Prepaid Debit Cards and Prepaid Cellphones Become One? Great Idea!

Readers of the mine may already know that I’ve been paying extra special attention to the mobile payments space recently, particularly the mobile wallet. The separation between mobile devices and banking or payment services is growing smaller and smaller, and we may be approaching a time when most people perform all of their monetary functions directly through such devices … sometime referred to as smart devices. Banking deposits, in-store payments, wire transfers, you name it—all have the potential to be done entirely through smart devices. … [Why, just yesterday I saved myself a trip to the bank by taking a picture of the check I was depositing it and processing the deposit through my Smartphone.  Very Cool!]

On a personal note, I am glad to see the emergence of a growing number of players in, and related payment options for, the mobile wallet space.  Clearly, it was about time that someone emerged to give PayPal “a run for their money.  At the time of writing this, I had recently received an email from PayPal telling me that I had money in a PayPal account that I had essentially abandoned 6 years ago; the email went on to tell me that I needed to confirm my ownership of this account or the money would be turned over to the State of California.  At first, I ignored the email.  

You see, it is an account that at one time PayPal had locked up and would not release the funds on the account, due to some purported violation of their terms and conditions.  For 3 months back in 2007, I fought with them back and forth to unlock the account.  When I found myself getting nowhere with them, I took a different strategy and proceeded to open up a different account … and ultimately ran into the same problem as before, with the new account getting locked as well.  As a matter of fact, between 2007 and 2010, I opened up 5 PayPal accounts, each with different logins/emails for different projects and companies that I was involved with, and, sadly, all of these accounts ended up getting frozen (approximately 6000 dollars).  After all was said and done, I was never able to determine why I was having these problems.    

Well, yesterday, I thought, “You know what, I am going to click on this link here and see what happens.”  I simply clicked and clicked, answered some ?’s and what do you know, the account was unlocked, and the $1,700 that PayPal had been “borrowing” from me for all this time -- or if you visit paypalsucks.com “stole from me” -- was now available for me to do with it what I wished.   My reaction was, “What exactly just happened?” Now I need to figure out how to get this long lost money out of the PayPal account, so that I can use it for whatever I want.  Maybe I will send it to a charity or the IRS, J. 

Anyhoo… I recently came across an article entitled, “Smartphone Wallet for the Unbanked.” The article talked about how Boost Mobile, a pre-paid mobile service provider operating under Sprint, is taking a unique approach to the mobile wallets sector. Boost is offering one of the newest mobile wallets on the market to its prepaid users, who are a group of people who either won’t or can’t pay for a more expensive cellphone plan on a two-year contract. In fact, many of these people may not even have a bank account.

The new service is made possible through Boost’s partnership with the Pasadena-based payments startup Wipit and allows customers to go into a Boost store with cash and add money to an account. A phone app that is provided as part of the service then allows them to send money to other countries or even pay some bills (including, of course, their cellphone bill).  In the future, they will be able to take a photo of a check as a way to add more money into this account. Users can even opt for a plastic card, at no additional fee, that can be used as payment wherever Visa debit cards are accepted.

Although it seems as if Boost’s unique mobile wallet has some great utility and performs many of the same functions as a traditional bank, it may not exactly be “price competitive” in all aspects.  For example, it costs $2-$5 to pay a bill and $3 to add money to the account.  Clearly, it seems to me that Boost will need to figure out a way to make its mobile wallet services affordable, or should I say, feasible, for the typical, price-sensitive user.  If it can do this, the rewards could be huge.  Keep in mind that there are over 100 million people in the U.S. who are on prepaid plans, or about one in three cellphone owners. As to how many of these users are “unbanked” is not unclear, but even a small percentage of this target market could be a very significant number. 

Some may ask whether people will really want or “go for” this type of payment option. Will they be willing to trust technology and make these purchases using their smart devices, or will they simply prefer to do things the way they’ve been taught the world works?  You know … you keep your money in the bank or in your over-sized wallet, and you pay with checks or plastic.  But I wonder whether that is really a good question.  Look at what is already happening in your local grocery stores, where prepaid credit card/debit card kiosks are seemingly everywhere.  Of course they are going to go for it … once they see how easy it is to pay that way.  And do you think it is difficult to get a prepaid debit card attached to your mobile phone?  Think again. 

This discussion brings to mind those memorable American Express card TV commercials of yesteryear – or, should I say, when I –was a kid – that had the tagline, “Don’t Leave Home Without It.”  Remember those?  Well,

Mobile Payments, ‘Paying with your Smartphone’, is the Way it is Going to Be

It seems undeniable that apps are changing the entire way we do business, and one powerful manifestation of this idea is the emerging relevance of mobile payment systems, commonly referred to as “mobile wallets.”  Just as credit and debit cards replaced the paper check, apps and the mobile wallet payment systems that they empower are quickly becoming the new means of conducting business and processing payments.  Millennials – young people age 30 and under -- have a seemingly insatiable appetite for all things apps, and this has led to the increasing popularity of in-app purchasing and mobile wallets.    As a result, the mobile wallet concept itself is widely believed by many – including a number of analysts and industry insiders -- to be the next game changing iteration and/or technology component of Smart device-compatible mobile payment systems.    

Indeed, mobile wallets are here to stay, with major front runners like Apple, Google, Amazon, Pay Pal, and Square now Boost Mobile, a subsidiary of Sprint, along with start-ups like WalletKit and others working toward making commerce fully mobile through the use of such mobile payment options.   And considering the ever-growing list of things that have already gone completely or predominantly mobile, this development is by no means unexpected and makes good sense.  Whether or not these new payment systems completely replace currency and debit cards is anybody’s best guess; however, it is clear that mobile wallets make the payment process seamless, instantaneous and abundantly more secure and convenient.

To illustrate this point, mobile wallets have made it especially easy to conduct person-to-person payments; even if the person you need to pay is hundreds or thousands of miles away, it’s almost as simple as reaching into your wallet and handing them the funds. Google Wallet allows users to send money to friends in the United States directly by tapping a $ icon in their attachment options from their Google Wallet balance or directly from a bank account … all free of charge.

While this is all very convenient and exciting, just making payments easier does not itself reflect the fully array of benefits, or true potential value, of mobile wallets.  Mobile wallets could come to encompass all of the roles of a traditional wallet, including, by way of example, storing insurance card information, receipts, coupons, and other information that people tend to lug around with them … often in the dreaded “George Costanza” exploding wallet.  Wouldn't it be nice if everything else were also inside the mobile wallet?  Indeed, the Smartphone will eventually render the tattered, beaten up physical wallet obsolete in its entirety.  And of course, with no wallet needed, there would be a security, or should I say, “peace of mind” benefit -- you would not have to worry about losing that wallet, having it stolen or losing or having stolen some or all of the wallet contents.

Evidence of this shift toward mobile payment systems is all around us.  Retailers are now equipping their physical locations with processing equipment and related software that enable consumers to pay with their mobile communications devices.  If you go into a Starbucks, you may notice that customers are already swiping their Smartphones to pay for that cup of ‘Joe’.  Re-loadable gift cards are now running simultaneously with mobile wallets, just as they did decades ago with debit cards.   India, as an example, has been using a method of text messaging for years as a way to pay for its people to pay stores for their goods and groceries….   And it is not surprising that with more than 1.2 billion mobile device users world-wide, and with more and more younger device users out there spending more and more time on their devices (playing video games, posting videos, texting to their friends, or on social media trying to stay on top of the latest developments in their circles of influence), retail oriented companies are now focused, more than ever, on advertising to, and otherwise establishing a direct dialogue with, their targeted consumer by way of that consumer’s mobile communication device (e.g. Smartphone).  Finally, we now see a growing army of vendors and technology providers for this space, such as NXP Semiconductors, Infineon Technologies and STMicroelectronics, just to name a few.  Even more industry players are expected going forward, given estimates that the total market for all types of mobile payments is expected to reach more than $600B globally by 2013(Guys!  That is this year!), which would be double the figure as of February, 2011. 

This is not to say that the transition to mobile wallets and other mobile payment systems will be pain free and without glitches or complications.  In fact, some of the problems we are seeing with mobile wallets are quite comparable to those associated with credit cards, dating back to when the plastic payment cards first appeared on the retail landscape.  With so many different credit card companies and with their differing rules and rates, retailers continue to experience headache in trying to decide which ones they would and wouldn't accept.  This can get very confusing, and we still see today that many retailers do not accept all kinds of credit cards.  Mobile wallets are creating a similar problem, as even in this infancy period, there are a number of different mobile wallet brands or products, with no clear market leader.  Retailers may have to have different software installed on their own devices to read them, or even additional hardware.   In addition, merchants will undoubtedly need help and cooperation of the mobile communications device suppliers (e.g. Verizon, AT&T, Sprint) to ensure that the payment processing systems being installed can effectively work across the myriad of Smartphones and Smart devices in the marketplace.   Complications like these could potentially turn retailers off to the idea of mobile wallets (at first).  But it is coming!  It is unstoppable!

But just as the same credit card machine can now read credit cards from every single provider, it seems inevitable that mobile wallets will eventually see the same kind of universal accessibility. Already, retailers can have multiple apps downloaded on their point-of-sale terminals for different mobile wallets; the fact that some wallets require extra hardware may ultimately make those products uncompetitive and cause them to fall out of favor … and that of course is the beauty of the free market system.   More generally, however, we now see some compelling “perks” for retailers who are using mobile wallets.  Some mobile wallet providers, for a fee, provide their retailer/customer with valuable analytical data about their customers, such as how many times a week they've been in the store, and what the most popular items of the week were in terms of units purchased and the dollar value of purchases. There are also perks and loyalty programs that have begun to pop up through the use of these payment systems that are benefiting retailers as much as customers. In sum, while we are still far from seeing the mobile wallet completely replace its old fashioned, antiquated cash and credit card counterparts, the writing is on the wall, or should I say, “handwriting is on your Smartphone or iPad”, which offers much in the way of security, convenience and speed that is noticeably lacking from the swollen, Costanzaic wallet.