Pay with Your iPhone? Bad Idea

I'm all for smart ways to enhance our personal finances through the use of technology. From online bill pay to automatic deposits to coupon apps and online budgeting tools like Mint and Bundle, technology can help make our financial lives incredibly more efficient.

However I'm a little worried about a new technology that, despite some potential conveniences, could entice us to spend more than we should. It's called Near Field Communication, or NFC, and it's a chip that allows you to pay for items directly with your cell phone. It already exists in Japan and will soon be entering the U.S. market.

AOL's DailyFinance reported a couple of months ago that Google's upcoming "Nexus S" Android phone will have the chip. And just this week, reports said Apple plans to introduce NFC in the next-generation iPhone, as well as the upcoming iPad 2.

What this means is that one day, not too far in the future, those of us with NFC-enabled smart phones will be able to make purchases by touching or waving our phones near a payment terminal. Some even predict people will be less likely to carry wallets once they have NFC-enabled smart phones. (Though I'm not sure where we'd put our driver's licenses, transit passes and change for the vending machine at work.)

Still another implication is that we'll use less cash for day-to-day transactions. And you know what that triggers: more spending. Studies already show that paying with a credit card leads to higher spending than paying with cash. That's because credit card purchases are relatively painless, as behavioral economists say. You're not pressured to think twice before spending, since the cash isn't actually leaving your wallet.

And get this: Citibank ran a little NFC experiment in Bangalore and found that "the number of transactions by customers using the NFC-installed phone were about six times what they would make with a card, which suggests that the contactless payments were replacing either competitors' cards or cash transactions." Sure, that's possible - but it may also suggest that these participants were spending more money in general.

NFC is going to change the face of electronic payments, no doubt. I understand it's convenient and in Japan, where it's already commonplace, consumers love it. But for the love of saving, I'll stick to what's in my wallet. Not to mention, as fellow MoneyWatch blogger Carla Fried writes, paying groceries with cash increases my chances of weight loss. Yes!

More on MoneyWatch:

• Maintain Good Credit While Living on Cash
• Save More, Spend Less. A Three Step Plan
• 5 Questions That'll Save You Money
• Steer Clear of Store Credit Cards

Photo courtesy: ??' ??'s photostream on Flickr

[MeganRed]

I am a little late to finding this article, because I was searching for a timeline for when it would be available for iPhone users. However, I feel like I should note that this is quite a bunch of hooey. People who are overextended and/or credit card abusers will see no change with this technology, as they are just as quick with that credit account in any given situation. Just like any other check out process, whether in person or electronic, you can attach your Visa/MC debit card to it, so viola, it's used like cash. And you don't have to be a gadget/tech junkie to know (and set up) for your bank to email, text and/or old fashioned phone you with alerts for anything from certain transactions to low/high balances, so there's no reason for anyone to not know their finances at any given time. That's not new...that's YEARS old options. I'm just hoping that this solution has strict security and can be bricked along with your phone if your phone were to become lost or stolen. Someone reading this please write us an update on THAT.