Back in the early days of Weakonomics I wrote a series on money. One section was on the future of money. In it I talk about the eventual takeover of credit cards and such from cash. I also talk about how RFID tags and scanners will eventually allow you to pick up what you need from the store and as you walk out pay by simply walking through the scanner and have your card billed because it’s on file.
But there’s another future of money that hasn’t been talked about as much, and it’s in your phone. As a warning, this post will be talking about the iPhone. But it doesn’t matter if you have an iPhone, Blackberry, or a plain old dumb phone, in the near future all phones will be smart and have a connection to the web. Because the iPhone is as close as we get to ubiquitous, it serves the purpose of illustrating the future.
When the iPhone came out in 2007 just about everyone acknowledged that it was a game changer. But even Apple had no idea what the phone would be capable of in the coming years because 3rd party developers would be the ones doing the innovating. In terms of finance a number of apps have come along that allow you to do mobile banking. You know, transferring funds and maybe paying a bill or two. Then came apps which were great for merchants on the go to take care of credit card billing. Imagine a tow-truck driver who can use his iPhone to ring up your credit card and charge you that way. The technology exists and is in use as we speak. For the most part, people have given up on checks in favor of credit cards. But there’s still one area where checks reign supreme: personal checks.
Personal checks are a convenient way to exchange money between two non-commercial parties. For example, I owed a friend some money and wrote her a check. A friend owed me some money and wrote me a check. Does this happen frequently? For some yeah, but for many, no. But that doesn’t matter. A large portion of the population still writes checks for one reason or another. Checks have a big downside. You have to go to the bank and deposit it. Back in my earlier banking days I worked an elevator ride from a branch (tall building, bank at the bottom). But now being a Beltway Bum I deal with a lot more traffic and going to the bank is a headache. Even then, the lines are almost always long no matter what time I go. A trip to the bank today took about 25 minutes including time spent in the car and promising my banker buddy I’d finally go the pizza place he recommends. All in all a headache and such a time waster that I put off going to the bank for long periods of time.
But, we now have another option. PayPal, which has long been a powerhouse of conduction person to person transactions, has an iPhone app that can solve my problems. My buddy that owed me money has an iPhone, as do I. If we both had the PayPal app we could simply “bump” our phones together to facilitate the transaction. It’s a gimmicky iPhone trick, but the ease of doing a transaction this way is unmistakable. I could also have paid my friend this way. Another great way to use the app would be if you and some friends pool your money to make a purchase. The one person pays and you all send her money with your iPhone.
Experienced PayPal users will say that this technology has existed for as long as PayPal has. That’s true. My original PayPal account is 7 years old and I’ve used it for Weakonomics transactions as well. But by having this technology quickly accessible and in your pocket is a big step forward. It can’t be described in words (at least with my limited vocabulary), but there’s something fundamentally different about going home and logging into your computer to do a transaction compared to just whipping out your phone and doing it quickly. You’re just less likely to go through the effort if you have to wait until you get home because it won’t be on your mind anymore.
Is PayPal the first to do this? No. Will PayPal dominate this arena? Probably not anymore than their current customer base. Will it finally get the banks involved in doing similar things? YES! Banks are tired of dealing with checks, it’s an expensive transaction for them. But PayPal has made transactions via your phone a legitimate thing by being the first big player to make a splash.
Where do we go from here? How’s about a wireless transfer of funds between your bank and my bank? If I bank at Wells Fargo and you bank at Citi, how can we do this? The same way checks do. You need an account number and a routing number and the process is facilitated by the Federal Reserve. There’s no reason you can’t write a check on your iPhone and send it to another iPhone. Someone just needs to design the pretty app and add some security features. PayPal isn’t the winner here, but they deserve the credit for making this happen. It hasn’t happened yet, but it will.