Will your phone ever realistically replace your wallet?

Patrick Gray is hesitant to jump on the mobile payments system bandwagon until some of the current problems have been resolved. Do you think a wallet-less future is possible?

For the last decade, ever since mobile phones became a fixture in every pocket, various companies have been talking about using these devices as a replacement for one's physical wallet.

The promise

The promise sounds compelling: rather than carrying around a mobile phone and a bulky wallet loaded with cash and credit cards, your smartphone takes the place of the wallet. Instead of digging for change or an appropriate card, proponents of mobile payments envision a customer swiping their phone, making a few taps on the screen, and quickly paying for the purchase.

In addition to the obvious consumer benefit of presumably leaving one's wallet at home, marketers begin to salivate at the possibility of exchanging other data with a consumer's mobile phone. Just like the barcoded loyalty program cards, the smartphone could be used to track and identify a customer's previous purchases and provide even deeper data.

As smartphones have become increasingly personal, retailers could (presumably with permission) gather anything -- from stores in which a customer usually shops to email addresses and contact information for that consumer's friends -- all as part of the payment transaction. Just as Facebook and the various other social networks today mine, package, and sell personal data in exchange for a "free" service, retailers envision exchanging coupons or other promotions in exchange for personal data.

The problems

The recent push by several of the big names in technology makes mobile payments appear to be fairly new, but the technology has been in the experimental stages for years, with companies like Nokia allowing users with "dumb phones" to perform payment transactions with vending machines in a wide-scale test. While I'd love to leave my wallet and its bulging mass of credit cards, loyalty cards, identification, and (occasionally) cash at home, I see two major hurdles toward widespread mobile payment adoption.

The first problem faces most new technologies, and it's the classic "chicken or egg" phenomenon. Why would a consumer pay extra for a mobile payment-equipped device when most retailers can't accept mobile payments, and why would a retailer install the necessary equipment when most consumers won't buy the devices?

With the big names in tech pushing mobile payments rather strongly, this argument may become moot; however, I can't envision a scenario where we can routinely "leave the wallet at home" in the future. We will likely still require identification for driving a car, boarding an airplane, and getting our frequent traveler points when checking in at the hotel.

Perhaps mobile payments will slim down our wallets, but I can't see them eliminating them altogether. Mobile payments might be nice, but if I'm stuck carrying a few forms of ID, a credit card or two for those vendors who don't accept mobile payments, and a wad of cash, eliminating only 10-20% of my wallet isn't very compelling, especially in light of the other major problems with mobile payments.

In addition to only partially fulfilling the dream of leaving the wallet at home, today's mobile payment solutions are clunky at best. The ultimate vision of a quick swipe of the mobile phone remains compelling, but the reality is that consumers must evaluate whether their phone supports a given retailer's system, pull out their phone and potentially unlock it, open an appropriate payment application, swipe their phone, enter a complex password, verify payment, etc. With the current systems, mobile payment seems about as efficient as the scourge of long grocery store lines everywhere: writing a check. When you lather on the potential data mining that retailers are so hungry for, I'd rather swipe my trusty card, take two seconds to sign the receipt, and be on my way.

There's a long list of second tier problems with mobile payments, such as having your phone-based "wallet" run out of batteries, security risks of storing cash and payment capabilities on a connected device subject to all manner of downloaded nastiness, and incompatibilities among the various hardware and software systems from different competitors. Leaving your wallet at home may sound appealing, but the wallet-less vision of the future is far from the partial wallet, limited availability, unwieldy usage present.

For consumers and enterprises that might be interested in deploying this technology, it's certainly one worth watching. There seems to be a critical mass of investment behind the technology that may iron out some of the above problems, but I'd be hesitant before betting the ranch on any particular mobile payment system until the above problems have a solution in sight. Do you agree? Share your insight in the discussion thread  below.

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