I'm fascinated by electronic money and how it is developing in other parts of the world.
It's odd that there doesn't seem to be quite as much progress in the U.S. as in other parts of the world when it comes to putting together some of the more interesting pieces of e-money. After all, we already have a lot of the facets firmly in place. We have a well-developed credit card network, a similarly strong debit card network, electronic bill payments, online banking, and ACH transfers that easily let us move money between accounts at different institutions.
Yet we lack a full-blown electronic-payment method that can replace our everyday cash purchases and allow us to move away from carrying cash at all. Starbucks (NASDAQ:SBUX), Best Buy (NYSE:BBY), and other merchants have rolled out prepaid cards, which allow us to get away from carrying cash, but what we're really doing is giving our money to these merchants in advance, and they sit on it and wait for us to spend it with them. Debit, credit, and prepaid cards from credit card processors also get us close, but they're not geared toward handling very small transactions, because of the network communications and charges.
The holy grail of sorts is a way to move the cash I would normally carry in my wallet onto a card or another device we carry around, such as a mobile phone. Then, similar to a contactless card or fob, it could just be waved in front of a receiving device for payment, and more cash could be added to it as needed. The ability to also use the device as a credit card and choose a method of payment for a given transaction would be even better. This technology exists in various forms in other countries and has been tested in parts of the U.S. by Nokia (NYSE:NOK), Visa, and others, but it isn't yet offered broadly in the States.
In Europe, smart cards have been in use for years, but they work slightly differently. Some mobile-phone payment options are also available, but they tend to be country-specific, and there hasn't been a large push into the realm of merchants in most cases.
In Asia, Japan might be getting closest to full blown e-money. This is a somewhat logical development, since the Japanese tend to carry gobs of cash and never took to credit cards the way the U.S. and some other countries have. Multiple companies have led the push in Japan: Sony (NYSE:SNE) developed the chips and set up the Edy payment network, and East Japan Railways set up its own network to handle fares and purchases in its stations. NTT DoCoMo (NYSE:DCM) has incorporated Sony's chip into its phone and partnered with East Japan Railways as well, and it's working hard to get e-money accepted by merchants such as McDonald's and convenience stores. NTT DoCoMo also invested in setting up its own credit card operations and taking an ownership stake in the processing of transactions with Japanese financial companies. Yesterday, Seven & I Holdings -- which owns 7-Eleven, retailer Ito Yokado, and a bank, and which also operates the Denny's restaurant chain in Japan -- announced that it will roll out its own payment platform as well.
Even in Japan, where the technology is perhaps most widespread, it is still in its infancy. How this technology eventually develops in the U.S., and which companies will benefit the most from a move to e-money, isn't entirely clear.
Mobile-phone makers and carriers around the globe are trying to capitalize on the fact that most of us carry our phones all the time and that these phones can be connected to the Internet to allow for other transaction possibilities and connections to other accounts. These phone makers also have a vested interest in keeping people attached to their products and services. I'm sure the credit card companies and banks want to stake their claims as well.
Following the developments and seeing which companies are able to move ahead of the pack and stake their claim is going to be an interesting development to follow.
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At the time of publication, Nathan Parmelee owned shares in Starbucks and NTT DoCoMo. He had no financial interest in any of the companies mentioned. Starbucks and Best Buy are Motley Fool Stock Advisor selections. The Motley Fool has an ironclad disclosure policy.
