The Start-Ups Trying to Kill the Credit Card
Forgot your wallet? No problem. Coin, PayPal, Google Wallet, Dwolla, and other tech companies are making it easier than ever to live without plastic.
The future of money has arrived, and it's called Coin.
It looks like a credit card. It's the size of a credit card. It swipes in credit card machines. But it holds the information of up to eight of your debit, credit, rewards, or gift cards. And you can switch between cards by simply pressing a button.
The new product, launched recently, promises to change the way consumers spend money in a secure and efficient way.
The key technology is a Bluetooth signal. To load information from your different cards, just swipe them on a card reader into your Apple or Android phone and take a picture of the card. If you're too far from your card—like, say, you leave it at the restaurant—your phone gets a notification. And the Coin's battery lasts up to two years.
But this San Francisco company is just one of many start-ups across the country that are finding new ways of developing the future of retail.
Less Money, Less Problems
In recent years, Americans have used less and less physical money when purchasing items. Several don't use it in stores, and many more don't keep bills and coins in their pockets. The "cling" of stray pennies hitting the counter at your local coffee shop may soon become a distant memory.
According to a survey by Walker Sands, a Chicago-based public relations firm, nearly 1-in-5 consumers do not carry any cash on them. In total, more than 60 percent of consumers carry $20 or less in cash. Surprisingly, about 1-in-20 people say they don't use cash and refuse to go to places that accept only physical currency. (The survey was conducted over the last year among 1,046 consumers across the United States.)
And other surveys show a similar trend: According to a 2012 study by Javelin Strategy and Research, 27 percent of purchases in 2011 were made with cash. By 2017, the group expects that number to drop to 23 percent.
So, yes, we're headed toward a cashless society. But what about plastic credit cards, as well?
The End of the Costanza Wallet
People use cash less. Receipts are redundant with online banking. And products like Coin allow people to pay digitally, instead of with a physical credit card. Could the George Costanza wallet be a thing of the past?
Christine Pietryla, the senior vice president of public relations for Walker Sands, said she was immediately drawn to Coin. It's a product that fits into her firm's research: People want their consumer experience to be simpler, easier, and more efficient.
"It's definitely a challenge to find an application or a solution that puts everything all in one place," she said. "This is unique in that it does do that."
Consumers are starting to prefer digital options in payments: According to the same research from Walker Sands, 28 percent of consumers are more likely to use a digital gift card, rather than a plastic gift card. It only makes sense that services like PayPal, a business that allows people to make payments and money transfers through the Internet, have taken off.
Similarly, Google Wallet, launched in 2011, allows users to store information for their debit cards, credit cards, reward cards, or gift cards on their mobile phone. For participating stores, someone can just tap their phone to a PayPass terminal to pay for a product. Google Wallet users can all send money through Gmail attachments. Additionally, Google announced last week that it was introducing prepaid debt cards that can be used in ATMs.
And in the same survey, 95 percent of people say they've purchased something from Amazon in the last year.
PayPal, in fact, last week just made a deal with another digital start-up, Uber—a car service company that uses a mobile application to hail rides.
Other start-ups, like Isis (which allows consumers to pay for items in person through their smartphones) or Dynamics (which created a similar multi-account card like Coin), also have products that offer a different way of paying for goods.
It's not just how you pay, but how businesses get paid.
The future of retail goes well beyond Coin or PayPal. It's also about how stores are processing your payments.
Any person who works in Washington, New York, or Los Angeles can attest to the growing number of gourmet food trucks that have popped up on street corners around lunchtime. It's noon, so why not go to Farragut Square and eat at Far East Taco? And for payment, many of these food trucks use the Square Reader—an easy attachment that allows anyone with an iPhone or iPad to process a credit card payment. Even some big-box stores have checkouts with iPads.
And it's not just the Square. What about paying for items without actually going to a checkout line? According to the same Walker Sands study, 59 percent of consumers said they would be more likely to shop at stores that offer self-checkout on mobile devices.
Store owners are also turning to digital companies to get around traditional credit card companies that charge too much to process payments. Des Moines, Iowa-based Dwolla is a payment network that allows people to transfer money—either to friends or businesses—more efficiently through a mobile application and its website. And it saves merchants money by charging only 25 cents for transactions over $10—and charging nothing if it's less. Thousands of companies and consumers have already signed up for the service, which started in 2009. Dwolla has even launched a credit feature, which could compete with credit cards.
Steep, But Not Cheap
Many of these start-ups are just that: start-ups—small outfits of techies who had a vision of a product that challenges the industry to think differently and move in radical directions.
For one, it costs a lot of money to change the game. That's why companies like these rely on crowd-funding. Coin is looking to raise $50,000 beyond what some of its investors have put in. It can also cost a lot of money to buy these new products. Coin is $100—not steep, but not cheap. Other modern payment services, like PayPal or Google Wallet, are free.
Additionally, with any new product, there are risks for security breaches. Coin notifies consumers when they might have left it at a restaurant, but their information is still just as much at risk as with a plastic credit card.
And no product is guaranteed to catch on. Most consumers are looking for three major qualities in any product: increased security, a tremendous amount of customer service, and a consistent visual experience. In other words, consumers want to know that when they walk into a store or log in to the product's website or mobile application, it's all going to look the same, be easy to use, and be visually appealing.
If these start-ups lack these qualities, consumers won't buy into the idea. With Coin, consumers will have to replace their card every two years—shorter than with a normal credit card. And lest we forget a simple truth: Credit cards are already easy to use.
Coin is new. It's unfamiliar. It's dangerous, to some. But every idea from a start-up company is at least a little risky.
"Start-ups are there to disrupt and be innovative," Pietryla said. "It's either going to take off or it's not."
Two years ago, people might have thought paying with an iPad was crazy. As the technology catches up, consumers get more confident in it. Coin might be just that.