Page last updated at 11:08 GMT, Wednesday, 14 April 2010 12:08 UK

Mobiles signal future of money?

By Kevin Peachey
Personal finance reporter, BBC News

Paypal recently launched a new money app for the iPhone

Every morning millions of people repeat their "keys, wallet, phone" mantra before leaving home for work to make sure they have not forgotten anything.

But will the day come when we can strike "wallet" off the list because the mobile phone will be used for all our payments?

The key development in payments technology is the ability of mobiles to receive payments, according to Dave Birch, director of Consult Hyperion.

So how will these payments work?

App appeal

Whatever people's views on the future of cash and cheques, there is an inevitability about the increased use of mobiles to make payments.

"Cash is unlikely ever to disappear, but its decline may even accelerate as mobile payments come in," says a report by the Payments Council, which oversees payments strategy and has a membership that includes banks and other payment system providers.

"By 2050, using cash could well be a minority activity, much more the preserve of informal transactions."

A number of niche businesses have been developing systems that operate safely, conveniently and cheaply for mobile owners.

One of the first mass-marketed operations is the "Send Money" app for the iPhone which was launched recently by Paypal.

This allows two owners of iPhones to "bump" their phones together - by tapping them against each other physically - in order to make a connection and send money to each other.

Pay by phone parking sign
Mobiles are already being used for some common payments

The bumping may be a bit of a gimmick, but the technology that lies behind it signals how future payments may be made.

Having accepted a connection which flashes up on the screen, one person can send another some money from their bank account or an account they have set up with Paypal.

Paypal effectively is the middle man - providing a holding account for each so the individuals do not have to exchange their bank details.

Its profit comes from charging some users, including business users. For example, if the sender uses a credit or debit card for the payment, there is a fee of 3.4% of the payment plus 20p. The sender can choose whether to pay the fee or pass it on to the recipient.

The payment limit is $2,500 (£1,621) but Paypal expects the app to be used for small transactions. About one million people have downloaded it worldwide.


Paypal believes that its model is a secure one, as people do not exchange bank details. To make a connection, the iPhone user will have to enter an identifying feature or a Pin.

But this remains a major concern to those still uneasy with automated payments rather than paying in person.

Fraud losses on UK credit and debit cards totalled £440m in 2009 - a drop of 28% compared with the previous year, the latest figures from the UK Cards Association show.

But the number of "phishing" attacks rose by 16% in the same period. This is when fraudsters trick people into entering their personal details on a website or in an e-mail.

Fraudsters tend to follow trends, so expect them to be concentrating on ways to raid accounts from mobile phones.

Company directors and business owners, as well as the young - all people most likely to keep up with the latest technology - are among the most likely to be defrauded, a recent report by Experian found.

In day-to-day life, our phones are becoming a more common factor in payments. Parking fees, for example, are being taken on the phone rather than in cash.

But whether we embrace it to the extent of moving towards a cashless society remains to be seen.

And the success of mobile payments could be the key to if, or when, the chequebook is finally phased out.

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