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Google and Apple may replace your bank in the future

March 15, 2012

“Make your phone your wallet” is the popular tag line used by Google to entice consumers to use Google Wallet, its digital payment system. Is “Make your phone your bank” the next step in this technological rat race?

Imagine a future where employees receive their paychecks by swiping their phones over an NFC (Near Field Communication) sensor on their way out of the office, where getting on a bus involves pointing your phone at a machine, and paying for lunch implies a swipe of your smartphone, and maybe a review on On the flip side, that’s also a future where late-night muggers intimidate their victims with a snarled “Give me your phone and no one has to get hurt.”

Google Wallet is a digital payment system utilizing NFC-enabled Android smartphones, which allows you to pay for products or services, with a simple swipe of your phone. While Google’s service has had its share of setbacks and lacks widespread support, the situation is due to change, as contactless payment infrastructure becomes commonplace.

MasterCard is aggressively promoting its PayPass NFC sensor and encouraging manufacturers to integrate NFC in their devices, aiming to boost the reach of contactless payments systems. And manufacturers are responding – Android phone makers are releasing dozens of NFC-enabled phones, RIM is betting on MasterCard’s NFC standards, and rumors abound about Apple planning to integrate NFC into the next iPhone. A question arises, however – will the rise of alternative payment systems make “conventional” financial institutions redundant?

Most people would trust Google or Apple with their money, more than their banks

A study conducted recently by British consultancy firm Clear, which surveyed 6,000 UK consumers, found that most customers would be happy to move to alternate payment systems, finding banks boring and undesirable.

James Osmond, CEO of Clear, said : “We are at the start of a revolution in how people interact with money. Banks that fail to lead the agenda will struggle to survive. Having a mobile app and a digital guru isn’t enough – it’s about reinventing the experience of how people manage their money. The choice is simple: change now, or get left behind.”

Osmond compares traditional banks with the computer brands from 30 years ago, that were effectively made obsolete when Apple revolutionised the PC market. “The big financial services brand of tomorrow is just as likely to be Google or Apple as HSBC or AmEx. Google Wallet, the smart virtual wallet for in-store and online shopping, was a warning shot to banks. They need to act now if they want to retain their customers over the next 10 years. If they fail to make banking sexy, fun and imaginative, then the door is wide open for a new competitor to step in.”

While thoughts of cashless or plasticless (excluding the plastic used to build your phone) payments are certainly enjoyable, they are also equally unrealistic, at least at the moment. This is mostly because the infrastructure base required to enable such a system is immense. At a minimum, every phone would need to be NFC-enabled, a feature that  is currently reserved to a few high-end devices. The next step would be getting countless vendors on board, and having them install NFC sensors and merchant processing gateways in their stores. In addition, the bandwidth and server infrastructure required to support billion of consumers that use NFC-enabled devices for all their payment needs is seemingly unfeasible right now.

So yes, the banking industry is safe for now, and it will probably be for a long time to come. It all depends on their willingness to innovate and change their attitude towards consumers, and most importantly, to understand that their fate is more uncertain than ever.

Is that going to stop major players like Google and Apple from trying to disrupt the previously untouched financial industry? I think not.

Below is a short video that shows how NFC and Google Wallet work.

Any thoughts? Would you be willing to bank with Google?