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Will Mobile Wallets Lead to Bigger Spending?

Wal-Mart, Target and a slew of other retailers want customers to pay at the register with their smartphones. The reason, experts say, is simple: people will likely spend more.

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Some two dozen major retailers are working with wireless companies on mobile payment systems, which allow phones to be used in lieu of credit or debit cards, according to a report in today’s Wall Street Journal. One industry-sponsored study says more than $600 billion will be spent using mobile payments by 2016. As SmartMoney.com reported, many of these devices are already in development: Google Wallet and Isis — a mobile-wallet venture from AT&T, Verizon and T-Mobile — to name two. Mobile payments combine self-service and instant gratification to encourage people to shop faster and with less thought to how much their spending, says chief growth officer at marketing consultancy Prophet: “For retailers, it’s a no-brainer.”  (Wal-Mart and Target did not respond to requests for comment.)

The bottom line: mobile wallets will help consumers spend more recklessly, analysts say. “The ease of waving a phone, without having to pull out cash or even swipe a card, will certainly result in more impulse buying,” says Ed Mierzwinski, consumer program director for the non-profit U.S. Public Interest Research Group. It’s also an opportunity for retailers to communicate more intimately with their customers and keep track of their behavior, says Dennis Moroney, senior analyst at TowerGroup consulting firm. “The mobile wallet will target small transactions that are normally paid with cash,” he says. These payments also have another big advantage over plastic: they help retailers to virtually — and literally — hold customers hands with GPS technology, guiding them around their stores with mobile maps and suggesting deals based on previous purchases.

The biggest hurdles will be developing mobile payment systems are secure, experts say. “Until they are assured that payment-by-device provides the same protections from fraud and billing mistakes as credit cards do, some people may be cautious at first with these options,” says Christine Hines, consumer and civil justice counsel for the non-profit group Public Citizen.

To be sure, the advent of the mobile wallet could also lead to more apps like XpenseTracker for iPhone and EasyMoney on Android to educate consumers about their spending habits, says behavioral psychologist Matt Wallaert. “A phone-based payment system could remind you of balances, vibrate when you’re breaking a pre-set budget, or show you pictures of things that you are saving for,” he says. And with retailers leading the way on mobile payments, it could result in lower fees and charges than credit/debit cards, Moroney says. “I don’t think it will eliminate the banks or Visa and MasterCard from the picture but, for those financial institutions that want to partner with retailers on mobile wallets, it may put pressure on them to offer lower fees.”

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    • Dear SmartMoney…whoever is editing these articles should be fired. From the article: “…with less thought to how much their spending.” Really?

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