Lots of people see progress as a good in itself. But when
progress costs you money, why should you embrace it?
The ongoing battle over
innovations in the way people pay for things
is a classic example of this phenomenon. Companies throughout the
financial services industry are racing to offer new solutions that
they think consumers want and need. But if you think about it,
you'll realize that you're much better off going with what you have
right now -- and innovation will only take away some valuable
The new way to pay
An article in yesterday's
Wall Street Journal
discussed how many big money-center banks are frustrated by the
's(Nasdaq: EBAY) PayPal, and they're not going to stand by and let
the electronic-payment service go unchallenged. Instead,
Bank of America
) , and
) are offering a similar service. Essentially, the new service
would do what PayPal does: let people send money to each other
using email addresses or
rather than forcing them to use checks or cash.
The move is the latest in a series of attempts to build the
long-awaited digital wallet. Last month,
) announced an initiative to attempt to
supplant debit-card use
, which inordinately favors competitors
(MA) , with an electronic payment system.
has been working to make Android-compatible
work as conduits for payments and expects to announce a service
allowing people to buy things at stores and use coupons by waving
their phones at checkout readers.
All of these initiatives may sound nice. But in the long run,
they'll only cost you money compared with simpler, old-fashioned
It's fee time!
Take PayPal, for instance. According to its fee schedule,
person-to-person transfers are free as long as they come from bank
accounts, but they cost 2.9% plus a per-transaction fee if they
come from a debit or credit card. That may make sense for a credit
card, as it allows someone to make a payment without actually
having the money. But debit cards only represent an extra step in
moving money from your bank account to the other person. Why should
that force the person you're paying to incur a fee?
Moreover, when it comes to buying things, new payment methods
represent a step back, not progress. When banks made credit cards
popular as an alternative to checks, customers got two real
benefits: the ability to earn interest on the float between when
they made a charge and when they had to pay their monthly bill in
full, and a host of rewards ranging from cash back to frequent
flier miles and other perks. Those initiatives put extra money in
customers' pockets -- as long as they had the discipline not to
fall into the trap of carrying a balance on their cards.
But more recently, debit cards and other electronic payment
schemes take away these benefits. The float disappears, as
transactions take actual money out of your accounts in short order
after you buy something. And although some debit cards have modest
rewards, others are disappearing -- and none of the newer
electronic wallet initiatives I've seen have anything about usage
rewards for customers.
Even worse, banks think they're doing you a
by letting you use smartphone-based systems free of charge.
Eventually, they may well start charging
a fee for their supposed convenience -- just as ATM transactions,
which started out as a way to save banks the expense of having
customers deal with human tellers, turned into a fee-reaping profit
Fortunately, no one's forcing people to use these so-called
progressive payment systems. But in time, you can expect to see
commercials mocking credit-card users the same way that card
companies have mocked those who still use cash and checks.
As long as you can get cash back in your pocket to use credit
cards, there's no reason to jump onto the mobile-payment bandwagon.
Doing so may make profit-starved banks happy, but if you want the
best for yourself, you might as well stick with your rewards
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wants those darn kids off his lawn. He doesn't own shares of
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