Dis-Cord: Mobile Transactions and the Death of Cash

Here’s a thought: walk into a bar, order, and pay with your phone. Why not? Japan as an entire nation has been doing it widely for at least the last five years. I know it sounds crazy but it’s time the wild wild West looked beyond what the mobile giants are pedaling today and ask themselves, “Why haven’t we done this yet?”

We’ve already seen a number of mobile payment technologies break onto the scene since the start of 2010, including a few raised right here in Austin, and they are doing more than just introducing new portals to give our money away; they are actually ballooning a market that has the potential to disrupt how we view, value, and spend our hard earned dinero.

Get In The Game

The technologies exists to transition transactions from the ugly, cumbersome processes that we’ve all been accustom to for approximately the last 60 years – I am talking about scribbling by signature on a piece of paper with a bunch of meaningless numbers, or carrying around book of receipts/cash in my back pocket.

Of these technologies, there are number of interesting players in the game but Square is probably the most notable of the group currently leading the pack. Square allows merchants anywhere there is internet access to accept payments from credit cards via any mobile device that has a headphone input jack.

Square is extremely interesting to me because of the potential it has to significantly widen the transaction playing field and practically double the revenues of any delicious cash-only trailer on South Congress simply by facilitating credit card transactions.

Square provides a necessary technology for independent businesspersons to see more dollar signs while lessening the stress on consumers by providing a stellar alternative to the always-disappointing “cash only” sign, all while sexifying the exchange in the process. I’ll ask it again: “Why hasn’t this happened yet?”

Market potential seems to be growing hand-in-hand with the proliferation of the apple’s products (i.e. the iPad and iPhone), and rumor on the street has is that apple themselves may be starting to smell the pie they are cooking up and want a piece of it.

There’s no doubt in my mind that Square’s tech should and will be included in every small biz startup kit from here on out. However, the more interesting question to me is not whether businesses are going to use it, but how this technology will influence how we as consumers spend?

To buy or not to buy?

In an effort to predict general US spending behavior, as well as an Austinite’s spending behavior, I think it best we look to Japan as a sister culture example that is ten years ahead of us.

I make this assumption because Austinites have the disposable income and interest in technology to mimic Japan’s mobile adoption behavior. “Austin residents are the No. 1 spenders in the U.S., averaging $67,076 in overall household expenses over 2009.” And, as is in Japan, Austinites are technology cookie monsters in search of the next fun gizmo to ogle over until someone at SXSW tells us what the next shiny object could be. Long story short, our culture is composed of financially enabled, technologically savvy cool hunters.

Japanese residents use their phones for everything, including payments, and they shop a ridiculous amount via their mobile devices. According to a number of reports put out by Wireless Watch Japan, an English news source for Japan’s mobile industry, Japan’s mobile payment/shopping industry has encountered little resistance with user adoption. To shed some light, here are some of the more interesting stats I found:

· Revenues from mobile shopping and auctions started to outgrow mobile content revenues as early as 2005. The dominant players in this category are Yahoo! Shopping and Auctions and Rakuten, an online shopping site Aggregator which generates 25% of its total sales via mobile.
· 32% of Japanese mobile users use their mobile to make purchases online.
· 21.5% participate in auctions.
· 14.8% of mobile shoppers do so 5-9 times a year, and almost 1/6 once a month or more.
· The average amount spent on mobile purchases by shoppers exceeds US$300.

As our lives get busier and align more with web-savvy devices, we will start to mimic the behavior seen above, purchasing more: possibly a new Mac Book via your new iPad, bidding on ebay via your blackberry, or merely purchasing the right to read the content that until this point has been offered free for your reading pleasure!

Currently, we are faced with an infrastructure-level problem: If we don’t have cash, we don’t get a cupcake from the trailer. The introduction of mobile transaction software/devices, mobile digital cash, payment 2.0, or whatever we will eventually call it, will inherently remove this infrastructure level barrier leading to the deeper philosophical question, “It’s possible, but do I need this cupcake?”

The introduction of these technologies goes way beyond cupcakes though, and will undoubtedly effect spending behaviors, businesses, and financial institutions.

Looking to the future

In the next few years we will begin to see Americans purchasing more and more from their iPads, iPods, and phones. I have not doubt about it.

To break it down, I see the paradigm shifts below happening in the next 10 years as a result of mass adoption of mobile transactions:

Cash use and physical currency will decline

This is bound to happen especially as more players like, PingPing, Paypal (using Bump’s tech), and Austin’s own TabbedOut enter the game with their eyes on the rapidly expanding gold rush opportunity.

(Even Starbucks has a mobile payment app… we should all be worried, very worried. Our nation is about to be cracked out and in debt thanks to Starbucks.)

Although all different now, with no clear victor in the pack, these technologies all share one common attribute: they come through when cash fails. Cash is limited, troubling to access on-demand, and ultimately unnecessary unless you are purchasing something shady.

Credit cards will likely remain the primary payment option (as perpetuated by technologies like Square) as we’ve already been trained and accustomed to this primary payment process for the last 60 years.

Quickly following credit cards as the current preferred method payment is cash, but the main differentiator between cash and credit cards is that credit cards are not yet immediately threatened by mobile payment technologies — cash definitely is.

All of the companies listed above will likely substitute cash in small transactions to start, but will grow in popularity because they are fundamentally easier and more similar to the credit card-like behavioral tendencies to which we are accustomed.

Cash is also threatened by businesses that may reinforce mobile payment methods because of the added business value they offer. This could be a number of things: graphically representing transactions, gathering data about your customers, branding transactions, or by providing a better system for personal finance by allowing users to electronically tracking each transaction in with e-receipts waiting for them in their inbox.

Point being: cash is limited, and phones are everywhere. Businesses and consumers will put one and one together eventually.

NFC enabled phones will increase micro payments

Not long ago, Richard McManus wrote this article on ReadWriteWeb explaining the tech and potential of Near Field Communication technology in mobile phones.

Pay Pay with bump is an example of NFC hard at work. The days of “I’ll have to pay you back” just won’t cut it in the future, not when the act of returning owed money can be accomplished by simply bumping phones together (assuming you have the money in your account).

This technology could allow for payments of all sizes, but practically speaking, it directly targets cash because that is the preferred method of smaller transactions. No one wants a check made out for $4.50 – it would cost you that much in gas just to cash it.

NFC is a valuable technology, especially within the context of mobile payments. While Apple or Android products haven’t yet adopted it, I wouldn’t be surprised to see this technology wrapped into new products as the competitive landscape for mobile payment methods matures.

Smarter Recommendations: spending data will open all kinds of doors

Transactional data will dramatically improve search. When transactions go mobile and through a device, data is being generated and potentially captured. While some don’t want this data to go public, there are valuable uses for it that have real world value.

In a recent interview with John Battelle, he explains how services can communicate with each other to use such data to better serve your goals:

Say I use the New York Transit application to navigate my way through New York for 3 or 4 days… all of the questions and back-and-forth that I use that app for, which is essentially a structured search session—right? Now, match that against a set of data which is the transit map. I say, “I need to go over here. I want to go over there. I prefer this route over that route,”—that becomes a dataset that should inform other searches that I’m making on things that seemingly are unrelated but may not be. That should be available as metadata for future searches. And figuring how to inform that is as important as parsing the line or the spoken phrase that I’m making in the moment.

Now, if I take that spoken phrase and go and search for “Chicago rental car” four months after interacting with that New York Transit map application, how can we take the metadata from that interaction with New York and inform the appropriate response in Chicago. Perhaps the best suggestions would be, “Hey, you know what? You don’t need to rent a car. You can use the Chicago Transit. Here’s an app for it. You can get from the airport to everywhere you want to go without having to rent a car. Plus, you’ll save $150 which we know is a goal of yours because you’ve been interacting with the Mint application and it said that a goal of yours is that you want to save $200 a month and here’s a way that you do that”?

Tying all that together, that’s the Holy Grail because then it starts to understand you. If you only parse just the query, even if you get the natural language right and the intent right, you’re missing the whole person.

Spending behavior can paint a more accurate picture of who you are and can thus allow services to better understand our needs and make better recommendations.

While scary, spending behavior is one of the biggest missing pieces of the puzzle that helps machines identify what we need, what we don’t [cupcakes], what we value, and what alternatives may better suit our long-term objectives.

Comments

  1. Great stuff. Here's my thoughts as perhaps one of the few Tokyo to Austin techie transplants reading this article :)

    First, it's a bit ironic that the iPhone is the center of mobile payments in the US when it's Japan release was marred by many Japanese pundits declaring the iPhone would fail in Japan because it lacked integrated mobile payment systems such as the popular SUICA chip (which you can charge with cash or link to a credit card and use for “touch” payments at train stations, convenience stores, restaurants, and so on). It's often argued that the iPhone has taken off in Japan because of its excellent web browser, usability, and utility as a “second phone” to accompany your old phone with standard Japanese features like TV and high res camera.

    Second, carriers like ATT & Verizon could look to DoCoMo, KDDI, and Softbank (Japan's top 3) for ways they could profit from facilitating this market. It's my understanding that mobile service providers in Japan typically charge less than 10% commissions for the benefit of reaching vast audiences and integrated billing, which combined with years of Flash friendly phones have led to a strong mobile gaming infrastructure, whereas the US counterparts charge much more.