CRF Blog

Cash Is for Losers!

by Bill Hayes

In Cash Is for Losers!, a feature story, Bloomberg Businessweek looks at the popular Venmo app, which aims to replace cash and credit cards.

Futurists and currency buffs have been predicting for years that some digital gadget or other would kill off cash, credit cards, and checkbooks. That process is already far along outside the U.S. Scandinavians were using pay-by-text-message vending machines by 2000, long before most Americans had even heard of text messages. In Kenya, the mobile currency system M-Pesa is a ubiquitous tool. But after years of consumer indifference, mobile payments are about to make the leap in the U.S. from foreign-sounding novelty to inescapable fact of daily life. In a study in 2013, Forrester Research (FORR) estimated that the amount of money spent by Americans via mobile payments will reach $90 billion in 2017, compared with $12.8 billion two years ago. Over the next several years, “mobile payments will move toward the mainstream,” Forrester analysts wrote.

Wherever consumers go, merchants are likely to follow — particularly when clear-cut consumer preferences emerge. At the moment, the battle over mobile payments is far from settled, with startups, banks, credit card companies, and tech giants all fighting for a piece of the action. A recent search of AngelList, a site that tracks early-stage investment in companies, reveals that there are now at least 1,475 digital-payments-related startups. Whichever companies lure the most consumers and merchants onto their product stand to reap billions of dollars in transaction fees while also accumulating deep treasure-troves of valuable data about purchase habits. In October, Apple (AAPL) jumped into the arena, rolling out Apple Pay, a system that allows people to make store purchases with a fingertip reader on their iPhones. Facebook (FB) is expected to join the fray as well. On Nov. 17, Snapchat introduced a tool called Snapcash that allows users to send each other money through the popular ephemeral messaging app.

In its current iteration, Venmo is basically a next-generation checking account. Users have the option of depositing a payment directly into their connected bank account, or save a step and just leave a balance on the app. The more people do the latter, the greater the threat Venmo is to traditional retail banking. If Venmo’s expansion into store payments is as successful as it’s been with peer-to-peer, companies like Square that make point-of-sale card readers have reason to worry.

Venmo brings a sizable posse to this fight. [more]