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The Rise of Mobile Banking: Will Cash Become Obsolete?


If you like carrying cash and sorting through a wad of bills to find the correct change, you're not only a merchant's nightmare, but you could soon be the one being asked to wait while a clerk runs off to make change.

And it's not just cash that's coming under fire, credit and debit cards are too. Industry research shows that the average "plastic" transaction takes close to one minute to process, whereas through mobile payments, you can pay and be on your way in less than 12 seconds.

Consumers also increasingly like the speed and convenience of so-called "contactless payment," says David Hoffman, partner with PwC Financial Services. Hoffman says last year consumers spent over $2 Trillion on small money purchases of under $25.  He predicts that 10% of such transactions will go mobile in the next two to three years, while the percentage of cash purchases declines, but not into outright extinction.

Like any technological leap, there are hurdles, such as reaching agreement over which is the best way to pay, and then getting merchants and consumers to agree. Currently, there are at least two major factions that have emerged in this battle for your bucks.

First there are traditional credit card issuers and processors, such as Visa (V) and Mastercard (MA) which are now working in the U.S. to replace magnetic strips with computer chips, a system that has been up and running in Europe for years already.

Another major push is being made by mobile device makers and e-commerce companies who can combine features like mapping and search and coupons with the convenience of wallet-free payments, using a technology known as near field communications or NFC. This allows you to wave your phone over a special reader to make your payment. PayPal and Home Depot (HD) are testing and expanding their use of the technology now.

No matter what technology is used, security is a major issue, but experts say it is also a selling point as the newer gadgets offer the latest systems to foil would-be crooks.

And then there's cost. After proposed debit card fees by banks were dropped after being met with huge resistance from consumers last summer, there's clearly a new found awareness over the expenses involved in collecting and processing money.

"In the end, the consumer pays for it," says Hoffman. "It's really just a question whether it's explicit or implicit." Of course, as Hoffman points out, the costs are better received by the public when they are built in, rather than tacked on.

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