Turning your smartphone into a digital wallet

The Starbucks Card Mobile app on the BlackBerry smartphone.

TEXT OF INTERVIEW

Tess Vigeland: So here's something I did with my phone for the first time this week: I paid for my drink at Starbucks. Yes, I am just that technologically advanced. And I would absolutely love to be able to do that for most of my transactions. Goodbye credit cards. Goodbye driver's license. I mean I already got rid of photos 'cause they're on my phone, right? Well, our own Steve Henn has been exploring these possibilities and he joins us now. Hi Steve.

Steve Henn: Hey.

Vigeland: So how close are we to this wallet-less world.

Henn: Well, you know all those millions of Americans who use Mint.com to create budgets and manage their money?

Vigeland: Yup.

Henn: Well, Aaron Patzer invented it. In two years he built it into a $170 million business, but there's one aspect of managing his money that Aaron says is still a royal pain in the, well, you know.

Aaron Patzer: I'm sitting here uncomfortably in this interview with a big, chunky wallet in my pocket.

It's 2011 -- Google's built a self-driving car. New freezers can send text messages to your cell phone if the meat's going bad. And Patzer wonders why the old-fashioned wallet still exists.

Patzer: There's no reason that you need to carry around as many cards as you do just to have the information that's on a magnetic stripe. If you could do it in a very secure way, you could eliminate all of that. It would be a much more comfortable world to live in.

Lots of us are already halfway there. We have smartphones. And think, if you started paying with your phone, it could automatically warn you when you're going to overdraw. It could tell you what card to use, even guide you to the best deals on soap. And all this technology already exists.

A few weeks ago, I walked into the Cheeky Monkey, a toy store in Menlo Park, Calif. I needed party favors for my seven-year-olds birthday and I was in a hurry.

Sales associate: So this is our tub of erasers. We leave them kind of all mixed together because the kids like to go on a treasure hunt.

Henn: OK.

When it was my turn to pay I reached for my phone. It has little sticker on the back. And that sticker -- made by a company called Bling Nation -- has a chip in it that basically can replace my bank card.

Sales associate: Tap it onto the little machine here and then it automatically comes out of your account.

Start-ups like Bling and Isis, which was founded by the nation's biggest wireless carries are gunning for the credit-card companies. Visa and MasterCard charge merchants fees every time any customer swipes their plastic. Each year they make billions this way. The start-ups' plan is to undercut the big guys by charging merchants less in swipe fees and they'll use chips on your cell phone or inside it to replace your plastic. Before any of these systems will work, though, stores will have to equip their cash registers with new gadgets that can read these chips. Jeffery Mullens runs Dynamics Inc. -- another start-up that wants to digitize your wallet.

Jeffrey Mullens: It would cost hundreds of billions to change the magnetic stripe infrastructure in the United States and reeducate the merchants that use it.

In the mean time, Mullens is taking a different approach. Instead of trying build a credit card into you're your phone, he's building tiny computers inside traditional plastic cards. One smart card from Dynamics lest you chose among your different accounts. Or...

Mullens: For the loyalty-oriented consumer, Citi just announced the prestige 2G card, which has two buttons. One button to pay for your purchase with credit, and for the first time ever you have the ability to pay for your purchase at your point of sale -- at your gas stations at your Apple stores at your Apple stores -- with your reward points.

And no matter what technology takes off -- whether its computerized credit cards or smartphones that can pays your tab -- chances are it will be intelligent enough to steer you away from high credit-card fees.

Omar Green: That's the problem we want to be solving. How do I get something in my phone that says don't use this card, use this other card.

Omar Green runs mobile strategy at Intuit, the company that bought Mint.

Green: There are potentials for us to create really, really smart systems that are smarter about your money than you are.

That potential that haven't been realized yet. Back at the Cheeky Monkey after waiting and waiting for my charges to clear on my phone...

Henn: Why don't I go ahead and pay with an old-fashioned plastic card?

Or maybe I could even use cash.

Vigeland: Cash? No, Steve, don't do it.

Henn: Well, you know, we'll see Tess.

Vigeland: OK. Well let me ask a quick follow up. I am particularly interested in what Omar Green said about our smartphones helping us manage our money.

Henn: Yeah, and the idea that they could be even smarter with our money than we are. I mean, admittedly that's a low bar, but there's some really...

Vigeland: Speak for yourself.

Henn: There's some really intriguing things phones could do. I was talking to Michael Abbott. He's the CEO of Isis, the company that's been set up by the telecom companies to do this stuff. And he was talking about how when you go to the checkout counter, you reach into your wallet, you get your credit card, you slide the card. Then when you're done with all of that, they give you a receipt that you have to file away. Well, he envisions a world where all of that is just done automatically on your phone. And honestly, Tess, that is just the beginning. I was talking to a scientist -- you may remember this -- this guy, Oren Etzioni, and he modeled airline prices.

Vigeland: Yeah. You got a lot of reaction to that story.

Henn: Yeah. People like Oren are also making models of other kinds of consumer goods. So you can imagine walking up to the counter and you're about purchase a DVD player, and your phone says yeah, you know what, you're better off if you wait a couple weeks on this one.

Vigeland: That sounds absolutely awesome.

Henn: Yes. So there are tons of opportunities here.

Vigeland: Crystal balls is actually going to happen at some point?

Henn: Well, the thing I'm watching for is -- and this is kind of a cliche -- is the iPhone 5. Apple has this incredible history of coming into a marketplace and offering a solution. And I think there's an opportunity for them to come in and offer a payment system, build those chips into the next generation of the iPhone, process those payments through iTunes, and create really cheap, reliable systems for merchants to install in their stores where that would work. So we'll see.

Vigeland: Maybe they could actually do that in their own stores so you don't have to wait in line for two hours to get the phone?

Henn: Well, you know, they have those really cool iPhone checkouts, right? You've seen those.

Vigeland: Yes, but they don't come down the line around the block to help you out with that.

Henn: That's true.

Vigeland: I know from personal experience.

Henn: It's a nice problem to have though.

Vigeland: It certainly is. Thanks so much, Steve.

Henn: Sure thing.

About the author

Steve Henn was Marketplace’s technology and innovation reporter for the entire portfolio of Marketplace programs until December 2011.

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