Will Apps Become the New Wallet?

Two recent news reports are bringing the digital wallet closer to reality. American Express (s axp) ┬áis offering a one-stop-shop payment platform in the form of an app for Apple iOS (s aapl) or Google Android (s goog) users as well as through Facebook. The Wall Street Journal is also offering more details on Google’s planned mobile payments strategy which will use a technology known as near-field communications to transmit payment data. It’s pretty clear mobile payments and the idea of delivering payment capabilities as an app are finally hitting their stride, but what it will mean for our relationship to money and our relationships with retailers?

The American Express apps allow consumers to load money from credit cards, debit cards or banks into an account and subdivide those accounts to determine which source actually pays for the purchases. It’s like a mobile PayPal (s ebay). Consumers will pay fees on the money they load to the account and merchants will pay a fee depending on the method of payment the consumer elects to use. American Express controls the platform, but consumers aren’t limited to their cards. Ane could use the app to pay with a Visa (s v), for example.

Google’s plans are a little more ambitious and reportedly involve the search giant working with Citigroup (s c) and Mastercard (s ma) to enable people to use their phones like a credit card by swiping them at a reader at merchant counters. However, it may also enable Google to track purchases across stores and share that information with advertisers–an excellent way for Google to monetize its Android platform outside of mobile ads.

The Rise of Money Mirrors the Rise of Civilization

When people paid for everything in steel or gold coins, it said something about the value of having a monetary system based on a metal. As the field of finance became more sophisticated and the creation of wealth became less tied to physical goods, the notion of what money was tied to became more abstract. The U.S. may still have gold stored in Fort Knox, but our currency is now tied more to other factors including our productivity, the international debt markets and the value other nations’ place on our fiscal stability. The creation of credit cards and easy credit in general has enabled some people to take advantage of the ability to float their payments out a bit and others the opportunity to buy beyond their means and pay incredible amounts of interest. Entire companies have been built on this premise.

The End of “Cold, Hard Cash”

Now, as we’re moving into a new mobile payment paradigm, it’s worth looking ahead to what it says about our culture, our relationship with money, how we purchase goods and the goods we buy. What businesses and industries will benefit from this shift? As payments go mobile and apps become the new wallet, it’s clear that cash is less relevant and our idea of money is becoming even more abstract, even as some of our goods do the same. The rise of digital goods and experiences has been called dematerialization, and eliminates the costs associated with transporting physical books, newspapers or CDs around. It can also include digital rights management software or mechanisms that make the ownership of digital goods iffy for the consumer.

Virtual Currency Is a Gold Mine of Big Data

So other than dematerialization and the potential for your digital library to one day be sucked from your shelves, payment apps and aggregation of mobile data via Google can offer three big opportunities in the relationship between merchants and consumers:

  • Frictionless Buying. This is the most obvious benefit of payment apps for the consumer and merchant: the ability to buy something without clicking outside of Facebook, or using your mobile phone instead of pulling out your wallet. The time between deciding you want something and the time you can buy it is shortened to seconds instead of minutes, making a transaction more likely.
  • Big Data. Google’s rumored payment system will not only offer a convenient way for mobile-phone-toting consumers to buy goods, but it may also be like a souped-up loyalty card program for merchants. Google may not want to pull a Blippy and share its information with your social network, but it could let merchants look at your buying habits and see what else they might offer. I covered how stores use loyalty cards to do this; now imagine that ability to track sales across all of your purchases instead of being limited to one store. It’s a big data gold mine that could lead to the ultimate upsell.
  • Virality. The American Express Serve platform announced Monday offers customers the ability to put a charity widget on their Facebook page, through which friends can donate. I can see that working well, especially if the charity is closely tied in with the Facebook page owner’s experience. For example when a friend was diagnosed with breast cancer and told us about it on Facebook, I would have clicked through on a widget to donate to the Komen Foundation. In a less charity-focused example, if a friend were able to share some of their purchases via a mobile payment app, I might be inclined to pick up the same item, especially in the music, books and movie arena. On big-ticket purchases, I might get a trusted review of an item I was eying for myself — the ultimate in advertising.

Of course as we move toward payment apps and mobile payment aggregation, anonymity could be lost and the opportunity to take advantage of the system through hiring influencers to shill for products rises. Much like we no longer can pay for groceries with gold, cash could soon go by the wayside as app-based payments on mobile devices proliferate — although I have hard time believing it could happen in the next two decades or so.