For decades, the global payments industry was rather boring – or, if you prefer, “stable and predictable.” Payment cards have been the default alternative to cash since 1950, when Diners Club introduced a small card – made out of cardboard – that let people pay for travel and entertainment expenses. By the 80s, payment cards had assumed their current form, function and ubiquity, and to this day, they dominate the digital payment space in the developed world. Meanwhile, cash itself has continued to be used for a surprising 85% of global consumer transactions.
It wasn’t until the past few years that payment options have expanded beyond these two long-standing approaches. Safaricom’s M-Pesa platform has sparked a mobile payments revolution in emerging economies, while Apple Pay hopes to follow suit in the U.S. and beyond. Many see mobile as the long-awaited next step in the industry’s evolution, in spite of the lukewarm reception these products have received from customers in developed countries.
But as tech giants, major retailers and financial powerhouses race to compete for a slice of the mobile payments pie, it’s easy to feel a bit underwhelmed. Today’s mobile wallets offer few advantages over payment cards, as they piggyback on the existing digital payments infrastructure. Most enable transactions by letting users register their credit cards on their smartphone, verify their ID, then wave the phone near a scanning device. Though this approach may offer better security, the user experience is hardly a quantum leap over the traditional “swipe and sign” process used by cards.
That’s why many in the industry are already looking for breakthroughs that could truly revolutionize the way we pay. Here are four possibilities that could up the ante on mobile payments, ordered from the least futuristic to the most.
1. Wear your wallet: While paying with a cell phone doesn’t present a compelling improvement over the status quo, paying with your watch just might. There’s an appealing simplicity in making payments with a gadget that’s strapped to your wrist all day. Apple seems to have recognized this, and it has made Apple Pay arguably easier to use on the new Apple Watch than on the iPhone. And unlike other Apple Watch functions, you can make payments even if the iPhone isn’t with you. The result: a James Bond-style “wow” factor that a clunky phone can’t match.
2. Skip the scanner: Mobile payments have struggled to present a clear advantage over cards because they haven’t addressed the biggest customer pain point in the current system: the checkout line. But imagine how quickly the public would adopt a system that made shopping as simple as entering a store and walking out the door with their purchases. That scenario may not be as far-fetched as it sounds. A growing number of retailers are already using beacons – tiny, low-cost, Bluetooth-connected transmitters – to integrate customers’ smartphones into the shopping experience. These beacons are strategically placed to send customers discounts or coupons for specific products when they walk close to those products inside a store. Some experts think similar transmitters could one day be attached to merchandise itself, allowing a sensor at the exit to detect both customers’ phones and the barcode information on whatever items they’re carrying. The cost of each item would be automatically billed to the customer’s phone, making lines and clerks a thing of the past.
3. Pay with body parts: Imagine if, rather than waving a cell phone in front of a scanner, you could pay by simply holding out your hand. That may sound futuristic, but it’s already a reality in Sweden, where a start-up called Quixter has installed a network of palm-scanning terminals at the Lund University campus, with plans to expand to other businesses. The terminals use harmless infrared light to scan the unique network of veins inside users’ palms, which confirms their ID and allows merchants to deduct the payment amount from their bank accounts. The system not yet refined, requires a lengthy set-up process and makes users tap in the last four digits of their phone number to confirm purchases. But as similar approaches are disseminated over the years, it may be commonplace one day for shoppers to use their unique physical characteristics, rather than their devices, to transact.
4. Transcend banks altogether: Bitcoin has gotten so much press that it may seem like old news already. And although it has proven to be a wildly unstable currency and a spectacularly risky investment, the blockchain technology behind the “cryptocurrency” could one day be seen as a key milestone in the evolution of payments. Essentially a shared public ledger of all bitcoin transactions, the blockchain lets users verify the ownership and previous transactions of every bitcoin, with the integrity and chronological order of all transactions enforced through cryptography. It is used to verify the permanence of bitcoin transactions and to prevent malicious users from spending the currency – which only exists as computer code – at multiple places at the same time. So why is it so significant? By allowing value to be transferred digitally without a trusted middleman (like a bank or government) to verify it, bitcoin provides transactions that are frictionless and essentially free. Though it faces multiple problems both as a currency and a decentralized approach to processing transactions, countless startups are working to overcome them and bring blockchain payments to the mainstream. If they succeed, and reach regulatory approval, cryptocurrency might one day be linked with some of the approaches above, allowing us to literally send money through the ether with a wave of the hand. With such potential breakthroughs on the horizon, today’s payments industry is actually anything but boring.