We’ve all done it. We’ve fronted money for a going-away gift, concert tickets, team lunch, or a group vacation. We expect to be paid back, right? But between missed connections, miscommunication, and general flakiness, even well-meaning people find it hard to remember to pay someone back. Which is how I ended up being reimbursed a fraction of what I paid to secure a gym for futsal practice. Weeks later, I can’t recall who paid what and who didn’t pay at all. I’m eating that money because I did a terrible job of tracking the wads of cash, personal checks, and money sent via various online apps. And, truly, I have only myself to blame. When I emailed team members to send payment via cash or check, the first reply to my appeal should have been a red flag: “PayPal?” Nope. I’m an old-fashioned check-writing gal who naively assumed the rest of the world would flex to my archaic habits. Now, ninety-five dollars in the hole, the joke’s on me.
Dollars and sense
In this scenario—and in many others like it—I would have been well-advised to accept that new online technologies have dramatically altered the way money changes hands. Period. Whether we’re purchasing clothes with the click of a mouse or tipping our hairstylist via a dongle on her smartphone, cash–as in dollars and cents–is frequently missing from the picture.
Whether we’re purchasing clothes with the click of a mouse or tipping our hairstylist via a dongle on her smartphone, cash–as in dollars and cents–is frequently missing from the picture.
And, really, it’s easy to understand why electronic payment systems (EPS) and peer-to-peer payments (P2P) have exploded in the last decade: they fit with our hyper-connected, mobile, and overwhelmed lives. As so much of what we do, learn, and experience happens online, we’re more and more apt to expect–and desire–that our business transactions will happen digitally, too.
PayPal, an e-commerce business that lets you make payments and send money to someone else online, was among the first companies to foresee this shift. While it may owe its rise in popularity to eBay buyers and sellers, with 192 million active accounts, 15 million active merchants and 4.9 billion transactions worldwide in 2015, it’s clearly moved beyond re-homing used stuff. PayPal charges a fee for merchant-customer transactions or if an individual sends money as a personal payment using a debit card or credit card, but it's typically free to receive money from friends or family. Making my earlier decision regarding futsal reimbursements misguided at best, downright stupid at worst.
To Square or not to Square?
Today, even small vendors who used to require payments in cash or check can get paid via mobile apps. Meaning that the dog walker who otherwise might go without a tip or the farmers’ market vendor with the exorbitantly priced organic tomatoes can immediately extract payment from customers. For many small businesses, the opportunity to process credit or debit card payments with Square Cash on a tablet or smartphone has been a game changer. According to Bloomberg, Square’s business expanded beyond analysts’ projections in 2016, processing $10.2 billion in payments in its busiest quarter–up 47 percent from a year earlier–on behalf of more than 2 million merchants.
These statistics indicate that a giant number of online financial transactions are now taking place. Which begs the question: Are these new technologies enabling brand new business relationships or simply replacing old ones?
Local currency and confrontations not required
In many cases, if commerce weren’t enabled by online payments, a relationship would be over before it had even started. Take Etsy, my favorite virtual store, which offers access to artists and DIYers around the world. Without PayPal or another secure electronic payment system, it’s doubtful I’d be able to purchase a painted wood geometric air plant holder from a self-employed artist in Huesca, Spain.
Without PayPal or another secure electronic payment system, it’s doubtful I’d be able to purchase a painted wood geometric air plant holder from a self-employed artist in Huesca, Spain.
With a turnkey financial arrangement facilitated by PayPal, however, we can approach our transaction with confidence. As Moody notes in a report on the global impact of electronic payments, this confidence is a huge driver of these kinds of financial relationships, as is the freedom I feel to make this particular purchase, regardless of how much cash is in my wallet. “Electronic payments…provide consumers with access to all available funds or lines of credit for a given transaction and they give merchants peace of mind about payment guarantees….”
A company called Splitwise is at an interesting nexus of personal relationships and financial arrangements. As explained on its website, “Splitwise takes the trouble out of sharing expenses–with friends, with roommates, with anyone.” No doubt the app alleviates untold uncomfortable conversations between roommates and friends regarding who’s paid and who owes. Touting themselves as “fairness experts,” Splitwise goes beyond simply facilitating financial transactions and wades into the murky depths of the emotional by-products of these arrangements. Case in point: they’ll send automatic payment reminder emails so no one roommate needs to take on the role of money nag. (And millions of Millennials cheer.)
Does Splitwise negatively impact relationships by removing the need for important face-to-face confrontations or discussions? Or, does it allow four roommates who would otherwise never be able to get it together to live in harmony? It’s my bet that the conversations are still happening–they just sound different than they used to.
Don’t dust off the checkbook
It’s likely that one’s generational cohort translates directly to one’s comfort level with these new online technologies. Those of us who remember opening our first bank account and painstakingly balancing it in our check register after every withdrawal probably aren’t as quick to adopt a mobile financial transaction lifestyle. Millennials, and Generation Z, on the other hand, may literally have never written a personal check and view their smartphone as their personal banking center, with no lines.
Regardless of where you stand on this issue today, PayPal devotee or check-writing dinosaur, the trend is moving in only one direction—away from the pen and onto the device. And, for those of us who fear our children won’t understand the value of that five dollar bill if they never get to put it–literally–into their “save” jar, there’s reason to believe these new ways of transacting encourage more oversight and attention than our dusty checkbook registers ever did.
It turns out, according to several studies of Millennials and financial literacy, a willingness to embrace technology, specifically apps, offers Gen Y new tools for budgeting, tracking and paying for things. Millennials, with their all-encompassing digital habits, have achieved a far more active relationship with finances than previous generations have had. According to TD Ameritrade's Next Generation Research report, “Millennials are 10 times as likely as the older generation to use an app to track purchases and monitor spending patterns.” For those late adopters out there, the advice is pointed: “To manage your money better, it might be time to take a page or two from Millennials' playbook.” Generation Y is far better at creating–and sticking to–budgets, an important skill in this uncertain economic age.
Millennials, with their all-encompassing digital habits, have achieved a far more active relationship with finances than previous generations have had.
When cold-hard cash leaves you cold
Leaving aside the very real concern that opening a Google Wallet account leaves our financial information exposed to security breaches, it’s hard to believe the old financial transaction paradigm will be around much longer. While cash may still facilitate small business transactions–and many illegal ones–our activities are becoming ever more virtual. The convenience of keeping a credit card on file with Amazon or getting paid back via a PayPal account is probably too appealing for most of us to resist.
In the case of my geometric air plant holder (which I love, by the way), PayPal facilitated a transaction that felt far more personal than a purchase at the local West Elm would have. By enabling interesting, new transactions–with tomato farmers, Spanish artists, and irresponsible roommates–the new wave of online money apps may facilitate richer connections than we ever found with cold, hard cash.
Laura Shear is a Bay Area-based freelance writer and consultant. She's addicted to home improvement projects and rescue puppies and firmly believes rosé should be enjoyed year-round. Find her on Twitter: @lmshear.