Posted on August - 05 - 2010
Are SmartPhones Taking Over Credit Card Payments?
Last week, one of our Credit Karma engineers snuck over to Berkeley and went to a vegan bakery to buy a very Berkeley-esque, gluten-free scone. When he went to pay, in place of the traditional “ka-ching” cash register was the sleek and sexy profile of an iPad equipped with a credit card terminal. In the midst of the busy downtown area where many local businesses are cash-only, a quick swipe and a few touch-screen clicks later, our CK engineer was out the door and munching healthfully ever after.
The use of mobile payments through mobile devices—iPhones, Androids, other Smartphones, and iPads—was a hot topic in the media, but yet to be seen around the consumer marketplace. It’s been mulling around news and blogs for months: companies competing for who has the better credit card swiping gadget, start-ups offering business transactions via text message, and special “bump” technology to exchange money when two phones make contact. But, cash registers and ATMs remained the norm and paying with your cellphone just sounded like a nifty and futuristic idea.
But finally hearing about one of these devices in use, the iPad-turned-bakery-cash-register, has brought to life the encroachment of phones and mobile gadgets into what our wallets used to be for. And where one trendsetter goes, more will follow.
There are interesting advantages to it. First of all, even non-tech heads or shopaholics can admit that this is pretty cool. Consumers can ring up payments and exchange money wherever, whether shopping at a flea market or running into an old friend with an overdue I.O.U. It makes paying and receiving money easier and more flexible (and more tempting) than before. Payments are more secure, more cost-efficient, and less hassle than the old ways, and hopefully cheaper.Once the trend explodes, point-of-sale purchases via Smartphone could become the convenient, ubiquitous payment method around. No more hoarding cash to garage sales, dinners with friends, or Craigslist pick-ups—it’ll be plastic-via-Smartphone payments from here on out.
It could also shift the power balance in the stable industry of credit card processing towards consumers and small merchants. Silicon Valley start-ups with Smartphones and bright ideas spell competition and potential profit margin loss for dominant players MasterCard and Visa. Competition that could drive costs down is great news for small businesses, who have long struggled against the steep 2-3% interchange fees MasterCard and Visa charge for processing transactions.
But with convenience comes excess. Financial transactions through your Smartphone virtually replaces the need for cash or checks in most cases, which means you never have to carry wads of bills or hunt down an ATM. This also makes it infinitely easier for you to use credit as your primary currency. The more accessible credit is, the more often you may rely on it, which also means the easier it is to swipe your way into debt more often and in more places. From there, you can quickly accumulate excessive debt–and then its one late payment or maxed out credit card away from damaging your credit score.
For now, MasterCard and Visa’s dominance makes it difficult for new payment systems to really take hold. But it’s an emerging trend in consumer behavior that could pop up at your local café soon, and when it does, you can leave your wallet at home as long as your credit card-ready Smartphone is in tow.
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