Are New Payment Technologies Helping Or Leaving Us More Vulnerable?

Our world is walking into the double-edged sword of virtual transactions

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In the wake of last year’s massive breach of client information from Target’s databases, the threat of the kind of large-scale cybercrime usually reserved for Hollywood blockbusters became a reality. (Conversely, we’re becoming so inured to the concept of identity theft that we’re even making comedies about it.)

In short, our world is walking into the double-edged sword of virtual transactions: the farther away we move away from hard currency — or, as in the case of mobile transactions, even the quasi-virtual realm of plastic — the easier it is to buy and sell, and the easier it is to grift. Are we risking more than we stand to gain?

On the positive side

Let’s take a look at the pros in the equation. Clearly on the winning side in the game are small-business owners — indeed, the very, very small. For a company just getting its foot in the door, the £200+ needed to set up a traditional point of sale (ie, a cash register) could be better spent elsewhere if possible. With wireless payment apps such as Shopify POS or MONI phone, the only real cost is the mobile device itself, and it’s likely that the vendor will own one anyway. 

More important than cost, however, is the potential for breaking ground in previously cash-only terrain. Many familiar small-scale vendors — farmer’s markets, for example — are by nature ‘on the go’ and sometimes literally selling goods from the back of a truck, making dealing in cash a necessity until now.

Significantly, as young entrepreneurs are exploring are challenging economy with pop-up shops hawking everything from high-end tacos to haircuts, mobile transactions can be absolutely necessary. As almost all sedentary businesses give the option of “paper-free” transactions, fewer people carry cash, a reality that small-business owners must face.

Within the realm of traditional banking, the advantages of new payment technologies are legion. Paperless billing is an obvious boon to world ecologies, and takes away the hassle of mailing checks for recurring outpays (not to mention having to remember them).

While there is always the spectre of fraud in electronic transactions, today’s ways of doing business can actually be on the side of consumer protection. In the past, for example, most vendors would accept cheques only from customers who had clearly established identities. If you’ve already set up security protocols with a provider like PayPal, you’ll need not prove yourself at every point-of-purchase.

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On the downside

The ease with which consumers can make transactions is inextricably linked with its dark side: it’s more than a bit easier to steal data, money and even identities. Indeed, credit card data theft has increased by over 50% in the last few years, and some pundits predict that virtual crime will soon surpass traditional theft.

Ever-ingenious and even assisted by programmes designed to steal personal data, hackers are surprisingly adept at phishing for passwords and other security clearances. More in the vein of traditional fraud, some scammers may steal credit card data by posing as a legitimate vendor — or, sadly, while working for one — only to be used later. In the most alarming cases, thieves can steal information from cards rigged with RFID tags without even touching the victim’s possessions. 

With mobile apps, things can get even trickier. eBay (NASDAQ: EBAY.US)-owned PayPal, for example, makes it so easy for you to make in-person transactions once you’ve set up security measures online that you can swipe your phone for purchases even before your PayPal card has been issued. The positive light in this is that PayPal takes its security seriously, and goes the extra mile to set things right in the case of fraud. Indeed, the fraud department at many banks will generally reimburse consumers who can present a reasonable case they’ve been scammed. 

There’s another downside to PayPal’s current bid at getting in on the near-field communications, or NFC, game:  its tech doesn’t always work.  Currently, the transactions giant has yet to scale its operations so as to accommodate the mom-and-pop sector, so consumers trying to pay for, say, a slice of pie at the corner diner may often meet with glitches and delays. As PayPal isn’t the only behemoth of its ilk eager to command the ever-expanding NFC field, such virtual gremlins can be tolerated only on pain of PayPal’s company value.

Currently, mobile transactions are only a small piece of the pie, but with the world becoming more infused with technology and companies such as Monitise (LSE: MONI) ever-expanding, it seems there is no turning back. Launched ten years ago, Monitise is a virtual avatar for companies eager to service consumers who would rather devote as little time as possible to banking chores as possible. For such market responsiveness to stakeholder desires, Monitise is currently sitting on assets valued around £26 billion per year through transactions, and in December 2013 was reported to see a roughly 50% growth in overall revenue, a 70%+ gross margin before its fiscal year closes in June 2014 and will also greatly benefit from a 5-year “Mobile Money” partnership with a top UK banking company, for which they will facilitate a digital banking, payment and shopping service. It’s probably safe to say that Montise isn’t going anywhere.

As Miranda Marquit states in her expose on wire transfers and technological payments, the convenience of technological banking advancements will always outweigh its issues to the general public. Therefore, while new transactional technologies are an overall benefit, they should be handled with care. Choose highly cryptic passwords unique for each provider, and change them from time to time. Set up truly idiosyncratic security questions that no one could glean from your public data. And only make transactions via fully secure servers with firewall and spyware protection. Nothing is a 100% guarantee against the cunning of hackers, but the odds will be in your favour.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

This article was written by Dave Landry Jr., a small business owner and financial consultant based in the US. The Motley Fool owns shares in eBay.

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