Paying for stuff is considered an important part of the economy, one of those activities that civilization has been refining for thousands of years. Yet it's still a big hassle. The major problem, of course, is cash. Paper money is a pain to acquire and carry—you can only find it at specialized locations, many of which charge you outrageous fees. It isn't safe; if you lose cash or it gets stolen, that's that. Cash leaves no record, which is good for thieves and tax cheats, but inconvenient for the rest of us. (Wouldn't you love to know how you squandered $100 Saturday night?) And it's pretty gross, too. That $20 you're carrying was in some dude's pants.
It makes sense, then, that few Americans want to use cash anymore. According to a 2008 Federal Reserve survey, the "median American" (that's you!) carries only about $30 in paper money at any one time. Mr. and Ms. Median visit an ATM just three times a month, and since 1995, the dollar value of cash transactions in the economy has plummeted. (So has the value of payments made by check, another terrible system). Yet despite our clear distaste for paper money, many retailers accept nothing else. And then there are the parking meters, vending machines, buses, newspaper stands and other outlets that want exact change.
I'd rejoice if someone found a way around this. We need a system that convinces cash-only businesses to ditch paper money in favor of something more advanced, and we need it now. So here's the tech industry's idea: We should pay for stuff with our phones! A host of companies—Google, PayPal, and reportedly even Apple—are looking to convince retailers to install systems that would let you pay by waving your phone against a payment pad. Paying by phone is already big in Europe and Asia, and analysts say Americans will want to do it too; some predict that by 2013, $75 billion in payments around the world may be conducted through phones. It's clear why phone manufacturers and carriers are pushing for mobile payments. By skimming just a bit off the top of each of those transactions, the tech industry could see a big new source of income.
I have a secret for you: The perfect payment system already exists. Except instead of a phone, it's a much smaller, lighter piece of plastic that fits neatly in your wallet. Look carefully—you probably already have one.
I can't think of any reason why waving my phone would be a better way to check out than swiping my credit or debit card. In fact, phone payments will require merchants to add extra payment-processing infrastructure, which might raise prices. And for what? We already have lots of non-cash ways to pay for stuff—credit cards, debit cards, gift cards, texting, and PayPal, among other things. We don't need a whole new system; we need a single universal system. And if we're looking for a payment method that everyone can use, we ought to choose something that everyone carries with them. You know what that isn't? A smartphone.
The current pay-by-phone craze is inspired by the advance of "near-field communications," short-range wireless chips that will begin to appear in lots of phones over the next few years. According to Bloomberg, Google will soon begin testing an NFC-based payment system at retail locations in Los Angeles, Chicago, and Washington, D.C. Google's Nexus S Android phone already includes an NFC chip, and the company has been pushing other Android phone manufacturers to adopt the standard. Google isn't alone. PayPal and ISIS, a collaboration of the nation's largest wireless carriers, will begin testing an NFC payment system later this year, Bloomberg reports. Both Nokia and Research in Motion, which makes the BlackBerry, have said they plan to include NFC chips on all their phones. There have also been persistent rumors that Apple is working on an NFC payment system that will let you pay using your iTunes account just by waving your phone.
But NFC-based payments look like a solution in search of a problem. Swiping a credit card isn't an inherently annoying process; it's quick, it's pretty bug-free, and most importantly, it's widely used. According to the 2008 Fed survey, 93 percent of Americans have some kind of payment card (credit, debit, or prepaid). That's higher than the percentage of Americans who've got any kind of cell phone—85 percent, according to the Pew Internet & American Life Project—and it's way more than the number of Americans who've got phones with NFC chips. Of course, over time, more and more people will get such phones, but I'll hazard that it will be the rare American who'll get a smartphone but won't have a credit card or debit card.
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