The cashless economy Pt 1

Andrew Pegler – 24 June 2011

A tiny computer chip inside your next Smartphone may replace cash.

Picture this: Five years from now you’re at Harvey Norman when an employee announces a new special on the loudspeaker. “Buy a television in-store and get 10% off – if you pay with your smartphone.”

You whip out your phone and it automatically details all your previous purchases at said store: Your sound system, those pricey HDMI cables, surge protectors, a case for your smartphone, etc. But no telly, and 10% is pretty decent…

“Just place your phone here sir/ma’am and enter your PIN.” You plonk your smartphone next to the cash register, enter your PIN on your phone and the telly is yours.

Okay, maybe they won’t call you sir or ma’am. But you get the idea. Smartphones are poised to replace every debit card, every credit card, every loyalty rewards card. Every. Financial. Card.

So how’s it going to work? With technology called Near Field Communication (NFC). Wire that acronym into your neurons, folks, because you�re going to hear a lot more about it.

Basically, NFC is a tiny radio with a tiny antenna on a tiny computer chip. Tech watchers expect the upcoming iPhone 5 to include NFC, followed soon after by Android, Blackberry, etc.

NFC chips are social little critters. They spend their days wirelessly “looking” for other NFC chips. They only have a range of about 10cm, so they need to be close to connect. (That’s why you plonked your phone next to Harvey Norman’s cash register.)

But when they do connect, the chips get their mojo on. They automatically establish a secure connection, bridging their parent devices. An App on your smartphone will cross that bridge to pay the App on the cash register. And you walk out the door with your telly.

Right now the race is on to win the “mobile payment format war” (I just made up that phrase). Google Wallet is teaming with Mastercard, Visa has its own system, and other players include Isis and Square. Google Wallet will be trialling this summer in San Francisco and New York, but once they iron out the bugs expect it to head our way.

Meanwhile, Kenyans could be excused for sniggering. They have a system called M-PESA, which transfers money from one mobile to the next. About 70% of Kenyans use it to buy groceries and pay bills, to the tune of about $350 million a month. It’s pretty handy in a country where most people don’t have bank accounts.

Next week we’ll explore the spooky benefits of mobile payments, and the equally spooky drawbacks. So stay tuned for Part II of the mobile payment format wars (did I mention I made that up?).