The Future of Virtual Payment

Posted on Sun 15 January 2012 in university

I’ve been doing a little summary about the future of virtual payment options that I wanted to share. This excerpt is part of a longer project for a cryptography and security related course at university to which I contributed this as well as some other sections and did the proofreading. While reading please keep in mind that I wrote this piece from memory and started adding source links afterwards.

Considering we live in a very fast moving world in terms of technology and especially Internet related software it comes as no surprise that it’s difficult to do an accurate prognosis of what is likely to happen. That aside one can try to deduce trends from systems that are already well established as well as those who are gaining momentum fast due to either user popularity or heavily funded marketing that backs them.

Of course this is mostly educated guesswork since I’m neither an expert nor have I been watching the trends for years so that I’m able to give a precise prognosis.

First things first: There is no doubt that micropayments as well as macropayments are here to stay. One only needs to look at systems that are in use today to recognize their broad acceptance amongst their audience. Huge platforms like the iTunes Store, the Android Marketplace and STEAM to name just a few are doing extremely well offering micropayment systems to their customers. Although acceptance of services like Click and Buy is probably wide amongst distributors of digital goods, eBay’s purchase and deep integration of Paypal into its own platform as well as its worldwide customer base almost guarantee that Paypal itself has its future secured despite the criticism the company earned for cutting WikiLeaks off its most valuable funding method.

The same thing will probably hold true for credit cards due to their widespread use in shops, bars and other local venues as well as their ease of use when paying while traveling abroad. Their usage is already dangerous due to a great amount of credit card fraud occurring daily. It’s pretty safe to assume the companies behind the technology will try to improve its security while struggling to maintain the ease of use that makes the cards so popular. In the meantime criminals will try to crack the security mechanisms in place even faster making this an arms race that locks both sides in this fight.

At least that’s my humble opinion never having used a credit card…

Interestingly there is a growing tendency to be a victim of vendor lock-in not only in terms of for example application ecosystems but also in terms of a companies proprietary virtual currency or virtual wallet. Microsoft’s “Microsoft Points” are just one example for the attempt to transfer money to a vendor’s ecosystem instead of paying for a product upfront. The same principle applies for almost all online games which are based on a Freemium model.

Or put differently: To buy MS’s DLC you still had to go buy your points at the store if you didn’t have a credit card. Well, not anymore. Paypal to the rescue.

With the rising of new hardware possibilities like NFC combined with services like Google Wallet there is the chance for a major change in how we see cashless payment today. That is based on customer and vendor acceptance, though. Gaining this acceptance is not only a key to making those technologies profitable, but also to see this change coming to reality. A key factor to this might not be with the customers nor with the vendors but with the service providers that sell NFC equipped smartphones. Recent events involving one carrier in the United States have shown that carriers might block Google Wallet in favor of their own services, that being a reasonable step from a business point of view. However, actions like these might hamper the global acceptance of one such service severely. Even considering Google Checkout already being an established payment provider the chances of Google Wallet. becoming as ubiquitous as Paypal are slim and not helped by phone companies wishing to ship their own solutions.