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.
When I floated this complaint on Twitter a few weeks ago, some proponents of phone payments pointed to a few supposed benefits of the new system. First, they said, waving your phone would speed up your check-out. I don’t buy this. It takes about 10 seconds to swipe and process my card through my supermarket’s pay pad. Even if waving my phone takes half as long, it’s not a huge advantage—certainly not enough to justify the cost of installing NFC readers across the land
Another advantage, according to the Twitter hordes, is that you wouldn’t need to carry a wallet or purse any more. But I doubt that. For one thing, with all these different companies working on different NFC-based systems, paying by phone is sure to be a hodgepodge for a while: Some phones will work at some stores while not at others, and many stores won’t take any kind of phone. It will be a long while before you’ll be able to leave your credit cards at home. But even if every merchant takes phone payments, you’ll still need your wallet for other things: Where will you keep your driver’s license and your health insurance card? Perhaps someday everything in your wallet will be digitized, but don’t hold your breath. (And perhaps we should avoid it for security reasons. If someone steals your wallet but not your phone, at least you can call the police and your bank to report the crime. What do you do if your wallet is your phone—call them with your wallet?)
The biggest shortcoming with paying by phone is that it does nothing to address the real problem in the marketplace—all those retailers who take cash only. There are three main reasons why some businesses won’t step beyond cash: A) They don’t have the infrastructure to process cards (farmer’s market stalls, for instance); B) they don’t want to pay high processing fees; and/or C) they don’t want a paper trail of their transactions.
There’s no good way to solve problem C, but A and B are looking easier to overcome. A number of new technologies will allow merchants to take payments through today’s smartphones. A start-up called Square, for instance, offers merchants a credit-card reader that plugs into iPhones and some Android phones. Square charges businesses just 2.75 percent per transaction, and it doesn’t require a contract, a set-up fee, or any other costs (for most businesses, this will be significantly cheaper than what credit card companies charge). It’s the easiest way for all small businesses to begin taking credit and debit cards. The recently passed Dodd-Frank financial reform law may also help push more merchants to accept debit cards; that bill substantially reduces “swipe fees” that banks can charge for debit purchases, making accepting debit cards much more attractive (though the banking lobby is pushing hard to repeal this rule).
The biggest incentive to moving away from cash, though, is cultural. We’re all carrying less of it; cash-only businesses are going to have a hard time getting money. What will they move to in place of cash? I’ll bet it’ll be something that most of us carry, something that works everywhere around the world, and that never runs out batteries: Little plastic cards. Why do we need anything else?
Also in Slate: Farhad Manjoo explores the future of mobile gadgets: Will our smartphones and tablets eventually merge into one device?