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Digital Money, IDs & Payments: A World Without Wallets Is Closer Than You Think

Cash will never completely disappear. How else will the Marty and Wendy Byrdes of the world launder their money? Still, the role of cash, physical driver’s licenses, physical credit cards, and other staples of a Costanza wallet continues diminishing as the world becomes more digitized. And it’s happening faster than you may think.

Increasingly, your smartphone can and does handle many of the roles formerly played by physical cards in your wallet. Your phone gets better at being a wallet every year, whether you know it yet or not. Here’s how a world without wallets would – and will – look in the not-too-distant future.

1. Money

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Cash Money Benjamin

Money is already digitized. In some ways, paying with cash feels old-fashioned, a relic from a simpler era. Yes, your credit and debit cards still have physical versions. But you pay for things all the time without having these cards on you; look no further than your last online purchase.

Services like Google Pay, Apple Pay, and Samsung Pay let you pay via credit or debit card in person, without whipping out your card. Countless stores across America have point-of-sale (POS) systems that accept these electronic services. You simply hold your phone over the POS machine, and it connects to the app without you even having to pull it up on your phone.

Even cash-centric services such as taxis now accept payment digitally. Thanks to disruptive services such as Uber, the entire transaction takes place on your phone, no wallet necessary.

Then there are online payment services like PayPal and Venmo. Instead of handing $100 in cash to a friend for your portion of a restaurant check, you can transfer it instantly via an app.

Finally, no discussion of digital payments would be complete without mentioning cryptocurrencies. They create yet another smartphone-only option with nothing physical stored in your wallet.

Pro tip: If you use cryptocurrencies as a form of payment, Coinbase is one of the largest exchanges allowing you to securely buy, store, and sell cryptocurrencies.

The Future of Digital Payments

If you can already pay for most purchases digitally, do we still need credit cards or cash?

In the case of credit and debit cards, we don’t really need the physical cards anymore. But most of us still came of age before smartphone apps could pay on our behalf, and the physical cards provide a sense of ownership. Having a card in your physical possession feels reassuring, even if it doesn’t stop identity thieves from using it. That said, physical cards are vestigial, and their days are likely numbered.

Cash is another matter. There will always be a need for cash, for privacy if for no other reason (more on privacy concerns later).

But privacy isn’t the only benefit of cash. Not every business accepts payment by smartphone app, and what happens if the POS machine breaks?

Further, small purchases under a few dollars pose a problem for businesses. Credit card companies often charge businesses a minimum flat transaction fee in addition to a percentage fee. A business would lose money if it accepted credit card payments for $0.50 purchases.

And, let’s be honest, it’s hard to tip the valet with your smartphone. Cash is just plain easier for tiny transactions such as tipping people, with the exception of tips on large restaurant or bar bills.


2. Driver’s Licenses

Drivers License Id Card

Some states are already testing digital driver’s licenses. In 2015, the state of Iowa contracted with a company called IDEMIA to start a pilot program for digital driver’s licenses. Delaware and Oklahoma followed suit, hiring the company for their own test programs.

IDEMIA isn’t the only player in the field. Digital security company Gemalto has been awarded a grant by the U.S. National Institute of Standards and Technology to test digital driver’s licenses in Colorado, Idaho, Maryland, Wyoming, and Washington, D.C.

When you think about it, your driver’s license already exists in digital format, stored by government agencies ranging from state DMVs to police departments to domestic intelligence services like the National Security Agency (NSA). Your physical driver’s license is merely a hard copy printout of data that exists in countless government servers.

When it comes to the need for physical driver’s licenses, the question isn’t “How do we digitize the data?” but rather “How do we display the data on users’ smartphones in a way that’s secure and verifiable?” In other words, the bouncer at the bar needs to be able to look at a 21-year-old’s digital driver’s license and know that it’s legitimate, in the absence of physical indicators like watermarks or holograms.

In Louisiana, digital driver’s licenses are available to all residents through a smartphone app called LA Wallet developed by private company Envoc. Residents can show it to officers during a traffic stop and can buy alcohol and tobacco with it. But it’s not yet accepted in other states or at airports.

The Future of Digital Driver’s Licenses

One of the greatest hurdles for digital driver’s licenses is compatibility. Louisiana and other states have proven that licenses can be digitized in-state, but states must agree on a universal digital format accepted nationwide before Americans feel comfortable going walletless full-time.

In the absence of a universal format, residents with digital licenses could leave their physical license at home unless they’re traveling across state lines. After all, you leave your passport at home and only pull it out when it’s time to cross international borders.


3. Other Identity Cards

Students at universities such as Duke, the University of Alabama, and the University of Oklahoma already use digital student identity cards. Many of these universities use Apple’s Wallet app, on either the iPhone or Apple Watch, to store ID data. Students can hold their iPhone or watch near a reader, which uses NFC (near-field communication) technology to read the data. Combined with payment information entered in the Wallet app, students can pay for books, meals, laundry, or check out books at the library. No physical ID cards or credit cards are necessary.

Corporations are also increasingly digitizing company IDs as well; look no further than – you guessed it – Apple for an example.

The Future of Digital IDs

There’s no reason to believe the digitization trend won’t continue among non-government ID cards. Expect to see digital IDs become the rule, rather than the exception, within the next five to ten years. The technology exists; it’s merely a question of adoption speed.


4. Tickets & Other Documentation

Airplane Airline Ticketse Passport Cash

At airports across the world, travelers typically no longer need a physical boarding pass. Instead, boarding passes are emailed to the flyer’s phone to be opened and scanned at the gate or security. You can also use services like CLEAR to pass through airport security with just your fingerprint and eyes.

Mass transit systems have lagged behind but are starting to catch up. For example, New York City’s Metropolitan Transportation Authority (MTA) approved a digital ticketing initiative in 2017. It replaces the MetroCard with a contactless smartphone system.

Sports fans can already use digital tickets to enter stadiums such as the Atlanta Falcons stadium. And health insurers such as Aetna are increasingly issuing digital insurance cards too.

The Future of Digital Documentation

While many of the non-ID documents that we keep in our wallets are already digital, one tricky item remains: emergency health information.

Imagine you’re in a car accident that leaves you injured and unconscious. Emergency responders can check your physical wallet for your identity, health insurance, emergency contacts, and basic health information such as blood type and medication allergies. Bluetooth and NFC technology could allow them to pull this information from your phone, but for a system to work, both parties must participate. You would need to set up this information in apps on your phone, and first responders and hospitals would need systems in place to read it. None of this happens in a widespread way currently.

So before you ditch your wallet entirely, make sure your health insurance and other health care information are readable digitally. While you’re at it, put an emergency health care card in your wallet with all your relevant health details.


Advantages, Disadvantages & Concerns About Digital Wallets

Technological change is rarely all good or bad. For example, mobile phones allow us to speak instantly with anyone anywhere in the world, but they also allow couples to sit at a restaurant together without speaking to each other at all.

So before you toss your billfold, here are the concerns, advantages, and disadvantages you should know about digitizing.

Security

Hacking and theft are real concerns with digital information. And the more personal and valuable the information is, the more tempting it is.

That said, money has been successfully digitized for many years. Yes, it’s possible for someone to get your credit card number, but is your debit card information any less secure in Google Wallet than it is in your physical wallet? A quick look at debit card skimming schemes should disabuse you of any notions that physical cards are safer than digital information stored in a wallet app.

Anyone with physical possession of your wallet can take your cash and start swiping your credit cards. But to access your smartphone, they would need to be able to unlock it. Even to use contactless payment methods such as Google Wallet, payers need to enter a PIN.

While physical driver’s licenses remain the norm, all of the data they contain is not only digitized, but largely public information. Is your address a secret? Hardly; it’s on public record. You give it to e-commerce companies every time you order something online. Your height, eye color, name – none of these is privileged information. The most sensitive information on your driver’s license is your date of birth, which is not exactly a state secret.

As with cash and cards, consider the question of whether your license is more secure in your physical wallet or a high-security app on your phone. Your phone must be unlocked to access this data, and you can wipe your digital IDs and financial information if you lose your phone. That’s not an option with physical IDs, credit cards, and cash. And in general, the less you carry around in your physical wallet, the better.

We all need to take steps to prevent identity theft. Our personal information is already digitized in servers everywhere, and it’s our responsibility to protect it, both physically and digitally.

Pro tip: A great way to prevent identity theft is to use a company like Identity Guard. They use IBM® Watson™ artificial intelligence to constantly monitor your personal information.

Privacy

Cash is pleasantly anonymous. There’s no paper trail, no record for Big Brother to sift through to know how you spent your hard-earned income. If you don’t want a record of a purchase, you have the option to pay in cash.

Granted, cryptocurrencies like Bitcoin claim anonymity as well. But moving money in and out of them remains difficult to do anonymously. It’s unlikely that cash will ever disappear entirely, but its role will continue diminishing.

As for digital IDs, they may offer more privacy than physical IDs, not less. Currently, when someone asks to see your ID, they get access to all of the information on it. But digital IDs could have several settings to reveal only the relevant information; for example, the bar bouncer only needs to see your photo and your age.

When you’re pulled over in a traffic stop today, you have to physically surrender your license. But digital IDs can be released wirelessly so that you don’t have to hand over your smartphone; you only need to approve the officer’s request to access your information.

In the future, if officers – or anyone else, for that matter – forcibly takes your phone, it will be able to enter a “lockdown” mode, in which no information can be retrieved until you unlock it. Google is already working on this technology to protect sensitive digital information stored on your phone, XDA Developers reports. It’s one more wall to protect your privacy and prevent hacking, and one that physical ID cards can’t offer.

Operability

If your ID and money are stored in your phone rather than a wallet, what happens if your phone runs out of batteries, runs out of mobile data, or you visit a country that doesn’t accept your digital wallet?

One answer is that your phone running out of batteries is akin to forgetting your wallet at home; it happens on occasion, but typically not that often.

Another answer is that critical items, such as your driver’s license, can be accessible even if your phone doesn’t have enough power to boot normally. Google’s developers planned for that in their IdentityCredential API.

Finally, data collected wirelessly via Bluetooth or NFC doesn’t require mobile data to work properly.

That said, if you travel internationally, don’t forget to bring your old-school passport and foreign currency; your smartphone can’t replace these yet.

Equal Opportunity

In response to any technological advances, there are those who envision how it can help underprivileged people and those who see only how the new technology can hurt them.

One prerequisite for replacing your wallet with a smartphone is, of course, owning a smartphone. In today’s world, almost anyone can buy a low-end smartphone for $29 on Amazon and enroll in a cheap mobile phone plan for $20 a month. Yet nearly a quarter of American adults choose not to own a smartphone, according to the Pew Research Center. The disparities in ownership don’t vary by race, but they do vary by education, income, and proximity to a city, with rural dwellers far less likely to own a smartphone than their urban and suburban counterparts.

Another prerequisite is participation in the banking system. To use smartphone-based payment methods, you need a bank account, or at least a reloadable prepaid card. Yet the FDIC notes that roughly a quarter of Americans are unbanked or underbanked. As a result, some argue that the more middle- and upper-income Americans embrace digital banking and documentation, the further low-income Americans fall behind.

Of course, no one says that businesses have to stop accepting cash, or that every American must open a bank account. But those ready for the conveniences of modern banking have plenty of free checking accounts to choose from, and perhaps the benefits of digital wallets will entice them to join the mainstream banking world.


Final Word

Digital wallets are coming. Wait, scratch that; digital wallets are already here.

Over the next five years, physical wallets will increasingly become optional. A little cash on hand is always nice for things like leaving a tip for the barista, but for the most part, you won’t need carry anything beyond your smartphone.

And whether we understand the responsibility or not, each of us must increasingly look out for our own digital privacy and security. With greater digital power comes greater digital responsibility, after all.

Do you plan to ditch your wallet any time soon? Why or why not?

G. Brian Davis
G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.

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