Feature Article

Free eNews Subscription>>
December 21, 2015

The Wallet Is Already Dead - We Just Don't Know It

By Special Guest
Houston Frost, Senior Vice President of Corporate Development at Payment Data Systems, Inc

There has been a lot of discussion lately about the evolution of payments, but for some reason, the notion of paying with anything but the plastic cards in our wallets has been met with skepticism. It seems that nearly everything has moved into the age of contactless or wireless. We were happy to lose our car keys, replacing them with radio-enabled key fobs that open and even start our cars at the push of a button. We had no problem ditching our wires for Bluetooth and WiFi. And when it comes to communication, almost everything we have to say or show passes through our mobile phones and is beamed, wirelessly, to the internet. Even still, we’re just not ready to accept the notion of exchanging our plastic cards and leather wallet for a mobile phone or other digital devices.

At first glance of the evidence, it seems hard to dispute this. We’ve seen attempts that have failed miserably despite massive investments. Softcard, formerly known as Isis Wallet, was a huge flop and never exceeded more than a handful of issuing banks. Google Wallet never took off, and has evolved into Android Pay (after acquiring the aforementioned Softcard). And industry analysts and reporters seem to constantly remind us of our inability to change when it comes to our wallet. In the past few weeks alone, there have been dozens of articles with titles like “Why Is Apple Pay’s Adoption So Slow?” These articles highlight that only 13-15 percent of iPhone 6 users have linked a payment card to their wallet despite the fact that Apple Pay is supported by more than 400 issuing banks.

But fret not, for the age of a plastic-less society is nearly upon us, and payment via mobile phone will only be a part of it. After all, you can already pay for things using a watch, and if you’ve completed a transaction with the Apple Watch, you’ll know that it’s even easier and more convenient than paying with your phone.

Why am I confident in my prediction of a plastic-less world? We must recognize that we live in a “now” society, emphasizing instant gratification. We expect change quickly. We demand immediate results. However, the adoption of new and innovative technologies takes time, especially when we’re trying to change behavior that has been ingrained over several generations. It also takes time to build new infrastructures to support new technology — the infrastructure in place for accepting plastic cards, for instance, was built over decades. Expecting the world to go plastic-less would be like expecting everyone to switch to electric vehicles overnight. Even if the technology is flawless, perfected, and undeniably superior — it would still take time to build out the supporting infrastructure like charging stations.

To put this into better context, let’s examine the initial revolution in payments: the move from cash and checks to plastic cards and account numbers. The earliest generation of charge cards consisted of travel cards, issued as early as 1934, as well as the Diner’s Club card issued in the early 1950s. The first true-revolving credit account and general purpose charge card was the Bank Americard, issued in 1958; this evolved into Visa in 1976. Master Charge came into existence in 1966 to compete with the Bank Americard.

Fast forward more than 25 years, and we’re still paying with cash at McDonalds. McDonald’s was one of the last major American businesses to capitulate to the modern payment ecosystem. In fact, it wasn’t until after the beginning of the 21st century that McDonald’s even accepted plastic itself.

And have you noticed that it’s only in the last few years that our parking meters have been upgraded to accept plastic? This is now more than 35 years after the original modern credit cards were developed.

Given that perspective, the conclusions about Apple Pay in the news seem entirely wrong - we should be discussing the incredible speed of Apple Pay adoption. In one short year, we’ve seen more than 13 percent of eligible users try their mobile wallet. Wow. What if we were to give this just a few more years? We’ll see more retailers with updated systems that can accept contactless payments. Consequently, consumers will be more likely to tap and pay with a digital device. Let’s be honest, Apple Pay’s adoption in its first three years will progress much faster than Bank Americard’s adoption did between 1958 and 1961.

Ultimately, the plastic card has zero advantages over the new payment methods being developed today — except, of course, for the fact that the infrastructure exists to accept plastic is everywhere. Beyond that, it’s really a terrible payment device.

Think about it for a moment. First of all, plastic cards are ridiculously easy to lose. Once lost, there is absolutely nothing stopping someone else from using it. IDs and signatures are seldom checked. If a stranger gets access to your cards, BOOM, they can buy whatever they want. Don’t forget, once you’ve lost your card, you have to wait days to receive a replacement. FedEx or USPS has to fly a piece of plastic across the country before we can gain access to our accounts again, and the same process goes if your flimsy piece of plastic is damaged or expires.

It’s 2015, and there’s a better way. The future of payments is cloud-based, tokenized, and can work using anything from a mobile phone to a wearable or a palm print. Today, if you report a card lost or stolen that’s registered with Apple Pay, a replacement card is immediately provisioned in your wallet. There’s no wait time, and no need to change your credentials with online or recurring billers if you set up payment with Apple Pay. You’re set within minutes.

When you look at all of the future options for payment methods, it’s pretty exciting. Beyond the mobile wallet efforts, we see now that MasterCard wants to turn almost anything into a payment device. The car key fob we mentioned earlier - why not pay with that? How about a ring on your finger? Kerv, Ringly, and NFC Ring are already selling them. Plus, on your mobile device, you won’t be restricted to just Samsung, Google and Apple Pay for long. Chase Pay is on its way, and SimplyTapp is a startup that empowers any company with the ability to launch a mobile wallet.

The flood of payment apps and devices is one catalyst. The other, at least in the U.S., is the migration to EMV. Since October, merchants assume a greater financial responsibility for fraud if they haven’t upgraded their terminals to accept EMV. And when they do upgrade, their new equipment will also accept tap and pay.

Next time you pull out your wallet, imagine if you could simply tap your watch instead. Let’s embrace the obvious. Not only will our landfills be better for it, but we’ll enjoy greater security and convenience when we pay. Despite the media reports of slow uptake, it’s only a matter of time until the plastic card disappears. The digital future of payments will be here sooner than we’re anticipating. And McDonald’s won’t be the last one to the party this time. 

Houston Frost currently serves as Senior Vice President of Corporate Development at Payment Data Systems, Inc. (NASDAQ CM: PYDS). Prior to joining PDS, Houston served as President, CEO and Director of Akimbo Financial, Inc. which was acquired by PDS in December 2014. Before Akimbo, Houston worked in New York as an Associate at JPMorgan Chase & Co. on the Fixed-Income Strategy team, where he provided clients with research and trade opportunities in US Treasury and interest rate derivative markets. Houston earned his Ph.D. in Chemical and Biological Engineering from Northwestern University in 2007 where he co-authored eight articles in peer-reviewed academic journals and one book chapter.




Edited by Kyle Piscioniere


FOLLOW MobilityTechzone

Subscribe to MobilityTechzone eNews

MobilityTechzone eNews delivers the latest news impacting technology in the Wireless industry each week. Sign up to receive FREE breaking news today!
FREE eNewsletter