Thousands of years ago, precious metals (like gold) were exchanged for goods and services. Then, roughly a millennium ago, we developed paper currency. Around 50 years ago, credit cards appeared. As technology advances, so does the pace of change in forms of payment. Today, many companies and competing technologies are battling to be the next doubloon, dollar, or card, and those businesses might warrant a potential investment. Just what companies and technologies are shaping how we spend money?
Searching for payment systems
Google's (Nasdaq: GOOG ) Wallet platform allows users to store any major credit card from Visa (NYSE: V ) , MasterCard (NYSE: MA ) , American Express (NYSE: AXP ) , or Discover. It's available on the web, so you can use cards from your phone or computer. And, for Android phones with near-field communications, you can use it to pay for things in-store by tapping your phone like you would with MasterCard's PayPass. In fact, Google's similar SingleTap system also works with PayPass terminals, however, like PayPass, only a handful of merchants have adopted the technology.
A square deal
A start-up called Square has had plenty of success proliferating among smaller merchants, claiming over 2 million users and on pace to process $5 billion in payments annually. Square, created by Twitter founder Jack Dorsey, allows anyone to accept credit cards through a small dongle attached to a smartphone. The company also allows users to pay without a card, by simply telling the merchant your name in order to pay.
Square also found a partner in Starbucks (Nasdaq: SBUX ) , which recently invested $25 million into Square. At first Starbucks seems like an unlikely entrant into mobile payments. However, with the goal being to get customers coffee as seamlessly as possible, Starbucks already lets users pay through its smartphone app. And now, those payments will be processed through Square, which will no doubt raise Square's volume of transactions, and might help it scale favorably in relation to its costs. Starbucks CEO Howard Schultz now sits on Square's board.
A pal in payments
The longtime leader in online auction payments, eBay's (Nasdaq: EBAY ) PayPal also looks to own the future of everyday payments. It first dabbled in mobile payments in the pre-iPhone era of 2006 with a system to send money through texts and phone numbers. Now, the company has its own Square-like credit card reader for smartphones. And compared to Square's $5 billion in annual transactions, PayPal had $118 billion in transactions in 2011.
PayPal does have a dominant position, as a first-mover and with its built-in network advantage. This has helped it expand its in-store network with huge chains like Home Depot. For users, they can swipe the card PayPal mails, or just enter their phone number and pin to pay for their items.
PayPal also wins in consumer trust with mobile payments, as surveys have shown that eight in 10 would use PayPal's mobile wallet versus six in 10 using Google's, and it also boasts the highest brand preference for mobile payments (even when matched against Visa and MasterCard).
Where's cash headed?
There are plenty of other start-ups and new ideas looking to disrupt current payment systems, like the digital currency Bitcoin. However, consumer trust and establishing merchant networks will be the keys to providing the next commerce platform.
If the surveys are truly representative of consumer preference, PayPal is winning in trust, and making a large push to be more widely available for all potential transactions. Google, however, is also a respected company, and combining its SingleTap network with MasterCard's PayPass grows its reach. Currently limiting Google, though, is the lack of smartphones that support near-field communications and its wallet software.
Square, while definitely a potential contender, currently processes pennies compared to PayPal's dollars. But given Square CEO Dorsey and his track record with Twitter, and now Starbucks CEO Howard Schultz and his position on Square's board, the company has powerful leadership.
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