The Death of the Wallet

Whatever happened to the personal camera? That's easy - the smartphone ate it.

The smartphone started as a communication device and quickly became integral to how you complete daily tasks and entertain yourself. Think of everything your phone already does and then consider that it isn’t quite done absorbing all the other tools and devices in your personal orbit.

Next on the hit list? Your wallet.

Think about the contents of your wallet. Receipts? Go digital. Many ATMs already offer the option to email you transaction receipts. Bit by bit, you’ll begin to see paper receipts disappear, replaced by digital scans and e-receipts. Any loose coupons? Why bother? You can search for the most up-to-date coupons while in the store, hold out your phone, and merchants can scan your screen. Discount achieved – paper saved. Pictures? Just kidding. Those are already on your phone.

Cash? Credit cards? This is where it gets interesting.

Google, Apple, and other tech companies are racing to turn your phone into a virtual wallet, complete with immediate access to cash and credit.

“At first, an iPhone wallet likely would act as a surrogate for credit cards, a way to store the data of multiple cards but using the phone as the way to transfer that data instead of a swipe,” says Marcus Wohlsen, writing for Wired.” But over time, the point of holding onto any of those cards, which become digital abstractions once they’re on the phone, likely will fall away. Instead, for all anyone with an iPhone is concerned, the way to pay will be Apple.”

If you’re a frequent online shopper, you probably already have a sense of how this works. Online merchants store your credit card information. When you’re ready to make a purchase, you may have to enter a password or PIN, but by and large, the information is already there, waiting in digital ether.

The digital wallet on your phone would work similarly – simply storing your credit card information and passing it on to the chosen merchant at the moment of purchase.

In the abstract, it sounds like a new way of doing the same thing, but the reality of this shift could have huge repercussions within the credit industry.

“By finding ways to embed payment information within the mobile device itself instead of on plastic cards, they can bypass traditional payment networks entirely,” says technology writer Dominic Basulto. “This may be a rough analogy, but it's equivalent to the difference between using Skype to make phone calls over the Internet or using a traditional phone provider and their legacy network to make that same call.”

This could mean that credit transactions will become cheaper for merchants as the cost of processing those payments (and the surcharges they would pay to traditional credit card companies) would go down. There’s also the possibility of more companies getting involved in the credit business. If Apple, for example, created the phone in your hand and the software that facilitates your digital purchases, might it make sense for them to directly control the credit used to make those purchases?

As for cash, it seems likely that phones will eventually absorb some of the features of debit cards – either connecting directly to the funds in a bank account, or, in the absence of a bank account, becoming a digital depository for your funds (much like you would add cash to a pre-paid debit card). That cash value would live on your phone until you made a purchase.

“We already live in a cashless society where nobody carries around cash in their wallet,” says Basulto. “The natural evolution is toward a cardless society as well, where nobody carries around wallets anymore -- all the payment information is stored, safe and sound, on your mobile device.”

The rise of the digital wallet is mostly driven by convenience and a desire to make purchasing completely seamless (which is not necessarily a great thing for consumers). There’s also a desire to reduce the number of levels between a consumer’s money and the people who own the product. It’s not unreasonable to think that we aren’t so far away from stores without employees, where consumers find what they want, scan the item with their phone, and then pay digitally from the same device.

Besides convenience and increased profit, the digital wallet also means increased physical security. Cash can be stolen and spent anywhere. Even a stolen credit card might be used a few times before you realize it’s gone. A stolen phone should be harder to access (assuming you have a passcode on your phone….please say you have a passcode on your phone). The rise of biometric security measures, such as built-in thumb-scanning, means breaking into a stolen phone will become more and more difficult.

This says nothing, however, about the security of digital information in third party systems. Unfortunately, no amount of careful planning on your end can prevent major retailers from having their databases hacked, which seems to happen a distressing amount.

So, whether your wallet is digital or leather, no system is perfect. But it seems like as technology becomes increasingly complex, we’ll require fewer and fewer tools to make it through the day.

How do you feel about the potential death of the wallet? Are you comfortable with the idea of everything running out of one device? Or do you plan to keep doing what you’re doing for as long as you can?

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

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