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The Wallet Is Dead: Mobile Payments And Peer-to-Peer Cash Flow

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How do you pay for things these days? Cash is so 20th-century, and checks? Forget it. You may have heard of new ways to pay with your phone coming down the pipeline—well, they’re here. Sort of.

While smartphone manufacturers have been pushing “mobile wallets” for some time now, the idea of paying for your groceries by tapping your phone to a sensor at the store has yet to catch on big. In fact, one of the most successful The Wallet Is Dead: Mobile Payments And Peer to Peer Cash Flow image video mobile minute mobile payments 300x168“mobile payment systems” is Starbucks’ mobile app, which handles more than two million transactions for the coffee giant per week. On the other hand, those two million transactions amount to just five percent of Starbucks’ weekly sales, and the “mobile” offering is simply an app that displays a picture of a gift card barcode. Not the most sophisticated system.

But the allure of leaving your wallet at home is strong. And, of course, retailers love the idea of being able to better track and advertise to their customers through mobile payments.

While right now it’s still easier to pull out a credit card at the pump or in the grocery checkout aisle, there’s one area where mobile payments might shine: in peer-to-peer (P2P) payments. Imagine being able to pay a friend back for lunch with less effort than paying a cable bill.

“If you think about it,” says Tom Roberts, SVP of marketing for e-payments at financial services technology firm Fiserv, “the way we communicate today has changed remarkably in the last decade. But when you get to paying people back for things you owe, or collecting money for things like soccer jerseys, we’re still in this cash and check world which is really last-century.”

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For the most part, people still conduct transactions like splitting lunch, paying a share of the rent, or tipping the babysitter by cash or check. According to a 2010 report from research firm The Aite Group, a full half of the P2P transactions in the U.S., U.K., and Australia were cash. Another 17 percent paid by check, and 11 percent gave gift cards. Paying by phone didn’t even rank.

Cumulatively, these P2P transactions (including those few paid by other methods) amount to $900 billion each year, a chunk of change equivalent to more than half of the U.S. GDP.

That’s why companies like Popmoney (a division of Fiserv), Dwolla and Venmo are trying to change the way people send money. Popmoney and others allow you to send money to a friend or family member with just their email address or phone number.

If you’ve used Paypal, these P2P payment apps may feel familiar, but the difference, Roberts says, is that Paypal was designed to facilitate commerce. (The quintessential example: buying something from a stranger on eBay.) Popmoney “was designed from the ground up to be a digital, social, P2P payment product.”

The future is here…almost

While these companies have certainly made it easier to split dinner with a friend, the idea of using an app to send money doesn’t feel that flashy when compared to some of the other futuristic technologies coming to mobile phones. Square, of course, lets all of us take credit card payments with a dongle attached to our phones, and the much-heralded near-field communication (NFC) technology, which lets smartphones communicate via radio waves, may someday allow phone owners to pay for anything with a wave of their devices.

Roberts doesn’t see those technologies as playing a big role in P2P payments, though. For one thing, Roberts says, “what we see from what is transpiring on our system is that people [paying each other] are not in absolute close physical proximity.” So the roommate paying her share of rent might not be doing it while in the apartment; maybe she’s sending it while on the go or at work. That rules out a tap-your-phone-to-pay option. The lack of NFC implementation in many smartphones is another hurdle; the newly announced iPhone 5S and 5C lack NFC, and research firm ABI projects that just 270 million NFC-enabled phones and tablets would be shipped this year, out of almost a billion sold.

And swiping credit cards? “I think that’s a hard model to have work,” says Roberts. Taking credit cards requires paying a transaction fee on each purchase. “I think a three percent fee on a $50 bar bill is more than any consumer is willing to pay,” says Roberts.

That doesn’t mean Popmoney isn’t looking toward the future. “We’ve looked at how we would extend [ways to pay],” he says. “Today our primary identifiers are your email address and phone number. We’re investigating ways to expand it to your Facebook ID, or maybe your LinkedIn ID.”

Another obstacle, of course, is awareness. Popmoney is available at almost 2,000 banks and credit unions but remains in the early-adopter stage of the product lifecycle. “The awareness that this is even available to them is not all that high,” Roberts says. “We’re trying to get past that spot…and we expect in the next couple of years to leap that chasm.”

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