A recent feature story in Fortune declared the "death of cash." The cover art showed a $100 bill hitting a smartphone's screen, and being obliterated into pixels on the other end. The implication is clear: Fortune thinks we won't have a need for cash soon, and our phones will take care of all of our financial needs. The story states that cash will be on "the endangered species list" because mobile wallets will be "as transformative as the advent of the credit card in the 1950s." And as everyone knows, no one has used cash since 1955--not once.
The breathless tone of so much coverage of mobile wallets can be a bit frustrating. Why must cellphones be cash-destroyers? Why are they presented as inherently better than cash? Why does no one point out the obvious problems a cashless ecosystem would bring? Do people really find handling cash so troublesome? Who are these people?
As a response to all this disruption fever, we've compiled a compelling list of reasons why mobile wallets might not be the end of cash, and why they may not be as exciting as everyone who writes about them seems to think.
1. They will compete with credit and debit, not cash
Why did Fortune not run a cover with an American Express card getting turned into pixels by a cellphone? It would, after all, be more accurate. Google Wallet, arguably the leader in the field--and not exactly an impressive one at that--simply puts users' credit and debit cards onto the phone. It also comes with a prepaid card that users can load with money, from a bank account. Try to stick cash into your Google Wallet and it won't work--these two worlds are completely separate. This system simply adds another layer on top of a robust and complex payments ecosystem by making payment cards virtual.
If the mobile wallet is as transformative as the credit card, why isn't it reasonable to assume that the credit card--the corporeal credit card, that is--will be the pixelated byproduct of the smartphone's transition to wallet-dom?
2. Want to lose your wallet once a year?
According to a study by Lookout Labs, American lose, on average, one cell phone a year. Cities with high crime rates, for obvious reasons, tend to have higher incidence of cell phone loss. Philadelphia, Newark, and Oakland, for example, are three of the top five cities for lost cell phones. But you don't need to be strong-armed out of your iPhone to lose it. You could ride in a cab while wearing slacks or work pants with loose pockets. You could leave it on the counter of a coffee shop. You could let it slip out of your bag on the subway.
We are so dependent on our phones that losing them can be quite crippling--mentally crippling, if not actually crippling. Imagine if you had decided you'd rather use your phone for literally all of your purchasing needs. It would become actually quite crippling to lose your phone were that the case. Were you robbed for your wallet-phone in Newark, you might get robbed a few times afterward. If your phone is your wallet, and you don't have beefed-up password protection on your phone, the sky is really the limit until you can call and cancel your credit cards--but wait, your phone! Well, I guess you can just get a cab home--but wait, your wallet!
Diversification of risk has many practical applications. Nothing stops thieves today from stealing both your phone and your wallet, of course, but it's at least slightly less likely when you keep them separate.
3. Not every business can offer discounts as a marketing tool
One of the benefits of a mobile wallet, we're told, is that we can get access to all sorts of local deals. Yes, in the future, local deals will drive commerce, we're told over and over again. You're hungry? Open up your smartphone and find out which restaurants nearby are offering deals for mobile wallet customers. This will work perfectly for people who like to eat nothing but mediocre pad thai. For others, the entire value proposition will be lost: not every business is willing to offer discounts as a marketing tool.
The entire promise of the mobile wallet is that it can provide new channels for marketers, and drive conversions for businesses. But that's only if businesses want to offer discounts. Some will, others won't. But a method of exchange's scalability ought not depend on coupons.
4. Don't you like keeping secrets?
Imagine a cashless future. You use your phone to buy everything you need--even between friends. You owe a friend $20? Tap your phones together and boom--money transferred. That actually sounds great, right?
Now consider this. What if your friend you owed $20 also sells things that, while they enjoy a robust consumer base, are not legal to sell in any state, under federal law. He gets caught, and now authorities can look at all of his financials--every last transaction he made on his phone. Who, where, when, etc. A legal debt settled between friends could look a lot more scandalous now to authorities. Considering how willing mobile carriers are to comply with government subpoenas, there's good reason to think about this: without cash, every last purchase you make in the course of your life can be traced back to you.
Modern conveniences are great. It would be nice to not have to reach for my wallet or carry change (we suppose...), but at what cost?
5. Our payments infrastructure is robust already
Know where mobile payments have really taken off? Kenya. Yes, that Kenya, where the per capita GDP is $1,800 and 40 percent of the population is unemployed, according to the CIA World Factbook. It might be better off than many of its neighbors, but Kenya is still underdeveloped, like most African nations are. Its economy isn't fueled by deals on pad thai, and people don't have smartphones, nor do they consider them a birthright. And yet, M-Pesa, a mobile money company, has had a great deal of success in the country, for the fact that there is no banking infrastructure. A Kenyan doesn't choose between cash and her phone when she makes a payment; she can only use her phone because there isn't an ATM at every corner in Kenya.
Countries with underdeveloped payments ecosystems are the places that benefit from innovations like mobile wallets, but that doesn't necessarily mean that mobile wallets are, therefore, the pinnacle of payments technology. Here in the United States, they're simply a novel way of using a credit card, with potential marketing opportunities built in. Cool, sure. Revolutionary? Hardly. Potentially risky, both with regard to privacy and fraud? Possibly.
It's important, with all these technological innovations springing up week by week, to take a step back and ask ourselves: What is it that we seek to replace and why? We wouldn't trade our MacBook Air for anything, and we love our iPhones, Google StreetView, all of it. But some technological advances carry more baggage and greater risks, especially ones that promise to upend the way we do everyday things.
Hold a dollar bill in your hand and ask yourself: Is this so difficult?
Willy Staley is a staff writer and columnist for MyBankTracker.com. His columns cover banking technology, government policy, and culture.
