Most people in the Western world know how easy it is to send words, pictures, videos, and more across the globe in an instant. You don’t have to do it, and you don’t have to like it, but the technology exists. I try to spend a few moments every day considering just how awesome it is — and I mean awesome as in I am awed — that I can record a video of my dog with a bucket on his head and have thousands of people see it before he finds the way out.
As easy as it is to transmit information, as many niche apps and cross-platform tools and cloud-based services and social networks as we have, you might think instant money transfers are a no-brainer. You’ve heard of PayPal, Square, the new feature in your bank’s mobile app, and a bunch of others— surely, there are options. But think about it this way: You’re out with friends, and everyone has a smartphone, a pen and paper, and $100 cash. You tell them you love your new hair stylist and you recommend her. If anyone asks how to make an appointment, you send the salon’s address and phone number via email, SMS, or however you please— nobody reaches for the pen and paper. Then, because one of your friends is sort of awkward, he brings up the $50 you promised him after your dog chewed up his jacket. Your phone goes away and you reach for your wallet.
What’s the Difference?
Assuming you and your friends are gadget-consuming, tech-loving social media users, these choices are practically automatic. In the case of the hair stylist recommendation, you might have a longer conversation about which digital method people prefer than about why nobody pulled out a pen. It’s arguably easier and faster to write down a name and number than it is to open your address book, find the contact, choose the recipient, and send— and that’s just on your end. Why do we think the latter is more efficient? That’s a big question, and a fun (or potentially obnoxious) one to bat around— but let’s get back to the $50.
For now, we’ll also assume that you and your friend have PayPal accounts. We can go one step further and say that you both have connected your checking accounts to PayPal, so there’s no transaction fee to send money. If you give him the money through PayPal, you’ll have a record of the payment— it will be one more line of data to track, tag, and otherwise enjoy for the rest of your life. Yes, the process requires more than the fraction of a second it takes to hand over $50 cash, but we already know that’s not the whole story.
Things get a little more complicated when we accept that you might not have the cash at the moment. In that case, you can ask to pay later, find an ATM, or use a different payment method. Further complications arise thanks to our standards of propriety— the whole “owing money to friends” thing is, far more often than not, a social land mine. There’s a lot going on here, but let’s leave it alone for now.
Mobile Payment Apps
PayPal may not be the newest company on the payments scene, but they’re still developing and playing a major role in the person-to-person payments game. Bump Pay, a new app for sending payments by bumping phones, uses PayPal to complete transfers. According to Reuters the technology Bump developed for this app has been used by PayPal directly, and by ING. As with cash payments, both users must be in the same room to transfer money. As with all PayPal transactions, the transfer isn’t necessarily instantaneous.
Let’s return to our example of the friend owed $50. What if you don’t have your wallet at all, but he really needs the money to buy a new jacket right now? You can’t go to an ATM, and you can’t buy it for him, and he can’t wait until tomorrow. PayPal can come to the rescue, if he doesn’t mind making the purchase with his PayPal account. Because PayPal is not a bank in the US, they still have to send the money to your friend’s checking account, and it still takes a few days. Users can request a debit card tied directly to a PayPal account, but if he doesn’t already have a PayPal card, he’ll only be able to spend the money with a merchant who specifically chooses to accept PayPal.
Other payment services are similarly limited by existing bank transfer protocols. Newcomer Venmo touts the social, app-based angle of their product; in addition to logging the transaction, Venmo allows users to associate personal stories and share with their networks. It’s not designed to accommodate merchants, so one account type and fee structure applies to all users. Like PayPal, Venmo separates transactions performed over its network. When you send a payment, the money will be withdrawn from your checking account if you don’t have an existing Venmo balance; when you receive a payment, the money stays in your Venmo account until you transfer it to your checking account.
Status: It’s Complicated
We’ve stumbled into two of the most compelling reasons to use a person-to-person money transfer system. On the one hand, we like having records of stuff, so we send payments because we consider the benefits worthwhile. On the other hand, maybe we don’t always have the option to pay cash, so we send payments because it’s more convenient than the next alternative. The latter is a negative argument, but “less inconvenient” can get pretty desirable.
Of course, it makes sense that sending money is more complicated than sending a snapshot— money is complicated all by itself, and the money involved in person-to-person transactions is actually going from one bank to another bank. We’ve covered some of the network infrastructure involved in payment processing; it’s hard enough to keep track of decades-old systems and regulations without introducing third parties.
No one said it would be easy to invent entirely new ways of moving money, especially given a banking system that’s decidedly not future-proof, but it’s a problem worth solving. It should be simple.
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