The End of the Credit Card?

A new app called Card Case foretells a world without cash and plastic.

Jack Dorsey, creator of Twitter and CEO of Square

Getty Images.

Paying for stuff with your phone sounds awesome until you stop to think about it. It seems like every major tech company, including Google, is touting the fact that we’ll soon be able to buy anything and everything by waving our phones against a pay pad. Wait a second: Why is this supposed to be any better than pulling out a credit card? It’s not faster, it’s not more convenient, and it’s not any safer. Plus, many phones—and most stores’ pay pads—don’t yet have the necessary “near-field communication” chips required for these sorts of transactions, so the whole idea is kind of a fantasy anyway.

I pointed out this flaw several months ago, and I still haven’t heard any good argument for why we should be paying for stuff with our phones. Sure, I’d like to ditch my wallet, and I’d love if old-school shops and services (like buses and parking meters) stopped requiring cash. But if we’re going to adopt some new way of paying, shouldn’t we choose something with obvious advantages over how we do things now?

Well, I’ve found something with those obvious advantages. It’s an app called Card Case, and it’s made by Square, the brilliant payments company founded by Twitter inventor Jack Dorsey. Because Card Case runs on your phone, it may sound at first like the same clunky, phone-and-pay-pad systems being peddled by other firms. But Card Case doesn’t let you pay with your phone; it lets you pay with your name. With this app, you go into a store, choose what you want to buy, and then tell the cashier your name. That’s it—you’ve just paid. You don’t have to pull out your phone, you don’t have to open the app, you don’t have to sign, swipe, or wait for change. As long as your phone is on your person while you’re in the store—in your pocket or your purse—Card Case can authorize your payment without you having to do a thing.

Card Case will “auto-open” your tab when you enter a favorite shop

The version of Card Case that allows for such automatic payments is being launched today. (And for now, it’s exclusively for the iPhone.) But Square installed a pre-release version on my phone earlier this week. I used it at a couple of small stores in San Francisco. In one case, I walked into Pinkie’s Bakery and asked for a cupcake. The cashier told me my total, and I said, “Put it on Farhad’s tab.” She saw my name and photo on her iPad, tapped it, and I was done. A receipt was sent to my phone. The experience was magical—almost creepily so. It happened so quickly, and lacked so many of the hassles of a normal transaction, that when I left the store with the cupcake it was hard not to feel like I’d just pulled off a heist.

Square was founded last year, and in its earliest incarnation it provided a way for businesses to accept payments. Square makes a small credit-card reader that attaches to Android and iOS devices. It was thus a perfect payment system for traditionally cash-only businesses like food trucks, farmer’s market vendors, and high-school football ticket sellers. Square’s other advantage, for merchants, was price and ease of use. To accept payments, businesses don’t have to sign a contract or pay any kind of setup fee. Square takes 2.75 percent of every transaction—which, for most businesses, is cheaper than setting up a traditional merchant account. Since its launch, Square has shipped more than 800,000 readers.

Card Case is Square’s effort to close the circle—after tackling the cashier side of transactions, the company wants to fix the customer side. The first version of Card Case, released for iPhone and Android in August, also allowed you to pay with your name, but it didn’t allow for automatic payments. When you went into a store, you had to pull out your phone, open the Card Case app, and tap “Use Tab” to pay. That’s still how things work on the Android version of Card Case. (Square hasn’t said when it will release a new version for Android phones.) But in the iPhone app, Square has taken advantage of a new Apple technology called “geofencing,” which notifies an app when a phone has entered a specified geographical area. The key thing about this approach is that it happens in the background; the app doesn’t have to be on for it to work.

This might sound a bit scary. Isn’t an app that pays for stuff automatically going to lead to a lot of fraudulent purchases? Square has added several security provisions that will minimize unauthorized purchases. First, you need to turn on auto-payments for each individual store where you’d like to use it—it’s impossible to tell Card Case to turn on auto-payments for every store in San Francisco. Second, your name will only appear on a cashier’s screen when you’re within 100 feet of the store. But what if your nemesis sees you outside a coffee shop, and then goes inside and buys stuff using your name? That can’t happen because the cashier will notice that your face (which shows up on her screen) doesn’t match his face. (The photo also prevents a mishap if there are two Card Case users named John Smith in the same coffee shop at the same time.) Finally, your phone notifies you when a purchase goes through, so if someone does manage to buy something with your name, you’ll see it immediately.

Farhad’s virtual Card Case wallet

The only downside with Card Case, at present, is the limited number of places where you can use it. Every business that has signed up to use Square payments can accept Card Case payments, but they have to opt in to do so. At the moment, there are only 20,000 businesses accepting Card Case, and they’re clustered in big cities, with San Francisco and New York being the most popular. But I suspect that the new version of the app will push many other stores to join in, for two reasons. First, the Card Case app features a beautiful directory of nearby, Card Case-enabled stores—I suspect that lots of businesses will want to turn on Card Case just to be part of that directory. Second, business owners will also went to get on the Card Case bandwagon for the same reason they accept credit cards: To a customer, buying through Card Case doesn’t feel like spending money. It doesn’t feel like a commercial transaction at all. And because it doesn’t feel bad, we’re likely to do it without thinking. Ka-ching!

If Square’s payment system becomes ubiquitous, it holds the potential of revolutionizing more than the checkout experience. That’s because Square is the only company working on both sides of the transaction—it’s on the cashier’s device, and it’s on yours—and from that position, the company can create all kinds of new experiences. For instance, because Card Case can notify a coffee shop when you walk in the door—and because the cashier can see your profile, and can see that you usually get a medium mocha and a croissant—the barista can get your drink started for you while you’re standing in line. The store would also be able to keep track of its regulars and offer them selective discounts.

In the long run, Square might also be able to do an end-run around credit card fees. Right now, Card Case asks you to enter a credit card number; when you pay with your name, your card gets charged. (It accepts all major cards.) But in the future it could ask for a bank account instead, then debit your account every time you buy something. Square could thus undercut banks that are now charging consumers and merchants exorbitant fees to use debit. And it could do so in a way that feels magical.