Back in the '60s and '70s, most Americans paid their bills by check. Early credit cards, such as Diners Club and American Express, did exist, but it wasn't until 1966 that the two behemoths of the payments business—MasterCard and Visa—came on the scene. Before this, most credit cards were store and gas cards that could be used only where they were issued. This, obviously, was a nuisance.
What MasterCard and Visa made possible was the ability to use a card anywhere that cards were accepted. They also introduced the concept of revolving debt, which eliminated the need to actually have money in the bank to pay for things (but that's another story). Debit cards came along in the 1980s and were embraced by consumers wary of overspending. By the mid 2000s, electronic forms of payment had overtaken cash and checks by volume.
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With the increasing popularity of credit cards has also come a whopping big bill. These are the interchange fees that the two dominant card associations charge the merchants who want to accept payments using the cards. It's something on the order of a $50 billion "tax" on purchases and averages 2 percent of a merchant's take on a particular purchase. It's a big problem for merchants, who hate the fees. The problem is that in many cases the price for goods doesn't change depending on the form of payment, so the end consumer doesn't really notice.
Nonetheless, a whole fleet of would-be disruptors are attempting to dislodge the incumbents. The technology that much of the "smart money" is betting on is payment via a mobile phone. Everybody and their brother seem to be going after the mobile payments space. PayPal is, for sure, but also companies such as Braintree (oddly, acquired by eBay, the parent company of both), Square (whose swipe technology was copied in short order by PayPal), Swipe Payments, Stripe Payments, LevelUp and, of course, Google Wallet. For the most part, the entry into mobile has been disappointing as consumers and merchants fail to adopt in large numbers.
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Square is reportedly losing money on its most high-profile deal, a partnership with Starbucks, and instead of an IPO that many thought might be coming for the company, Square recently raised another round of debt financing.
The mobile wallet concept has struggled, mainly because there doesn't seem to be a compelling difference, experience-wise, for consumers or a major benefit to merchants.
It isn't for want of trying. Google Wallet has been among the notable stumbles in the mobile payments "revolution." Google hoped to offset its expenses for the free-to-use service by offering ads. But here's the irony: Google reportedly spent $300 million on developing the app, but because it has to pay such high fees to the credit card companies that it works with, it loses money on most transactions, according to a Bloomberg BusinessWeek article from last June. In May 2013, the head of Google Wallet and former eBay executive, Osama Bedier, left the company.