Bloomberg Businessweek
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Illustrations by Sophia Martineck
Osama Bedier is about to buy a pair of scandalously skimpy size 4 denim cutoff shorts from American Eagle Outfitters. The beefy, Egyptian-born vice-president at Google—and former bouncer at the Roxbury night club in Los Angeles—is buying the $25 Daisy Dukes to demonstrate a novel way of paying in stores and restaurants: with a cellphone. As about 200 bankers, credit-card executives, journalists, and Googlers watch at the company’s New York building in late May, Bedier waves his Nexus S smartphone in front of a credit-card reader. The device beeps in response, and three things happen at once: The phone submits a $5 store coupon, his Citibank MasterCard account is charged $20 for the shorts, and his loyalty card with the retailer, also stored on the phone, is credited with the purchase. “And that’s how simple it is,” says Bedier, awkwardly holding a brown paper bag with the short-shorts, which he vows to give to his daughter. “We call that single tap.”
Sixty years after the creation of the plastic credit card, big corporate names are backing a new wave of payments technology—a tap with a phone, rather than a swipe with a credit card. Pretty much every major bank, credit-card company, wireless network operator, and a good number of Silicon Valley players are exploring the cellphone as the next ubiquitous way to spend money. Efforts such as Google’s fledgling service, Google Wallet, which begins trials this summer in New York and San Francisco, are the culmination of a decade of arduous technology development and a multiparty, cross-industry battle over who will control the $20.5 trillion global market for in-store retail transactions. Also pushing their own digital wallets are, among others, Visa, American Express, EBay’s PayPal division, and Isis, a venture of three large U.S. mobile phone carriers.
Should this technology take off, the cellphone could become the central repository of not just bank account information but coupons, loyalty points, and membership cards, allowing companies such as Google to route deals to cellphones at just the right time and place. “Ten years from now, a major portion of marketing is going to go through this personalized media channel,” says Mohammad Khan, who worked at credit-card terminal vendor VeriFone before starting what is now a rival, ViVOtech.
If technologists such as Khan sound overconfident, it might be because they’re compensating for the fact that futuristic visions about new ways to pay have so rarely come true. Among the fields where humans have vigorously innovated throughout history, payments pretty much ranks near the bottom, well behind food cultivation, transportation, and online dating. There have been only a few major breakthroughs: the switch from barter to non-precious metal coins in Egypt around 700 BC, the move to paper money in China in 960 AD, and then to checks in the 12th century, courtesy of the Venetians. Credit cards, which emerged in the early 1950s first as dining cards in Manhattan before spreading more widely in the ’60s, introduced the era of electronic money and the idea of buying a completely unaffordable item and paying for it later.
There have been some important, if relatively incremental, innovations since then. Smart cards with microchips, which you can tap at “contactless” credit-card terminals (no swipe needed) in some 300,000 locations around the world, have been widely embraced in Europe and Canada—and largely ignored by most U.S. consumers, who remain committed to a swipe and ensuing signature. PayPal, with 100 million active customer accounts, has caught on as a way for people to send money to each other and pay for items, primarily online. Companies such as Boku and Zong, recently acquired by EBay, have developed ways for shoppers to purchase items by charging them to their cellphone bill.
