My Personal CFO Is On The Phone

For the couple of years in which it has been discussed, I’ve been stumped at why I need my mobile phone to be a wallet.

Sure, I can understand it from the provider perspective. If a company puts itself between me and my spending, there is a tremendous opportunity.  If I am Google, I can deliver ads on a timely basis based on that information and placement.  If I am a wireless company who owns that wallet, I can dip my paws in another revenue stream.  If I am a bank or credit card company, I can continue to maintain my incumbent position as the money intermediary by blocking Google from taking that position.

But from a customer perspective, I have failed to see the benefit to me.   What does it matter whether I carry a credit card in my wallet (which I need for other reasons) or whether that information is stored on my phone?

And without that benefit, there isn’t a business, no matter how many providers want it.

But here’s a customer benefit.  What’s powerful about the smartphone generally is the concept of having a lot of computing power in your hand on the go.  In the case of payments, the payoff is putting a computer between the individual and every payment he makes.  The reason is simple.  Company have CFOs who oversee financial decisions, with the mandate to prevent stupid financial decisions.  Individuals don’t and consequently make dumb financial decisions.  Indeed, the profits of the retail banking industry have been built on this premise, as described in this description of the retail banking industry in the Economist:

It will be harder to pretend that banking is free when in fact it relies on customers giving banks virtually interest-free loans in the form of deposits; harder to profit from the disorganisation or sloth of customers who slip into unauthorised overdrafts or roll over balances on high-interest credit cards while leaving cash in low-yielding savings accounts.

Much of retail finance has been built on customer ignorance and making non-optimal choices.  A gatekeeper that makes more logical decisions completely upends this banking paradigm.  As the Economist says:

If this was just a more convenient way of paying, the banks would probably shrug. But it also promises to overturn your existing financial relationships. Instead of reaching for the first card that happens to be in your wallet to pay for a $2 cup of coffee (and risk being charged a $35 penalty by your bank for exceeding your overdraft limit), your phone will choose the best method of payment. Credit cards with the highest rates of interest, or the meanest rewards schemes, will be shunted to the back of this smart wallet. Repayments will automatically be channelled to pay off the most expensive loans first. Penalty fees for inadvertent overdrafts will become things of the past.

So, the opportunity for customers is inserting a microchip as personal CFO between our instincts/carelessness and our spending to help avoid silly financial moves.  The problem is that many of the contenders have no interest in this outcome, further disrupting the huge profits available from customers making non-optimal decisions.

Of course, in order for this vision to come through, what matters is that the architect of the mobile wallet has the incentive to enable better financial decisions.  That is where the opportunity lies for greenfield entrepreneurs, without a stake in the existing system.