Back in 1871, if you wanted to transfer money from one person to another, you used Western Union's telegraph (the original text messaging service). Today, you just touch your cell phone. New P2P mobile applications and plain old text messages eliminate the need to travel to a physical location to move cash. (Learn more about new advances for moving money in Paying Online: A How-To Guide.)

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Lots of Options
You may already be one of the 87 million people worldwide with a PayPal account. The eBay-owned service allows you transfer money via text domestically and overseas for free unless you use a debit or credit card to send the cash, then a 2.9% fee applies. Competitors have entered the market offering a wide variety of transfer options. Some are free, but require both sender and receiver to have an account.

Amazon jumped into the mix when it bought www.textpayme.com. The system allows you to type in a few commands to send and receive money through your Amazon account for free. Text pay system www.obopay.com requires users to open an account and charges 10 cents to transfer funds to and from other account holders.

Banks like Wilmington and Trust Bank of America have morphed traditional services to be mobile compatible, but the ultimate mobile payment service is the e-wallet. Allied Wallet's e-wallet app allows the cell phone to hold value which can be exchanged for goods and services downloaded directly to the phone (coupons, movie tickets, digital music) or physical goods and services (clothes and food). (Find out more in Managing Your Money: There's An App For That.)

Companies like mgive.org provide electronic donation services to charitable organizations like the Red Cross. You can even set up monthly payments. Fundraising becomes as easy as "text REDCROSS to 90999 and make a $10 donation to American Red Cross Disaster Relief". Mygive aggregates the donations from cell phone carriers and forwards them to the Red Cross. The company charges a setup fee and earns a transaction fee for each donation plus commissions based on the amount of donations.

Is It Safe?
Mobile payments are regulated. Money Services Businesses (MSBs) must be licensed in the state(s) where they do business and must comply with suspicious activity reporting and money laundering regulations enforced by the Financial Crimes Enforcement Network of the Treasury Department. Mobile payments are specifically addressed in the 2009 Credit Card Accountability and Disclosure Act. Just like any other business there are potential scammers, so individuals must take care to know who they are texting to.

The evolution of mobile technology is also making mobile payments more secure. Newer smartphone apps facilitate direct connection and authentication of payers and recipients. They use technology security companies like VeriSign to create trusted sites and applications accessible to mobile users.

How Does it Work?
Widely accepted communications protocols allow mobile phones to communicate with each other. By embedding keywords into text messages sent to specific numbers, cell phones can transmit commands that tell the wireless provider to add a given amount of money to the user's bill. When the bill is paid, the phone company transfers the amount designated to the recipient. Some carriers may charge a fee for sending the text message according to the user's existing phone plan. Traditional banks allow access to accounts through mobile applications without using the wireless carrier as an intermediary.

To send or receive money to a friend: (1) Register with a money transfer service by setting up an account and making a deposit. (2) Use the provided short text commands to text cash to your friend's phone number or account id. (3) Receive funds by requesting and accepting payments via text message.

To make a donation to a charity: (1) Text the given keyword to the number provided. No need to have any accounts with money transfer services. (2) You will receive a confirmation text message. (2) Pay your phone bill, which will include the amount you donated. (3) Your wireless company will send your donation to the charity.

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Worldwide Acceptance
The U.S. is just catching on to text payments. It may not be a surprise that Europe and Asia were early adopters, but mobile payments have had their biggest impact in areas where other payment systems are scarce. In Kenya, the popular M-PESA system of text payments is widely accepted as a form of money transfer for everything from groceries to school tuition to electric bills. Since 2007 more than 9.5 million M-PESA accounts have been created. Over 16,000 retail stores allow customers to open accounts and use the system to buy goods and services for a small transaction fee. The country has experienced increased commerce as a result.

The Bottom Line
High tech payments can be faster and cheaper than other payment methods. Most efforts are focused on mobilizing existing financial transactions. Expect more opportunities to use them as Americans become accustomed to paying and receiving mobile cash.

For the latest financial news, see Water Cooler Finance: Poverty Rates Increase – And So Do Millionaires.

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