The end of cash?

There is one question that I ask whenever I interview a banker. “Do you foresee a cashless society?” I get very diverse answers - some say that cash will always be there in our wallets and in cash registers of stores across the world; there are others who say that yes, there will be a day when cash is no longer needed because other payment methods will have advanced to the point where cash becomes redundant. There are those who see both options co-existing, which is the notion that I subscribe to personally.

Here in Sri Lanka too, things have taken an interesting turn as far as cash is concerned.

Two mobile networks already have money transfer services so you can pay with your mobile phone conveniently. Another bank has introduced a mobile phone reload service which does not involve upfront cash. Credit and debit card use is rising, even in the outstation provinces. Travel cards and refuelling cards which do not involve paper money are gaining popularity. Some banks also offer miniaturised wireless credit card readers which can be fixed to a smartphone for transactions on the go.

Globally too, the picture is changing rapidly. The entry of Apple, which often enters a sector and then takes it by storm, to the cashless payment world could hasten the end of cash as we know it.

Apple has launched Apple Pay, where you mobile could become the payment gateway at millions of locations worldwide. When Apple Pay launches this week on new iPhone 6 models and iPads, all it will take to buy an item is to hold your iPhone near a wireless reader and press your thumb on the home button.

Cashless

Apple’s take on cashless payments is technologically advanced, but deceptively simple too. The iPhone’s Touch ID fingerprint sensor, already used to unlock the phone, recognises it’s really you. Behind the scenes, a payment processor such as Visa recognises an encrypted version of your credit card such as the one in an iTunes account, along with a one-time security code for that particular transaction, and approves the sale - all in less than 10 seconds.

The basic technology behind this marvel is Near Field Communications (NFC), which allows mobile phones to communicate with payment readers.

Although credit cards are still used in Apple Pay, it is more secure because card numbers are not stored directly on the phone or on Apple’s servers.

Instead, digital tokens, encrypted numbers that look like card numbers, are assigned by a payment network such as Visa to each card and stored on a secure chip in the phone. During a purchase, that token and a one-time transaction-specific code are sent to process the payment, so even if hackers intercept the numbers, they cannot do anything with them.

Apple’s ability to create elegant, user-friendly products helped it popularise and seize commanding positions in music players and smartphones. If Apple Pay works as promised, it could do something similar for payments, making mobile wallets appeal to the masses, starting with millions of iPhone users worldwide. Apple Pay has already signed up the three big payment networks - Visa, MasterCard, and American Express.

Apple will also integrate other information on loyalty cards and discount cards in a separate application called Passbook/Passport which can be combined with Apple Pay. If Apple is able to deliver a seamless payment experience, with tight security and broad merchant support, the firm could turn the mobile wallet into an everyday experience.

Apple is certainly not the only pebble on the beach when it comes to mobile payments.

Over the past decade, tech companies including Google, eBay’s PayPal, Amazon and upstart Square, along with mobile carriers, credit-card companies, and various retailers, have all proclaimed the “death of the wallet.”

The Softcard mobile wallet joint venture of T-Mobile, AT&T, and Verizon is touting its support of more than 80 Android phones and the ability to pay at many retailers. There are also individual stores who have their own Apple and Android apps for mobile payments. For example, 15 percent of Starbucks purchases - some six million transactions a week - are now completed via its own mobile application which combines payment, rewards program and a store locator.

Solutions

Although some of these solutions work only within the US at present, worldwide deployment is not far away. The promise: the digital wallet equivalents would make paying for things in physical stores much easier. However, Apple’s solution appears to be the easiest, most non-technical and convenient approach to cashless payments.

One obvious advantage is that you do not have to give your card physically to the cashier, who can potentially copy your card number if he or she wants. It will also obviate the need to carry so many cards in your wallet. If you wallet is stolen or lost, it is a major hassle to cancel and replace all those cards.

There are drawbacks too. If your phone becomes the only “wallet” you have, you will have to ensure that it does not die due to lack of battery power. Not all stores will have NFC compatible mobile payment readers even in the next five years.

The lack of a single mobile payment standard will also hinder the progress of the cashless society. Indeed, tech companies, banks and payment companies such Visa and MasterCard should work on formulating a common standard for mobile payments, one which works across devices and operating systems such as Apple iOS and Android.

All stakeholders should also address security concerns of consumers, given the recent hacking scandals at big physical retailers.

By all accounts, it is going to take years for mobile payments to catch on widely around the world. But we are getting there gradually.

Apple Pay’s and others’ success ultimately will come down to persuading consumers to change longstanding habits using payment methods including credit cards and cold, hard cash, that still work very well. After all, they say “if it ain’t broke, don’t fix it.” Clearly, a completely cashless society is still a long way off.