The danger of digital wallets
The money revolution is underway. Are you ready? Probably not! According to an annual survey by the U.S.-based National Foundation for Credit Counseling, the majority of people do a lousy job of tracking where their money goes. Fully 61 per cent of Americans (and I doubt the figures are much different this side of the border) don’t have a budget, which means they have no idea where their dollars are spent.
Following the money trail is becoming more complex as technology revamps how we spend, save, deposit and withdraw our hard-earned bucks. E-transfers, tap-to-pay, e-receipts and even chip cards make many financial transactions easier and quicker. But as things speed up and increasingly take place in cyberspace, consumers must be more vigilant about their finances.
Think back to the early days of automatic payments. Among the first types of loans to get on board were mortgages and car loans. By the mid-1980s, utilities, phone, cable and other consumer services were commonly paid through automatic debits. That created a bonanza for banks as more people needed overdraft protection because they often forgot what payments were coming out of their accounts and when.
Similarly, as new virtual payment options become available, such as PayPal and Square, accompanied by e-receipts, it will be correspondingly tougher to track one’s finances.
Just last week, Rogers moved into the wireless tap technology arena with Suretap, which supports a limited number of transactions through retailers like Indigo and Ardene. PayPal Canada has developed a similar app and the banks are following suit.
Tap technology uses something called near-field communication (NFC). NFC is what allows you to tap your credit card at the checkout counter, rather than insert it into a chip reader. However, it doesn’t always work. It’s amusing to watch people whacking their cards at the cashier station and then sheepishly reverting to the old insert or slide because the device won’t read their card. But clearly, some version of this is the future.
Tap technology is also at play with smartphone payments. Tim Hortons, with its recently released TimmyMe app, allows you to get your Timbits and caffeine fix and pay for it by tapping an app that produces a barcode to be scanned with an NFC (Near Field Communications) device.
Payments through smartphones will become ubiquitous in the next couple of years, experts predict, “The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player,” suggests an article on the Motley Fool investing site.
No doubt cheques will eventually be extinct. According to a Canadian Payments Association’s 2012 report, cheque use is declining by about six per cent annually.
But while the cheque still exists, digital technology is here to help you make deposits with photo cheque-cashing that came to Canada last year. Snap a picture of the front and back of the cheque (called mobile capture, by the way) tap an app and off it goes into your bank account.
If the money revolution sounds a bit confusing, it also promises convenience. But herein lies the rub. Every Tom, Dick and Harriet entrepreneur is chasing the e-money movement, hoping to become the next Visa of the digital dough world. That means thousands of apps and options from retailers, banks, payment processors and money transfer alternatives such as Google mail’s new Attach Money tab, offering different ways to handle money.
If you are among the 61 per cent who already don’t track what they spend and don’t follow a budget, all this e-money stuff is going to make it a whole lot harder to stay on top of your finances.
Right now the focus is on apps and systems for digital payments. Organizing and tracking is a different story. Eventually, the e-money revolution will seamlessly connect what you spend, save, invest and transfer with a budget that tells you where you are at financially.
Individuals will have access to the kind of financial balance sheet that businesses use. This digital wallet will update constantly as money comes in and goes out.
We can look forward to the day when the smartphone announces that you’ve just blown 75 per cent of your paycheque with 10 days left until the next one comes.
While we are waiting for these digital wallets to appear and function across multiple platforms from online ordering to cash withdrawals, bank and credit card statements remain your best friend.
As a first step, spend just half an hour once a week reviewing your transaction histories. Then pay attention to categories of spending, such as groceries, auto, etc. Even better, total those categories on a monthly basis. Best of all, create and maintain a budget. The Financial Consumer Agency of Canada has an excellent one.