this means there is no cost to buy new POS equipment, though there would probably e a need for a terminal with Internet access to be near the register to validate receipt of payment.
(EN: This is also promising, but the technology has been in place for five or so years at this point, and neither merchants nor consumers seem to be biting in significant numbers. My sense is that this underscores the notion that adoption of new payment methods is not inhibited so much by technology, but by culture: neither merchants nor consumers are attracted to the novelty of cell phone as a payment device, and until the notion catches on, the technology is providing solutions for problems that simply don't exist.)
Finally, there is the notion of artifact-free payments, primarily by use of biometrics. The notion that an imprint, facial recognition, voice command, or whatnot could be used as a method of authenticating an individual without a physical artifact is not that farfetched. (EN: I would agree that this is the "ultimate" goal, but the technology has a long way to go to be reliable.)
Conclusion--Mobile Payments and Quickly
The author suggests that it is "inevitable" that mobile payments will catch on, and that payment cards will no longer be necessary once the technology is worked out. What's more, once the technology is proven, it will be adopted very rapidly.
Another significant issue is the shift from credit cards to debit cards - which has been rather rapid, and it's expected that by 2015, debit cards will account for half of all payments. While this is bad news for the credit card companies, it may be good news for the economic health of the nation, as consumers are buying with "real" wealth rather than borrowing.
(EN: the author overlooks the fact that debit cards are services by the same companies that issue credit cards - primarily MasterCard and Visa - who still make revenue on each transaction, regardless of whether it's credit or debit. Nor is the gross number of debit card reactions a guarantee that there is less overall consumer debt - consumers who pay their charges off each month, which is common behavior, are not less indebted because they make these same charges on a debit card instead.)
The most serious threat is the establishment of independent standards for financial transactions, and open-source applications that enable a consumer to authorize their bank to issue payment directly to the merchant, much as they would if they wrote a check. Such a system would eliminate the need for credit card companies at all (whose sole value was providing a common platform for commerce in days before information technology and networks existed).