It really is time for credit cards to go. We're still using a payment technology that hasn't changed in more than 50 years. We carry around a piece of plastic with an easily demagnetized stripe, whose account number is all too easily hacked or stolen. (Just ask Target, Home Depot or TJ Maxx.)
Why not allow people to pay by waving their cell phones? It works well in Europe. It uses a device we are already carrying. It can be convenient, fast and secure.
That, surely, is what Google was thinking when it introduced Google Wallet in 2011. You hold your Android phone near the cash register's wireless credit-card terminal, tap in a security code, and boom: you just paid. You charged your credit-card account without actually needing your card. But Google Wallet was a bust—the first sign that phone-payment nirvana won't be simple to attain.
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The biggest problem: Verizon, AT&T and T-Mobile didn't like the Wallet initiative one bit. They refused to sell Android phones containing the Wallet app.
Why? Because they were cooking up their own, competing phone-payment system, originally called Isis. (The name changed to Softcard after the word “Isis” became better known as an Islamic extremist group.)
But Softcard seems stalled, too. It works directly with only a handful of credit cards from Chase, Wells Fargo or American Express. As with Google Wallet, you have to tap in a security code with each purchase; a credit-card swipe looks speedy by comparison.
A third initiative, Apple Pay, doesn't require a code. Instead the Home button on iPhone 6 models reads your fingerprint, so the identification process is instantaneous and effortless. Merchants like Apple Pay because it doesn't cost them anything. Banks like it because Apple Pay transactions are extremely secure; the merchant never stores, or even receives, your credit-card number. (The phone transmits a one-time transaction code to the merchant.)
Sounds great, right? Then why doesn't Apple Pay work at Walmart, Lowe's, Old Navy, Target, Southwest Airlines, 7-Eleven, Best Buy, CVS, Dunkin' Donuts, Sunoco, Shell, ShopRite, Wendy's, Banana Republic, Bed Bath & Beyond or the Gap?
Because those chains are backing yet a fourth phone-payment system. In this scheme, called CurrentC, your purchases are deducted directly from your bank account. No credit card is involved—meaning that the stores do not have to pay the banks the usual 2 to 4 percent card fees on each sale. For a national chain, that's big money.
Four immense corporate initiatives, each vying to be the first American phone-payment success story. They're attacking the credit-card problem separately, as enemies—and we, the people, are the losers.
Which one will win? Maybe none of them.
Credit cards make all parties happy. They bring money to the banks, sales to the stores and convenience to the consumers. In other words, everybody has an interest in solving the fraud problem.
And while the corporate interests quarrel away their window of opportunity, traditional cards are about to fix their own vulnerability. Credit cards are about to become much more secure.
This year EMV cards (for Europay-MasterCard-Visa) are coming to America in a big way. Each contains a chip, not a magnetic stripe. You type in a PIN code instead of signing your name. EMV is far more secure than mag-stripe codes. To encourage retailers to install EMV-compatible card readers, Visa, MasterCard, Amex and Discover have announced that this October, they will no longer accept liability for fraudulent purchases made on magnetic cards. They will shift that responsibility to the merchants.
For tech fans and younger audiences, paying by waving the phone is fun, fast and secure. Someday all we'll carry while shopping will be a phone—but thanks to squabbling and corporate greed, that day is about to slip even farther into the future.