Mobile Payments and Digital Cash Were Coming Whether Banks Liked It or Not
Book: Bank 3.0: Why Banking Is No Longer Somewhere You Go But Something You Do Author: Brett King ISBN: 978-1-118-58963-2 Publisher: Wiley (2013)
Chapter 12 is a big one. King covers mobile payments, digital wallets, virtual currencies, and the future of the point of sale. It’s also the chapter where some of his predictions look brilliantly right and others look hilariously wrong. That’s what makes it fun.
Mobile Payments Were Already Here
King starts by pushing back on the common claim that mobile payments were “years away from being mainstream.” His argument is straightforward and kind of hard to argue with.
If you bought an app on your phone, you made a mobile payment. By 2011, more people globally made a mobile payment than wrote a check. Across the EU, the average person wrote about 10 checks a year but downloaded around 80 apps, most of which were purchased through a mobile store.
Would you call checks mainstream? Obviously. So why not mobile payments?
He brings up the concept of “Smartphonatics,” a term from ACI Worldwide and Aite Group research. These were people for whom mobile banking and payments were just normal. About 80 percent of them used their phones for mobile banking. Seventy percent had used or planned to use them for payments. They were younger, mostly Gen Y and Gen X.
But the real eye-opener was Asia. Japan had 47 million people using tap-and-go phones. South Korea had over 60 million contactless phones in use. Korean parents were transferring money to their kids’ T-money accounts instead of giving them cash. A 21-year-old Korean university student said she might not notice if she left her wallet at home, but losing her phone would ruin her day.
In 2013, a big part of the Western world was still debating whether mobile payments would catch on. Half of Asia was already living it.
The Players
King runs through the companies battling for the payments space, and this section is fascinating to read now.
PayPal went from $141 million in mobile payments in 2009 to $4 billion in 2011. King predicted they’d hit $10-14 billion in 2012. PayPal figured out that making electronic payments simpler, faster, and cheaper than what banks offered was a winning formula. Simple idea. Hard for banks to match because of all their legacy systems.
Starbucks launched its mobile card and within 15 months, 25 percent of all in-store purchases across North America were made through the app. 42 million mobile transactions. That’s a coffee company beating banks at payments.
Square launched in May 2010 and by the time King was writing, 25 percent of US merchants were using a smartphone to take credit card payments. Both the Obama and Romney campaigns used Square for donations. When a political campaign trusts your payment tech, you know you’ve made it.
Dwolla took a different approach entirely. It built its own payment network independent of Visa and MasterCard. Transactions under $10 were free. Over $10, the fee was a flat $0.25. Compare that to the 2.7 percent credit card companies charged. Dwolla wanted to replace the whole ACH system with something simpler. Send money with just a phone number or email address instead of routing numbers and bank account codes.
Who Wins the Wallet War?
King’s answer: nobody. And he was right about that.
He explains why the mobile wallet space would be more fragmented than credit cards ever were. When Visa and MasterCard started in the 70s and 80s, you needed physical infrastructure. Merchant terminals. Proprietary networks. Card manufacturing. High barriers to entry meant only a few players could compete.
Mobile wallets need none of that. All you need is customers with phones and internet access. That’s why PayPal, Square, Dwolla, Starbucks, and dozens of others could all play in this space without asking permission from Visa or MasterCard.
King predicted mobile carriers would try to lock down the wallet market and fail. He was right. He predicted Apple would be a major player with its wallet tech. Right again. He predicted Google would see payments as primarily an advertising opportunity, not a financial services play. Spot on.
The Google insight is especially sharp. King explains that Google understood something others missed: the real value of a mobile wallet isn’t the payment itself. It’s the context around the payment. If Google knows you’re about to buy something, it can show you a deal. It can connect merchants with customers at the exact moment of purchase intent. That’s worth far more than transaction fees.
Virtual Currencies: The Bitcoin Section
And here’s where things get really interesting from a hindsight perspective.
King writes about QQ coins, a virtual currency from Chinese messaging giant Tencent, that got so popular the Chinese central bank worried it could affect the value of the yuan. A public prosecutor literally said QQ coins were “challenging the status of the renminbi as the only legitimate currency in China.” The government tried to impose controls. That just created scarcity and drove up the value by 70 percent.
Then he gets to Bitcoin. In 2013, King describes it as “an experimental new digital currency” with a value of about $4.90 per Bitcoin. He notes the low transaction fees (0.99 percent versus Square’s 2.75 percent). He mentions merchants in Africa holding Bitcoin to avoid inflation. He flags the security concerns and the lack of consumer protection.
His take was cautiously positive. Bitcoin was innovative but needed to mature. Security was the main issue. The “decentralized” nature was questionable since original developers still had significant control.
Reading this now, knowing Bitcoin hit nearly $69,000 in 2021 and spawned an entire crypto industry, King’s careful assessment feels almost quaint. He couldn’t have predicted the full scale of what would happen. But he saw something real in the idea of virtual currencies competing with government-issued money. That instinct was correct.
The Death of the Point of Sale
The last major section covers how the physical point of sale was going to change. King walks through three phases.
Phase I was Chip and PIN, which most of the world was adopting while the US stubbornly clung to magnetic stripe cards. King points out that the US was literally the last developed economy to make the switch. He quotes headlines like “American credit card users are cavemen in a Chip-and-PIN world.” (The US did eventually adopt chip cards, but it took a few more years.)
Phase II was mobile-integrated payments, where your phone talks to the terminal via NFC or an app. King predicted the next iPhone with NFC would be “the true disruptor” and that merchants would scramble to accept iPhone payments. He was right about that too, though it took until the iPhone 6 with Apple Pay in 2014.
Phase III is the most interesting: cardless, phoneless, personalized payments. Walk into a store, grab what you want, walk out. No checkout. No card swipe. No phone tap. Just automatic payment tied to your identity. King admits this was futuristic, but he noted that the technology already existed.
Today, Amazon Go stores do exactly this. So King’s Phase III wasn’t science fiction. It was just early.
The M-Pesa Lesson
One of the most important points in this chapter is about Kenya. M-Pesa, the mobile money service run by a telecom company, had 17 million customers. The four biggest banks in Kenya had 3.5 million customers between them. A mobile operator “banked” more of the country in six years than traditional banks had in decades.
King compares Kenya to South Africa. In Kenya, regulators took a relaxed approach and let mobile money grow. In South Africa, regulators insisted that cash-in and cash-out had to go through banks. Kenya got financial inclusion. South Africa got to protect its banks. The difference in outcomes was massive.
This is probably the most important lesson in the whole chapter. When regulators get out of the way and let innovation happen, more people get served. When regulators protect existing players, progress stalls. King doesn’t hide his opinion on which approach he prefers.
What Holds Up, What Doesn’t
King was right about the big trends. Mobile payments did go mainstream. The wallet market did fragment. Apple and Google did become major payments players. NFC did win for in-store payments. Virtual currencies did become a serious force. The point of sale did start changing.
Some specifics missed the mark. He talks a lot about ISIS (a carrier-backed mobile wallet, later renamed Softcard for obvious reasons) as a major player. That went nowhere. He expected NFC to be the dominant technology faster than it actually arrived. And the specific companies he highlighted, some thrived (PayPal, Square) while others faded (Dwolla never hit mass scale).
But the chapter’s conclusion is hard to argue with: banks, merchants, and card companies that didn’t move fast would find themselves “out of the loop.” The payment experience was being rebuilt from the ground up, and the builders weren’t banks. They were tech companies that found ways to remove friction.
The biggest friction of all? Having to carry plastic, qualify for credit, and pay high fees for the privilege. Mobile payments were going to fix all of that. And they did.
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