April 17, 2012

The Future of Money in a Mobile Age

Introduction and overview of responses

As adoption of advanced mobile devices such as smartphones has exploded in recent years,1 consumers have grown increasingly comfortable using their phones to transfer money, purchase goods, and engage in other types of financial transactions.

Recent Pew Internet surveys find that one in ten Americans have used their cell phone to make a charitable contribution by text message, that more than one-third of smartphone owners have used their phones to do online banking services like paying bills or checking a balance, and that 46% of apps users have purchased an app using a mobile device.2 Research from comScore has found that 38% of smartphone owners have used their cell phone to make a purchase of some kind, with digital goods (such as music, e-books or movies), clothing and accessories, tickets and daily deals leading the way as the most popular mobile retail categories.3

Similarly, a March 2012 Federal Reserve report found that 21% of mobile phone owners had used mobile banking services in the past year and that another 11% of mobile owners plan to use such services in the next 12 months.4 Using one’s phone to check account balances and recent transactions ranked as the most commonly-used service (90% of mobile banking users engage in this activity), followed by transferring funds between accounts (42% of mobile banking users). The study also found that some 12% of mobile phone owners have made payments—such as paying bills online or transferring money directly to another person’s account—via their phones.

Mobile phones play an even more prominent role in the financial system in parts of the developing world—users of Kenya’s M-Pesa system now send money totaling 20% of that country’s GDP to each other each year via text message, for example.5

In light of these trends, a number of financial services and technology firms have set their sights on integrating mobile devices into the broader, multi-trillion-dollar retail economy. As a result, the infrastructure and tools for safe, reliable mobile purchasing has been advancing rapidly in recent years.

These mobile payment and transaction solutions currently take a number of forms. Some allow merchants and businesses to accept “on the go” credit card payments from customers using a special card reader that plugs into a smartphone or tablet computer.6 Others facilitate direct person-to-person financial transfers using mobile devices—either by physically touching phones or exchanging electronic credentials such as a phone number or email address.7

Other solutions go even further, placing mobile phones at the center of users’ financial lives as an all-in-one payment device, identification system, coupon book and financial planner. In late 2011, Google launched Google Wallet in partnership with Citibank and MasterCard. Based on a technology known as near-field communication (NFC), Google Wallet allows users to store payment information in the cloud and pay for goods at participating retailers by tapping their phone at the point of purchase.8 Another consortium (including Verizon, AT&T, T-Mobile, Visa, American Express, Discover and MasterCard) will be piloting a similar NFC-based mobile payment system known as ISIS starting in select cities in mid-2012.9 PayPal and Visa have also announced plans for mobile wallet systems, and many analysts predict that Apple will announce its own virtual wallet service in the near future.10

Proponents argue that these “mobile wallet” systems hold a number of advantages over the use of cash and credit cards for payment. They argue that these systems are simpler and more convenient for consumers, since users need only carry a single all-purpose device rather than multiple forms of paper and plastic. And because they are location-aware and can track users’ shopping and purchasing behavior in real time, mobile wallet systems can offer advanced “personal shopper” services (such as recommendations and special deals based on one’s location and past purchasing history) as well as improved loyalty programs and more targeted promotions from vendors (a modern take on the “buy ten get one free” card, but with the card stored digitally in the cloud).

At the same time, critics have pointed towards a number of factors that might limit the widespread adoption of mobile payments. For starters, not everyone will use a smartphone. Other analysts raised questions about whether credit card companies will move away from the current profitable system in the developed world.  Other concerns include the potential susceptibility of NFC to hackers, market fragmentation, and lack of interoperability of mobile finance systems due to the many different platforms being developed and implemented, and questions about whether consumers will feel comfortable storing the intimate details of their financial lives in the cloud.

In light of this ongoing debate, The Pew Internet Project and Elon University’s Imagining the Internet Center invited experts and other Internet stakeholders to offer their predictions on the future of mobile payments, and what people’s “wallets” might look like in 2020.

Overall, a majority of these respondents supported the scenario that by 2020 most people will have embraced and fully adopted the use of smart-device swiping for purchases they make, nearly eliminating the need for cash or credit cards. These experts feel that the explosive growth in the use of smartphones and other mobile devices, combined with the convenience, security, and other affordances of mobile payments systems, makes these systems an obvious choice to replace established modes of payment in day-to-day commerce.

At the same time, the expert respondents are divided on how quickly this technology will displace established transaction methods. In elaborating on their predictions, a number of respondents indicated that they expect this process to develop generationally, with younger users jumping to abandon cash and credit cards while their parents and grandparents make the move to mobile payments slowly, if at all.

Some 65% agreed with the statement:

By 2020, most people will have embraced and fully adopted the use of smart-device swiping for purchases they make, nearly eliminating the need for cash or credit cards. People will come to trust and rely on personal hardware and software for handling monetary transactions over the Internet and in stores. Cash and credit cards will have mostly disappeared from many of the transactions that occur in advanced countries .

Some 33% agreed with the opposite statement, which posited:

People will not trust the use of near-field communications devices and there will not be major conversion of money to an all-digital-all-the-time format. By 2020, payments through the use of mobile devices will not have gained a lot of traction as a method for transactions. The security implications raise too many concerns among consumers about the safety of their money. And people are resistant to letting technology companies learn even more about their personal purchasing habits. Cash and credit cards will still be the dominant method of carrying out transactions in advanced countries.

While 65% agreed with the statement that most people will trust and rely upon conducting monetary transactions over the Internet and in stores with their mobile devices, a number of people said the true outcome will be a little bit of both scenarios. Respondents were asked to select the positive or the negative, with no middle-ground choice, in order to encourage a spirited and deeply considered written elaboration about the potential future of hyperconnected people.

Here is a sampling of their predictions and arguments:

Mobile money is the next logical step in the evolution of consumer finance. Mobile payments offer the potential for greater security than cash or physical cards.

  • Susan Crawford, Harvard professor and formerly a special assistant for technology policy for President Barack Obama, points out that, “There is nothing more imaginary than a monetary system. The idea that we solemnly hand around printed slips of paper in exchange for food and water shows just how trusting and fond of patterned behavior we human beings are. So why not take the next step? Of course we’ll move to even more abstract representations of value.”
  • Google chief economist Hal Varian noted that, “…two-factor authentication (secret + physical device) is better than one-factor authentication, and smart phones seem to have a natural role here.”
  • Paul Jones, an internet expert who works at the University of North Carolina-Chapel Hill, “…welcome[s] my beast-marked future financial transactions. Just look into my eye—biometrically of course—and add to my e-wallet.” And Futurewei Technologies senior engineer Peter J. McCann finds much to improve about our current purchasing infrastructure when it comes to security: “The use of a simple string of digits that must be shared with any vendor with whom you transact is really a ludicrously insecure system that can and must change.”

Since a significant portion of our financial lives are already conducted electronically, mobile payments are not as significant a leap as they might appear.

  • Microsoft distinguished engineer Christian Huitema points out that, “We have already witnessed the transition from cash to debit/credit cards. The electronic wallet is not much more than a ‘virtual card,’ in which near-field wireless communication replaces the reading of a magnetic stripe.”
  • Peter Pinch, director of technology at WGBH in Boston, makes a similar argument: “I see ‘credit cards’ as already virtualized, electronic currency. The form factor and functionality of the card doesn’t really matter: I’m already making an electronic transaction and I expect all the affordances of such.” And GlobalSecurity.org director John Pike says that, “So many people are already accustomed to buying a cup of coffee with a credit card that smart-device swiping is only a very small next step.”

Consumers cannot implement mobile payments unilaterally, so their adoption and usage will depend on the willingness of incumbent players (banks, retailers, etc) to build out the infrastructure to accept those payments.

  • University of Illinois-Chicago professor Steve Jones sees infrastructure as the key limiting factor: “I don’t think it will be security concerns that will stall the adoption of NFC so much as the effort involved with getting the infrastructure for its use in place on a national scale in the United States.” Carnegie Mellon postdoctoral fellow Fred Stutzman makes the case even more succinctly: “Two words: legacy infrastructure. Maybe in 2030.”
  • John Smart, president and founder of the Acceleration Studies Foundation, said, “Corporations will be happy to milk oldsters for exorbitant check and credit card handling rates—as they do today—and to keep all these systems unsecure as long as possible, as that allows insurance companies to make a lot of cash off of ensuring against identity theft, etc.” Added Jonathan Grudin, principal researcher at Microsoft: “The driver here will virtually 100% be whether or not the credit card industry decides it can make more money through changing technologies.”
  • Several respondents echoed the prediction of internet architect and activist Bill St. Arnaud that mobile payments will take off “in the third world first, where there is no well-established banking system” that will seek to delay implementation.

The future has already arrived in many parts of the world outside of the United States.

  • New York University professor Suzanne England points out that “These systems are already the norm in other countries such as Japan,” and a number of respondents pointed towards the widespread use of mobile payments in places such as Canada, Europe and Kenya as evidence that this trend is here to stay.

The current moment offers an opportunity to reinvent economic processes.

  • Author Jeff Jarvis envisions “new currencies measuring new value”—such as tradable points awarded for responsible purchasing behavior. Cyprien Lomas at the University of British Columbia sees a rise in financial life-hacking, as consumers engage in “personal auditing of spending/consuming habits aided by software that can track and observe trends.”

At the same time, consumers may be hesitant to place their entire financial lives in one basket in the cloud.

  • Law expert Henry Judy notes that “the monetary incentives for cyber-criminals to attack payment systems are so great that people will not migrate en masse to any new systems that are perceived as insecure.” And things that are merely annoying when cell phones are used mainly for communication can take on greater relevance when they contain your wallet. As one anonymous respondent noted, in a world of mobile payments, “…if you run out of batteries, you temporarily run out of money.”

Many respondents predicted that mobile payments will be adopted quickly by some demographic cohorts, but will make more measured progress among others.

  • Author Morley Winograd was one of several experts who expect mobile money to evolve along generational lines, with older adults continuing to use cash and credit cards even as younger generations have gone almost entirely mobile.
  • Microsoft Researcher danah boyd expects adoption of these technologies to break along socio-economic lines as well as generationally: “The majority of working class and lower-middle class people in advanced countries will not be passionate about the issue in either way but will still be extremely slow to adopt any of these systems.”

A desire for anonymity will prevent the demise of cash.

  • In addition to potential concerns about the security and privacy of mobile payments and cloud storage of financial information, wide-scale usage of mobile payments may be slowed by the simple desire for anonymity. San Jose State lecturer Ted M. Coopman argues that “This is especially true in the United States where fear of the government has always been part of our political culture.”
  • And Robert Ellis at Peterson, Ellis, Fergus & Peer LLP argues that, “Cash will never disappear because there will always be a demand for it—for anonymous transactions, illegal transactions, and transactions in far-flung areas where the non-cash technologies haven’t been implemented.”

Ultimately, many survey participants expect the most likely scenario to be a mixture of the old and the new.

  • Amber Case, CEO of Geoloqi, argues for this version of the future as follows: “When credit cards arrived, checks did not disappear, and neither did money. Although in some places either cash or cards are accepted, there are three main methods of payment. If another method of payment is added, we will likely have four methods of payment and retailers and businesses must accept another form of payment. Some systems may emerge that use completely smart payments, but there will still be other forms of payment available.”
  • Jeff Eisenach of Navigant Economics LLC places this debate in historical perspective: “Cash—tangible, hold it in your hand dollars—has been around for millennia. It won’t go away in a decade.”

‘Tension pairs’ were designed to provoke detailed elaborations

This material was gathered in the fifth “Future of the Internet” survey conducted by the Pew Research Center’s Internet & American Life Project and Elon University’s Imagining the Internet Center. The surveys are conducted through an online questionnaire sent to selected experts who are encouraged to share the link with informed friends, thus also involving the highly engaged Internet public. The surveys present potential-future scenarios to which respondents react with their expectations based on current knowledge and attitudes. You can view detailed results from the 2004, 2006, 2008 and 2010 surveys here: http://www.pewInternet.org/topics/Future-of-the-Internet.aspx and http://www.elon.edu/e-web/predictions/expertsurveys/default.xhtml. Expanded results are also published in the “Future of the Internet” book series published by Cambria Press.

The surveys are conducted to help accurately identify current attitudes about the potential future for networked communications and are not meant to imply any type of futures forecast.

Respondents to the Future of the Internet V survey, fielded from August 28 to Oct. 31, 2011, were asked to consider the future of the Internet-connected world between now and 2020. They were asked to assess eight different “tension pairs” – each pair offering two different 2020 scenarios with the same overall theme and opposite outcomes – and they were asked to select the one most likely choice of two statements. The tension pairs and their alternative outcomes were constructed to reflect previous statements about the likely evolution of the Internet. They were reviewed and edited by the Pew Internet Advisory Board. Results are being released in eight separate reports over the course of 2012. This is the third of the reports.

About the survey and the participants

Please note that this survey is primarily aimed at eliciting focused observations on the likely impact and influence of the Internet – not on the respondents’ choices from the pairs of predictive statements. Many times when respondents “voted” for one scenario over another, they responded in their elaboration that both outcomes are likely to a degree or that an outcome not offered would be their true choice. Survey participants were informed that “it is likely you will struggle with most or all of the choices and some may be impossible to decide; we hope that will inspire you to write responses that will explain your answer and illuminate important issues.”

Experts were located in three ways. First, several thousand were identified in an extensive canvassing of scholarly, government, and business documents from the period 1990-1995 to see who had ventured predictions about the future impact of the Internet. Second several hundred of them have participated in the first four surveys conducted by Pew Internet and Elon University, and they were recontacted for this survey. Third, expert participants were selected due to their positions as stakeholders in the development of the Internet. The experts were invited to encourage people they know to also participate. Participants were allowed to remain anonymous; 57% shared their name in response to at least one question

Here are some of the respondents: danah boyd, Clay Shirky, Bob Frankston, Glenn Edens, Charlie Firestone, Amber Case, Paul Jones, Dave Crocker, Susan Crawford, Jonathan Grudin, Danny Sullivan, Patrick Tucker, Rob Atkinson, Raimundo Beca, Hal Varian, Richard Forno, Jeff Jarvis, David Weinberger, Geoff Livingstone, Stowe Boyd, Link Hoewing, Christian Huitema, Steve Jones, Rebecca MacKinnon, Mike Leibhold, Sandra Braman, Ian Peter, Mack Reed, Seth Finkelstein, Jim Warren, Tiffany Shlain, Robert Cannon and Bill Woodcock.

The respondents’ remarks reflect their personal positions on the issues and are not the positions of their employers, however their leadership roles in key organizations help identify them as experts. Following is a representative list of some of the institutions at which respondents work or have affiliations or previous work experience: Google, the World Bank, Microsoft. Cisco Systems, Yahoo!, Intel, IBM, Hewlett-Packard, Ericsson Research, Nokia, O’Reilly Media, Verizon Communications, Institute for the Future, Federal Communications Commission, British OfCom, World Wide Web Consortium, National Geographic Society, Benton Foundation, Linux Foundation, Association of Internet Researchers, Internet2, Internet Society, Institute for the Future, Santa Fe Institute, Yankee Group, Harvard University, MIT, Yale University, Georgetown University, Oxford Internet Institute, Princeton University, Carnegie-Mellon University, University of Pennsylvania, University of California-Berkeley, Columbia University, University of Southern California, Cornell University, University of North Carolina, Purdue University, Duke University , Syracuse University, New York University, Northwestern University, Ohio University, Georgia Institute of Technology, Florida State University, University of Kentucky, University of Texas, University of Maryland, University of Kansas, University of Illinois, Boston College.

While many respondents are at the pinnacle of Internet leadership, some of the survey respondents are “working in the trenches” of building the web. Most of the people in this latter segment of responders came to the survey by invitation because they are on the email list of the Pew Internet & American Life Project, they responded to notices about the survey on social media sites or they were invited by the expert invitees. They are not necessarily opinion leaders for their industries or well-known futurists, but it is striking how much their views are distributed in ways that parallel those who are celebrated in the technology field.

While a wide range of opinion from experts, organizations, and interested institutions was sought, this survey should not be taken as a representative canvassing of Internet experts. By design, this survey was an “opt in,” self-selecting effort. That process does not yield a random, representative sample. The quantitative results are based on a non-random online sample of 1,021 Internet experts and other Internet users, recruited by email invitation, Twitter, Google+ or Facebook. Since the data are based on a non-random sample, a margin of error cannot be computed, and results are not projectable to any population other than the respondents in this sample.

When asked about their primary workplace, 40% of the survey participants identified themselves as a research scientist or as employed by a college or university; 12% said they were employed by a company whose focus is on information technology; 11% said they work at a non-profit organization; 8% said they work at a consulting business, 10% said they work at a company that uses information technology extensively; 5 percent noted they work for a government agency; 2% said they work for a publication or media company.

When asked about their “primary area of Internet interest,” 15% identified themselves as research scientists; 11% said they were futurists or consultants; 11% said they were entrepreneurs or business leaders; 11% as authors, editors or journalists; 10% as technology developers or administrators; 6% as advocates or activist users; 5% as legislators, politicians or lawyers; 3% as pioneers or originators; and 28% specified their primary area of interest as “other.”