You’re out to dinner with some friends and don’t think to ask for separate checks. The bill comes and since no one is carrying any cash on them, you either have to split the bill five ways with your many different credit cards or one gutsy friend takes the hit and trusts that the rest will actually pay them back.
Fortunately, this dilemma is quickly becoming a thing of the past.
Thanks to electronic payment apps like Venmo, Apple Pay and Google’s new Android Pay, the transition to a nearly paperless economy seems to be on the horizon. An empty wallet is no longer a sign of being a broke college kid; it simply identifies a person who is “with the times” financially.
But as transactions become more convenient for producers and consumers alike, how will this behavioral shift impact the way we handle our finances?
The Power of Convenience
I was having a conversation with a friend the other day as we were on our way to a street fair. We passed several banks along the way and as we got closer, I reminded him to pay a visit to the ATM because most of the vendors were cash only. He responded, “No thanks, I hate cash.”
Really? You hate it? You have such strong feelings towards paper currency that it actually evokes hatred within you?
The thing is, this sentiment is becoming much more commonplace among members of our generation. Even if we’re just wrestling with semantics and don’t want to use the word “hate”, it’s obvious that we prefer spending with credit and debit over physical dollars. On top of that, retailers are influencing the trend by making electronic payment acceptable at places it never used to be. Case in point: this street fair.
And it makes a lot of sense. For starters, credit and debit cards eliminate the need to make change or do math in general. Also, if you ever lose a wallet full of cards, those accounts can be suspended or the cards deactivated and replaced. With cash there is a much higher implied risk.
These new apps take that mentality to the next level.
Paper, Plastic, or Digital
Take Apple Pay, for example. You store your credit or debit card information on the app, which is then given a special encryption key for safety. Once you’ve set it up you don’t even need to walk around with your cards. All you do is hold your device up to a reader and poof, payment made. Forget picking between cash or credit, your third and most convenient option becomes “phone.”
Venmo, the app-based company that was bought by Braintree in 2012 for $26.2 million, allows users to transfer funds to their peers with the click of a button. Similarly to Apple Pay, the user inputs their information (Venmo gives you a third bank account option) and once that profile is set up they are free to pay back or request payment from anyone in their network who also uses the app. You can be the hero and pay for dinner with your card and immediately see that money back in your bank account before leaving the table.
Google’s newest endeavor, Android Pay, is essentially their take on Apple Pay. Android Pay will also integrate loyalty programs from many of their retail partners so users can input that information and continue to earn their points. It’s not simply becoming the next best alternative method of payment; it’s becoming the method.
The Financial Future
I have a couple of predictions.
The first? This is going to be the new way to pay. Cash is going to follow the same route as the home phone and using paper currency will be the least common method of payment for our children. Not only because of its convenience to the consumers and storeowners, but also because of the business it brings to credit card companies and banks.
Both Apple’s and Google’s payment apps make using credit and debit that much more attractive to consumers. Your finances are placed at your fingertips, you rarely have to makes trips to the bank and security has so far proven to be just as solid as promised. This ease will create the incentive for more people to apply for credit, which will mean more business for Amex, Visa, MasterCard and Discover and more money invested into the electronic payment industry.
My second prediction: personal debt is going to increase in this country. Paperless transactions will require users to be very responsible with their finances, and let’s face it, most of us aren’t. We see the same thing with credit card debt—the lack of physical currency leads people to charge things that they can’t afford. Unless people learn to budget—and very quickly at that—we’re going to see some negative consequences.
All in all, I’d say we’re in the middle of some pretty exciting stuff. Changes like these always require a bit of a learning curve, or in this case, an adjustment curve, but I truly believe this will all be for the better.
New technology will be developed to better support the electronic economy. In order to take part in this, young people will be encouraged to open bank accounts bringing business to smaller commercial banks. People will even begin to build credit earlier on in their lives as credit and debit become the mainstream way to pay for even the smallest of purchases.