Category Archives: Money and the Economy
Mobile Payment Platforms
There is an upcoming battle in the mobile world. And not over whether the cell phone you use has an apple or a little green robot, nor which provider is giving you cellular service. The battle is looming for who is going to replace your wallet.
Ever since credit cards, we have been looking for ways to make paying for things easier. We all carry tiny computers in our phones now, so why not use those instead of carrying another device as a payment tool?
There are several different methods for being your payment tool of choice.
NFC
NFC stands for near-field-communications. It works a lot like bluetooth, the short range radio that connects your wireless headset to your phone. Instead, you have a chip in your phone that can put out a signal to nearby readers. Think instead of swiping a credit card at the grocery store you slap your phone on a kiosk. There are already several people trying to do this. Google Wallet for example is available on some Android phones.
This can also be an baby step in that you could link your credit card to your NFC account, so it auto deducts. This might make people more or less willing to use – based on whether they have security concerns about linking their accounts, or alternatively that they don’t want yet another cash account to worry about re-loading.
The problem is that this system needs to be built into your phone to work. Many phones, including the iphone, don’t have NFC chips built in. And some cell phone carriers, seeing this as the next way to get their fingers in (on?) your wallet are blocking competitors and pushing their own ISIS system.
Card Swipe
Many people see this as a scary new proposition. My dad was weary of ATMs at first, and still refuses to do almost any banking online. Good luck convincing him to pay for things over his phone.
Square introduced a concept to meld credit cards and the mobile world. Many small business owners use Square in lieu of traditional card swiping machines. You plug a reader into your phone and swipe customers’ credit cards right to your phone. It has been very successful, and you have probably run into these machines if you ever bought food from a food truck or farmer’s market. In fact, its been so popular, they have gotten PayPal’s attention, who recently launched a competitor. Also, you know you’ve made it when the Chinese make a knock off.
The problem with this system is that while it is great for vendors, it doesn’t solve my problem of not wanting to carry around a wallet anymore.
Direct Payments
Finally, there are movements to eliminate the “device” entirely. Start ups like Venmo have created systems where you can send payments directly to another user just by using an app or email address. Of course, companies like PayPal have been doing this for years, but it never really caught on. Largely because of trust and cost of transactions. How much of a percentage do I lose by taking a payment from you electronically instead of just waiting until you have cash?
Also, we all have to be using the same system in order for payments to go through. It’s reminiscent of the instant messaging complications of the late 90s and 2000s and still…(wait really?!). Are you on AIM? Gchat? Yahoo? MSN? Facebook? Imagine going through that to send a friend that $10 you owe him.
It will be interesting to see which of these systems are adopted. Issues with security and trust, along with working out interest rates with various financial entities like banks around routing systems will almost certainly bring out issues to solve.
Edit 3/26/11:
In an indication of how I have my finger on the pulse, last night Square released an update – they now have “Pay with Square” an app that lets you pay simply by checking in and saying your name at a retailer than uses Square payments. This goes beyond their card swiping utility and is pretty fantastic.
That’s Square’s biggest barrier to entry with Pay with Square: they need to convince people that they don’t need to put up with the nonsense they’ve been doing for decades. You don’t have to swipe a card. You don’t have to sign anything. You pay by having your smartphone on you. And your payment is verified by your name (and face).
Distribution of Wealth
One of my least favorite arguments is that “we have to give tax cuts to the rich, because they are the job creators and so they will employ more workers and thus stimulate the economy.” I believe the exact opposite is true. If the middle and lower classes don’t purchase the upper class’s goods the economy sputters to a stop. The employers won’t hire more workers while sales are slumped. Giving them tax cuts simply gives them more money to save, not spend. You have to help the middle class spend money to spur the economy. When they start purchasing goods, the employers are encouraged to hire in order to continue growing.
In line with this thinking, from Daring Fireball:
Robert Reich in the NY Times:
Look back over the last hundred years and you’ll see the pattern. During periods when the very rich took home a much smaller proportion of total income — as in the Great Prosperity between 1947 and 1977 — the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats.
I.e., the evidence overwhelmingly shows that “trickle-down economics” has it exactly backwards. The infographic that accompanies Reich’s article is just terrific.
See the infographic after the jump. Read the rest of this entry
Disappearing Middle Class
The Atlantic has been running a series of articles discussing how the middle class is suffering in our new economy and the recession.
I found one of these particularly interesting. It seems jobs are not suffering at the top and bottom as they are in the middle. Low paying service jobs are growing (and replacing those manufacturing jobs we are losing to cheaper labor overseas). And, surprisingly high paying jobs are growing too. Likely in the high tech sector, but you need education for these jobs.
In the last year, middle income jobs have been hit the hardest, while lower-income jobs have grown faster than high-income jobs. Does that mean the benefits from going to college are actually falling?
Not so fast. Even today, the more education you have, the more likely you are to have a job. Cheap work is easier to find these days, but maybe that’s normal. We should expect nervous employers to add clerks and temps before they free up $300,000 to add a senior account manager.
Instead, something more complicated is happening. The first graph showing wages rising for the highly educated and falling for the less-educated makes education sound like an elevator. The longer the stay, the higher you go. But the market is really less like an elevator and more like two floors without a staircase to connect them. Job opportunities are growing at the top, where wages are rising, and at the bottom, where wages aren’t. But opportunities for middle-education, middle-paid workers have frozen over the last two decades.
The Hamilton paper concludes that technology and globalization are vacuuming up all the opportunities for our soft middle class. “Rising demand for highly educated workers, combined with lagging supply, is contributing to higher levels of earnings inequality,” the authors write. “Demand for middle-skill jobs is declining, and consequently, workers that do not obtain postsecondary education face a contracting set of job opportunities.”
The question then is – is college worth it? If a four year degree will only get you a low income job that would likely be available to you without a college degree, should you incur the debt of that education? (this ignores the personal growth that a four year college experience exposes you to)
Finding the Meaning of Find My iPhone
Apple released version 4.2 of their iOS yesterday for the iPhone and iPad. Among the various upgrades was the quiet addition of the “Find my iphone” feature.
Find my iPhone is a service where if you lose your iphone, you can log onto a website and find its exactly location using the phone’s GPS. You can also display a message on the phone, or have it emit a noise for 2 minutes. If all else fails you can even remotely erase the phone. A great service if your phone is stolen with valuable information on it.
This function used to be part of the $99 per year MobileMe service Apple sold subscriptions too. In addition to the find my iphone feature you get email, calendar and file syncing. Now, they offer it free with recent iphones, ipod touches and ipads.
The question is why Apple chose to do this. The easy answer is that it was a reaction to Google, which has several free apps that offer the service for the Android platform. However, I’m looking forward and thinking it is something else.
To be frank, with the Find my iPhone service, MobileMe is pretty worthless. You can get push email from many other services (including gmail). Same with Calendar. Dropbox allows you to take files anywhere. It’s simply not worth $99. So, why give away the most valuable factor?
My theory is that this is related to the rumors about the next iphone including Near Field Communications (NFC) capabilities. NFC chips are like RFID – you know the chips in some new credit cards that let you just tap your card instead of swiping. The big deal about NFC in cell phones is that you could theoretically store your credit card information in your phone, then tap your phone to purchase things instead of carrying and swiping your credit card.
Here is a video showing people purchasing drinks using their cell phone.
Super convenient right? Definitely. But, think about how often people lose their phones. Now, imagine that every time you misplaced your phone, you also misplaced your wallet, which contains your credit cards. PANIC! I think this Find my iPhone feature -with the ability to erase your phone from any computer – is a reassurance feature so that people will be more willing to store their credit information on their iPhone. If you can easily erase your phone upon losing it, you will be more likely to feel assured to store you credit info on that phone.
De-Branding Ourselves
A few months after I started attending a prestigious private liberal arts university known for its wealthy student body – I had a discussion with someone from home. They put forward a though about how the student parking lot must be full of lexus, BMW, and Mercedes badges. While there were certainly a fair share of those – there were also a surprising number of Fords, Chevrolets, and Jeeps. And there certainly weren’t any expensive “rims” or custom body work.
For the students I went to school with, this didn’t raise an eyebrow. It is just the way things are. There isn’t a lot of status or value in showing off wealth. Too ostentatious to show off that you have money.
If you truly are wealthy – generations of family money – then people just know you are wealthy. Only those who recently have come into money feel the need to show it off. They have to prove they belong in this class – by buying fancy labels and brands that loudly show off their expense.
Recently I found a NY Time article discussing a new study showing that the very rich and very poor both like brands that don’t use a lot of logos. My thoughts on the reasons:
Anything we buy with prominent branding serves to signal to others. What it signals depends on the brand. A luxury car might signal you have money to spend on a nicer car with greater performance or safety features, while driving a Toyota might show you prefer reliability.
For the lower class purchasers – any brand they could purchase would probably only serve to signal that they were low class. Imagine if Wal-Mart put out a line of “wal mart” clothing. Those people who were striving to get out of the lower class and into the middle or upper classes wouldn’t want to brand themselves as low class by putting wal-mart all over their bodies. So, instead they purchase clothing with few brands on it. Hard to label someone without clear identifying signals.
For the extreme upper class, the motives are slightly different. The study thesis states:
people with more cultural capital in a particular domain prefer subtle signals because they provide differentiation from the mainstream. Such insiders have the necessary connoisseurship to decode the meaning of subtle signals that facilitate communication with others “in the know.”
Piracy Responsible For Lower Quality Music
I am home for Thanksgiving break which means more time around family. My youngest sister tends to camp in front of the computer, all the while playing music to listen to while she chats and surfs various social media sites.
When I am in earshot I hear the various TERRIBLE pop music that she plays. It’s not that she neccessarily has bad taste, it is all Top 40 music, so it is popular nationwide. However, it is quite simply, bad. And I don’t think this is one of those “my generation is better than your generation” things, it is simply bad music.
I have a theory that this is all due to rampant piracy.This is for several reasons:
Because music is not the profitable industry it once was, less money and effort is being put into making good music. If you are truly talented, you want to be compensated for your time. If you can’t get decent money for pop music, while put in the effort? But this alone is too easy.
Music is basically free, despite all legal efforts to the contrary. So, the cost for buying bad music that you regret obtaining is very low. It is not even monetary anymore, but simply a small time wasted cost. (almost immeasurably small now that internet speeds are so fast). In the past, you put up a lot of money, so one would take a lot of time finding something “good” that they could enjoy. Now, you just move on to the next download.
Because of this low cost to acquire and no penalty for bad music obtained, there can be a lot of crap put out that still gets listened to or at least “downloaded”. In an era where we measure success by “views” this means even bad music just listened to can be valuable. The bar for music goes down.
How Businesses Should Ride Out the Recession
Retail and consumer spending in general is down. Some businesses are doing better than others at staying afloat during the downturn.
An article from Time Magazine discusses how bad Abercrombie & Fitch is doing. A&F is commonly described as an “aspirational brand“. So, they charge a bit more for their goods than competitive brands.
However, “In the second quarter of 2009 alone, sales were down an eye-popping 30%”. People aren’t buying their clothing there anymore. Analysts are saying this is because at a time when people are feeling the pinch in their wallets, A&F aren’t lowering prices.
A&F isn’t lowering prices because they know a nasty truth of the retail business. People won’t buy goods at the higher price once they see the lower price. That lower price becomes the normal price, even after the economy recovers.
“According to various research findings, a company will have a tough time increasing prices once they’ve lowered them,” says C.W. Park, a marketing professor at the University of Southern California and editor of the Journal of Consumer Psychology. “Shoppers start to think the discounts are the base prices, and you risk alienating the shoppers if you raise them. Logically, you’d think that consumers would appreciate the lower prices and be understanding when they go back up. It doesn’t always work that way.”
So, what are companies supposed to do? Time’s analysts say smart companies do other measures, such as giveaways. Certain hotel chains are giving away a third night after a customer purchases two. Then, when the economy recovers, people don’t still expect to get a third night free and the previous price point stays the same.
USA Today is also reporting that certain high star hotels are solving the problem in a different way. They are simply shedding a star. Hotels rate service by stars. The higher the stars, the better the service. Keeping up those high quality services is expensive. So, they just lower their stars for now. Again, they keep their prices high, and in most people’s mind – the W hotel is still the W hotel, and carries all the cache of that brand even with one less star.
In my opinion, A&F will rebound. People still like the brand, they just can’t afford the stuff now. By not lowering their prices or having any sales they keep the status of their brand aspirational. Their brand is anchored in exclusivity. If they lower the price point so everyone can afford it, it loses all meaning. As long as they can ride out the economy, when the rebound comes everyone will be rushing back to get back to the comfort of their favorite casual luxury brand.
Tea Parties
I suppose I have to do some kind of post of the teabaggers, er – Defenders of free speech and low taxes(?) putting on the tea parties all across the country today. Instead of taking some partisan stance and digging in, I have found a silver lining.
Admittedly, I still can’t understand a common thread of protest among all the themes of protest out there. It seems like the G20 protests in England just a few weeks ago – groups of people who are mad with those in power, but without one unified argument.
However, one theme I hear over and over is that the teabagged are arguing that they shouldn’t be taxed to pay for the bailouts. Miraculously, I think many on the left would agree with this sentiment. There are serious arguments for propping up these “too big to fail” organizations. Apparently the American economy would be destroyed if some of these institutions were to actually fail. But honestly, if someone screws up, you shouldn’t support them and let them continue on their wayward way. Some other competitor would come in and do it better, and probably in a more risk averse.
Maybe the extreme left and right can actually agree on something!
Simple Cheap Gadgets Gaining Popularity
For years, laptops were super expensive. Hardware companies put out the latest and greatest powerhouse computers. Often this was under the pre-tense that if you wanted to run the latest (increasingly larger and more complex) software, you had to have a more powerful computer.
Just recently, this trend has turned. Since more work is done “in the cloud” – the processing is done over the internet by some other computer. Think Gmail or google Docs, or facebook, or anything you do on your computer really. More and more is done through a browser. So, the need for a super powerful computer is not needed. More important is portability- so you can work on the go. This means, less power, more battery life and a small and light footprint.
Welcome the netbook. These typically tiny laptops have laughably weak processors – by traditional standards – but they do enough to get the job done for the tasks I described above.
This trend is not limited to computers. Camcorders were until very recently super expensive. They would have excessive features that most people never used. Ever look through a camcorder menu? Have you used half those features? Most people just want to capture a quick video and upload it to YouTube to share with their friends. Flip came along and created just that, for a quite affordable price.
This is the new success formula. Create something that is very easy to use for most people, and make it affordable. The current state of the economy has something to do with this trend as well.
You a Gamblin Man?
The bottom line is that there is ample reason to worry about slipping into a depression. There is a roughly one-in-five chance that U.S. GDP and consumption will fall by 10% or more, something not seen since the early 1930s.
