Virtual wallets on the way

Toby Shapshak: To pay for a ride on a subway train,or for a coffee,just wave your cellphone near the paypoint. And off you go. Well,if you’re in Japan.

Cellphones,the most useful things on the planet that we can operate with our opposable thumbs,are working hard to replace the other most ubiquitous thing we carry:our wallet.

Google Wallet,launched last week,is a way of storing credit and other card details in one place,and it lets you tap at the till to pay for your goods.

There is another system on trial,from MasterCard,called PayPass,but Google’s clout could take it to another level,I suspect. Currently,there are few handsets (in the West,at least) with the necessary wireless chips and the Google Wallet system is backed only by MasterCard,Citi and First Data. The system is being piloted in stores in New York and San Francisco.

Combined with Google Offers (look out Groupon),which is a special-offers service that gives you discounts (and syncs them when you pay),suddenly Google has a mobile payment presence. It needs the Android app to be open,and there is only the Samsung Nexus S phone that can exploit it at the moment,but it should provide some impetus to mobile payments.

It’s been a pipe-dream for technologists and futurists who have foreseen some kind of digital money device for decades. Apart from Japan and South Korea,where consumers gleefully adopt cutting-edge technology,it hasn’t taken off in the rest of the world –in part because the handsets haven’t supported the underlying technology,and also because of inadequate awareness.

The technology used is called ”near-field communication”and it means exactly that. The phone has a chip that allows it to make a wireless connection and a transaction. All of this has to be secure,and consumer confidence (and a massive change in buying behaviour) will be necessary for it to succeed.

Earlier this year,I bought a bamboo cover for my (next) MacBook laptop from a guy at the South by South West conference in Austin,Texas. He’s a one-man business and gladly took my credit card. Did he haul out a bulky debit machine that needs to connect to Visa or MasterCard?

No,he plugged a tiny white square thing into the headphone jack of his iPhone and swiped my card. I signed on the screen,he e-mailed me an invoice and both of us were pleased with the transaction.

Unlike the usual 5% charge for processing a credit card transaction,he paid just 2.75% to a start-up called Square. It’s the brainchild of a chap called Jack Dorsey,whose last start-up was this social media thing called Twitter.

There is a massive change going on and mobile payments are slowly becoming more mainstream. (Space prevents me from discussing BitCoin,another good idea for virtual payment,from the creators of BitTorrent.)

There is a very real fear that banks will be left out in the cold by these new payment mechanisms. PayPal (not entirely the brainchild of South African-born Elan Musk,but enough for us to take some nationalistic pride in it) hasn’t taken off here as it has in America and other broadband-rich countries. But it is a revolution. If PayPal finds a way to go mobile (it is suing Google because two former PayPal executives are heading the Wallet initiative),the banks should be very worried.

Look no further than Kenya’s M-Pesa for proof of this (it hasn’t taken off in South Africa,either). It handles 10% of the GDP in transactions of less than $20 each on average. Wow.

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