The End Of Cash

Walk into a store, submit your shopping list, and a map directs you to the peanut-butter-brittle ice cream you crave. When you get to the front of the line, just bump your phone on the reader and you also get a discount via an e-coupon you’ve downloaded. Or scan pictures of the lasagna, salad and French bread you want for dinner from a Safeway ad as you wait for the train and pick up the bag on your way home. This is the year the surging popularity of the mobile wallet–a smart phone that also acts as credit card, checkbook and shop-bot–will radically shift shopping habits. It’s the biggest thing in retail since the credit card got us talking about a cashless economy.

The driving force is communication: cash can’t communicate, but phones can. Your alarm clock, radio, camera, landline and GPS, even your laptop, have already been displaced by your phone. Why not the $69 and four credit cards the average American carries? “Everything eventually migrates to the cell phone,” says Scott Ellison, an analyst with IDC who tracks the mobile industry. “And when it moves, people tend to do a lot more of it.”

Tammy Lam, 26, a p.r. executive in San Francisco, uses her T-Mobile HTC myTouch phone to pay for just about everything. “I ordered dinner from my local Thai on GrubHub while sitting on the bus on the way home from work last night. I bought all my Christmas presents on my phone. When friends and I are out, we use Groupon to buy a meal,” says Lam, who uses her phone instead of her computer for shopping even when she’s at home. And she prefers it to cards or bills when she’s out. “I hate cash,” says Lam.

Lam is an early adopter, but there are enough people like her to set off a mobile-wallet war that will escalate this year, converting billions of dollars’ worth of transactions to cashless in the $4 trillion retail economy.

Google, the company that changed online search, just launched Google Wallet in partnership with Citibank, MasterCard and Sprint’s Nexus S 4G phone. PayPal, the company that solved secure online payment, will announce 20 partnerships this year designed to allow you to order ahead, self-check-out in stores and simply use your phone number and a PIN to pay for purchases. Isis–a Verizon, AT&T and T-Mobile wallet with Visa, AmEx, Discover and MasterCard partnerships–launches midyear in Salt Lake City and Austin. Visa’s own virtual wallet, V.Me, is also on deck. “Anything with an on switch could be a payment device,” says Anuj Nayar, PayPal’s communications director.

And of course, everyone anticipates a move by Apple, whose stores are already processing sales through iPhones. Apple will announce a wallet this year, predicts Mark Beccue, a mobile analyst with ABI Research. “They have such a loyal following, and they’re so vertically integrated–they’ll help move everything forward.”

One-Stop Shopping

Mobile wallets work in different ways. Google and Isis rely on NFC, or near-field communication. Basically, this means the phone and the sales terminal talk to each other. The Subway sandwich chain is installing NFC in about 7,400 of its 25,000 locations; 219 Macy’s and Bloomingdale’s stores have it up and running; Jamba Juice, OfficeMax, Coke vending machines, even New Jersey Transit trains are set up to take payments with a tap of your phone. Some of the more fantastic aspects of these schemes–like tapping a sign at Home Depot that automatically calls a service rep–require stores to be fitted with NFC equipment throughout, something that hasn’t quite happened yet. But the pattern is set. “Consumers expect to use one click to buy just about anything,” says Osama Bedier, vice president of payments at Google. “There are no checkout lines online.”

Mobile wallets can also be your shop-bot, sniffing out exclusive offers–say, $2 off oatmeal at Jamba Juice as you walk by. Not hungry? Save the coupon to the wallet, which will automatically activate it when you buy your next oatmeal. “Twenty years ago, we had zero need for digital payments,” says Bedier. “But today you can’t buy a song or a game or an app without them. Increasingly, it will be hard to get a lot of experiences on offer with just cash.” There’s something ironic about getting your money’s worth only if you’re not actually using money.

PayPal, with its 103 million account holders and 9 million merchants, is betting on the cloud: store your information and access it from any computer or phone. It has been buying up companies, at least a dozen in the past year, that specialize in bar code readers, inventory tracking or offering location-based deals.

And PayPal is working with retailers to put it all together in apps. Like Google, PayPal is building in loyalty cards and coupons and trying to wrap up other capabilities–like skip-the-line checkout at coffee shops, grocery stores and home-improvement centers–before NFC is built in. “There is nothing you can imagine that isn’t happening,” says Scott Thompson, president of PayPal.

The goal is to reduce friction in retail. To solve the lunch-hour crunch at Pizza Express restaurants in London, for instance, PayPal created an app that allows customers to enter the number from their bill into their phone and then pay without waiting for a server to run a credit card. The potential glitch? If your cell service or wi-fi goes out, so does your ability to pay.

Starbucks’ app, which has been used 26 million times, allows customers to tap their phone to pay for their triple-venti lattes; mobile payments hit 6 million in a recent nine-week stretch. LevelUp users get their own QR codes they can scan at 1,000 retailers to pay for coffee or pizza. Shop Savvy, a price-comparison tool, has added a buy button. AisleBuyer is a line buster, allowing you to do scan-and-buy self-checkout.

Certainly consumers seem ready to ditch paper and plastic. Every day, apps are launched that accommodate person-to-person transactions, giving you the ability to pony up your share of the rent as well as the ability to skip the checkout line. And 32 million banking customers are managing their money very comfortably on cell phones. Chase alone moves $3 billion a year on mobiles with an app that allows you to deposit to checking via a cell-phone photograph or pay friends for your share of the moo-shu pork by phone transfer. PNC Bank’s app allows you to move money from one account to another by sliding your finger along a bar.

The future of mobile transactions has already arrived–in Africa. In a market with few banks and even fewer ATMs but with a cell-phone network that makes the U.S.’s laughable by comparison, mobile banking is the standard. In Kenya, 18 million M-Pesa users now move 20% of the country’s GDP via simple text messages. Pretty impressive for a program that started in 2007.

Christmas Breakthrough

This christmas season is a window on the mobile wallet’s development. Salvation Army Santas used mobile phones to take payments, there were 500% daily jumps in mobile sales on PayPal, and customers pulled out their cell phones to check reviews and compare prices in stores in never-before-seen numbers. Amazon even offered $5 off to customers who scanned a bar code in a store–so Amazon could offer a lower price on the same item. This “scan and scram” behavior infuriates brick-and-mortar retailers, who fear they are simply being used as a showroom for online retailers. They may be right–but consumers now have a price-discovery tool that gives them more power, and they aren’t going to give it up.

Our comfort and routine with cash and credit cards have been barriers of a sort. But mobile payment could jump the fence and move faster than anyone expects. When Haiti was hit by an earthquake in 2010, the Red Cross raised $32 million, $10 at a time, via text. Ultimately, mobile payments made up 7% of the money raised for Haiti. “We call it the game changer,” says Roger Lowe, the charity’s spokesperson. “If they say people aren’t already using their phone for payments, I have 32 million reasons to believe they are.” Mobile-payment platforms could power social movements too. WePay, an online-payment system that helped the Occupy movement raise $680,000, will launch mobile capabilities in the summer.

The mobile wallet, predicted to be worth $12.5 billion this year according to ABI Research, is about not just the Minority Report–style cool-retail factor but also practical things like … money. “The consumer will save money, in part through deals that are based on past purchases, not just random offers. And they’ll get better financial control,” says McKinsey’s Philip Bruno.

But on an everyday level, the mobile wallet’s big promise may lie in the little problems it can solve. “If it’s a busy lunchtime and I can preorder and prepay at Chipotle, skipping that long line,” says Charles Wilson, who helps companies with social-media strategies, “then it’s a godsend.” Or as Ed McLaughlin, head of emerging payments at MasterCard, says, cash will never go away but will only become less useful. “Cash is going to be like the postage stamp. If you aren’t used to using it, it won’t make a whole lot of sense why one would.”