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Time to Leave Your Cash/Plastic at Home?

May 21, 2012

How many of you remember the old American Express ad’s punch line, “Don’t Leave Home Without It”?   Guess what?  Soon you will be able to.  We want to describe a world of possibilities already at hand that allow you to pay or accept payments with your smart phone.

Over the past week we had an opportunity to evaluate the marketplace for mobile payments transactions.  If your New Market Entrepreneurial endeavors call upon you to process payments remotely– you might want to check out the amazing changes that have taken place over the past year and will continue to take place over the coming quarters as this market continues to heat up.

For early-movers, we are now in the brave new world of being able to use our mobile ph0nes to pay retailers or even one another.  Retailers or service providers on the move– not operating out of a fixed location (think taxis, food trucks, home delivery, craft fairs, or even the ‘world’s oldest profession’ to name only a few) can also receive payment via their smartphones via credit card or even direct deposit into their accounts.  More in a minute.  And don’t miss the eyeopening infographic at the end of this post on just how much and by whom the mobile payment option is already being tapped.

First, let’s take a minute to appreciate what’s going on behind the scenes when you use your credit card.  If you have ever had the experience of setting up a credit card merchant account, you know what a racket it is.  Over the past 40 or so years, the system has not changed much and there are many layers all of which expect and do get paid.  If you are interested in a step-by-step explanation, click on the link below– staying mindful that it was created by somebody in the business who is trying to put it in it’s best light!

Suffice to say, the current system is an inefficient mess that is charging too much and is begging to be fixed.  And New Market Entrepreneurs have answered the call!  While by no means exhaustive, here’s a quick rundown on your options right now.

Mobile CC Payment Processing  –  You can accept CC’s with your smartphone.  Now!

Until recently, if you were in need of processing credit cards on the run, you only option was a cellular-based remote terminal like the one pictured to the right.  Costing $500 or more and loaded with monthly fees that could meet or exceed $50 even before you processed your first transaction, these devices were out of the affordable reach for many.

Enter the Smart Phone based Solutions.  Right now, your iPhone or Android can become your credit card terminal.  Right now!

  • Square –   You may have recently seen their new TV ad-blitz currently running, these innovators have disrupted the credit card transaction marketplace by allowing individuals and merchants to accept credit card payments using their smart phones (android and iPhones) as a swiping terminal.  Simply plug the 
small card reader into the headphone plug, register with square (tying your bank account) and you are in business.   Big VC money is behind this company.  Their private valuation is already stratospheric.  They are here to stay and to mess up the worlds of many of the unnecessary players currently sucking off the inefficient food chain illustrated above.   As a result of Square’s simplified food chain, you pay no monthly fees and a very competitive 2.5% per transaction.

  • PayPal –  Paypal revolutionized the online cash exchange market over a decade ago.  In fact, many of their founders are now funding or advising some of these next-gen solutions.  What PayPal figured out in the early days of the web, e-commerce and as

eBay made its historic run was how to tie individual bank accounts to email addresses.   Solving the complexities around fraud prevention, PayPal helped to fuel the early days of e-commerce and earned a piece of most every transaction.  In fact, the first infographic below shows they still dominate the global market.   But not to be outdone by Square, they will be introducing their own version shortly, pictured to the right.  Their rates are also competitive with Square and far less than the conventional options.

  • Intuit –  Intuit’s GoPayment option is also in this space with a competitive offering.
Mobile Funds Exchange – As more and more of us download these apps and link them to our bank accounts, you can truly leave your wallet behind.
You just lost a $50 bet with a friend at a bar on the outcome of the game and all the twenties you walked in with are now ones.  You friend does not yet have a credit card solution above, but knows if you don’t pay him now, you never will.  Luckily you both use an app like the ones described below and you instantaneously use your smart phones to exchange cash.
  • Dwolla –  Dwolla wants to make the need for a credit card a thing of the past.  Having just figured out how to do what Paypal did for online payments for mobile space, plus a whole lot more, these guys are about to set the world on fire.  For small hint, give this write-up explaining how VC’s were lining up at their front door in (of all places, Iowa!) a quick glance late last year to throw money at them.  Their elevator pitch: “No cards, just cash. Say goodbye to plastic cards, ATM fees, hidden charges and fine print. Dwolla empowers anyone with an internet connection to safely send money to friends or businesses.”   Like PayPal, Dwolla has figured out to move money between willing party’s bank accounts.  And they’ve figured out how to eliminate fraud (so they claim).  Whether online or via your mobile phone.  It just works.  And it’s cheap!  Payments under $10 are free.  Over $10 you will pay a whopping 25 cents per transaction!  Here’s a great graphic that shows the chaos described above versus the disruptively simplistic model this late 20-something has devised.
  • BumpPay – You may know Bump’s virtual business card (exchange) app for the iPhone and Android.  Just fist-bump (lightly) your phones and your contact info is exchanged.  Well, Bump has partnered with PalPal to do the same thing for payments (iPhone only right now).  Their elevator pitch: “Eliminate IOUs. Just enter the amount you want to send, then bump! Easy setup. Type in your email address, and you’re ready to start sending. No special accounts. Uses the PayPal account you already have.”
  • NFC – While still a ways of, the day will soon come where your phone is your credit card and your credit card reader with no additional ‘swiper’ needed, thanks to Near field communications or NFC.  NFC is a new technology platform that will soon replace the magnetic strip in your credit card while turning your phone into a credit card.  You can see this in action with GoogleWallet, available only for Android and in conjuction with Master Card.     From Wikipedia, “NFC devices can be used in contactless payment systems, similar to those currently used in credit cards and electronic ticket smartcards, and allow mobile payment to replace or supplement these systems. For example, Google Wallet allows consumers to store credit card and store loyalty card information in a virtual wallet and then use an NFC-enabled device at terminals that also accept MasterCard PayPass transactions.
 While there are many more apps, technologies and platforms we have not covered, hopefully it is clear that are about to live in a world where your cash and plastic are one of many options.   Below is a handy infographic describing who is using mobile payments and how we are using them.  This is only the beginning.

Mobile Payments Infographic
via: Mobile Payment Trends [Infographic]

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