Evolution of payment possibilities: Part 1
* The article was initially published on our blog.
Every day people around the globe make purchases. They are doing grocery, paying rent, receiving a salary. They are passing money from hand to hand in return for something valuable. They are driving economy and innovation. They are one of the reasons FinTech emerged in the first place. Although the concept of buying has not changed a bit, the time has altered the way we are paying for goods and services to satisfy our needs.
In this article, we follow the evolution of payments processing from the times when two people were bound by the so-called one-directional transactions without an explicit agreement for the future refund to legacy cross-border remittance pipelines powered by payments magnates like Visa and Mastercard to e-payments disruptors like Stripe and Square.
Once upon a time…
About 3,000 years from now, society was underlying by the gift economy. Our ancestors have been exchanging valuables for reciprocity and gratitude that made people feel in-debt and pay back just because it is the right thing to do. It obviously was a high-morale society where people consider one’s reputation and good hearsay as key factors to complete transactions. The invisible network of obligation forced them to stay closer to one another. There was no international trade and people were doing business face-to-face.
Sounds surreal, doesn’t it? However, a few examples of this economy are common today usually not as some way to get profit but to showcase care and support for other people. We are talking about family here. For generations people in your family sacrifice resources to bring up children, pay for their education and food. Some would argue that this is an act of pure love, not a transaction, but the truth is that when children grow up, find a career path and start the families of their own, they tend to reach out to their parents and provide them financially if needed.
Another good example is crowdfunding platforms for creators and artists where they can share their talent with the world and be reimbursed voluntarily. Patreon is one of such things.
The gift economy leaves no place for money, and therefore payments. Yet societies have been moving forward, the population has been growing and the newer “more monetary-like” concepts started to emerge, replacing the gift economy with barter and money.
No money, would you care for some honey?
Gifts are pleasant, I won’t argue with that. But what you’re going to do if you have a fight with the neighbor who is the only milk supplier in town? How long would it take him to grant you another cup of milk? Should you consider giving up cereals in favor of something milk-free for breakfast?
The gift economy works this way unless you live in a somewhat emotionless society. Obviously, it had to be changed. This is how people came up with a system of exchange where participants in a transaction directly exchange goods or services for other goods or services or barter as we know it today. It was better than gifts but still useless for people who need an item but have nothing to pay in return that the owner would be interested in. The use of barter-like methods may date back to at least 100,000 years ago, though there is no evidence of a society or economy that relied primarily on barter.
Many cultures around the world eventually progressed to a medium of exchange such as commodity money. As commodity money people used shell, grains or the animals they have just hunted but it usually differed from area to area and people who used to accept shell money usually rejected any alternative. This gives an impetus to the use of gold and silver coins that were valuable commodity everywhere on earth.
The system of commodity money eventually evolved into a system of paper money or banknotes. This occurred because gold and silver merchants or banks would issue receipts to their depositors — redeemable for the commodity money deposited. Eventually, these receipts became generally accepted as a means of payment and were used as money. However, they did not displace commodity money and were used alongside coins.
Summing up
The system of payments begins with the emergence of a mean of exchange, also known as money. Until that society used barter-like methods to exchange goods and services for an equivalent amount of utility. It may date back to at least 100,000 years ago, though there is no evidence of a society or economy that relied primarily on barter.
Instead, non-monetary societies operated largely along with the principles of the gift economy and debt. When barter did in fact occur, it was usually between either complete strangers or potential enemies.
Barter eventually evolved into a system of commodity money, which representative such as silver and gold coins have made it to our times. Banknotes and coins laid the foundation of the payments system of we know it today.
In the next post, we will look at the modern payments methods including online banking, credit and debit card, charge card or e-wallet.
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