A Brief History of Payments

Every economy goes through a process of moving from cash to technology-enabled (ie digital) B2C payments, as they develop

Cash has a lot of inherent downsides so economics/countries have an natural inclination to move away from it. You might even say that the less developed a country is (and thus its institutions and infrastructure are usually weaker) the important of moving away from cash is even more urgent given cash has: 

• Security issues where consumers or merchants can get robbed (and merchants have to deal with this from employees as well) 

• Inconvenience/friction of carrying it around as a consumer and having a whole operation around it as a merchant (making it available at points of sale as merchants, account for it, etc) 

• Missed potential where this cash isn't being deployed and growing whiel the consumer is carrying around and there's no way to augment the consumer's cash with credit or loan in an easy / practical way (though merchant tab systems have beena past solution to this) 

Today there are a lot of technology-enabled payment options

• Bank-associated Cards (and Card-Holding Wallets like Google Pay and Apple Pay) (Visa, Mastercard, etc enabled)

• Bank account-to-account payments: Government or bank consortium-driven bank account-to-account payments

  • Real time, modern versions: UPI in IN, Pix in BR, Faster Payments in UK

  • Non-real-time, dated versions: ACH in US

• Stored value wallet payments

  • Stored Value in SE Asia and China

  • Mobile Money in SSA

Economies that developed significantly before the 1990s (ie Global North, US/Canada/AU, Europe, East Asia) have become more card dominated, for a few reasons.

• Not as many options to digitize given no personal computer/device.

• Cost of card payments were palatable by economy. When cards entered, the economies were already pretty developed from a GDP/capita and infrastructure PoV so the costs (PoS devices, costs of running the system, etc) related to card payments were acceptable. 

• High bank account penetration helped makes a card payment system possible + attractive. Bank account (in it's broadest definition, somewhere you can turn your cash into another/digital form, to make it work in another/digital system) isn't necessarily a prerequesite for a card-based payments system to work but it's pretty helpful (need this for real time, debit-like payments, only alternative would be a pre-paid card; need this for paying a credit card statement, only alternative would to take cash to a card issuer branch to pay). Perhaps more importantly, consumer having bank accounts (and a formal financial system history) also makes adding the credit component to cards much easier (consumer bank deposits give lenders cheap working capital and collateral, as well as financial understanding of the consumer) and we know that credit is one of the key value props for consumers to want to use (and push merchants to accept) cards. This is clear by the fact most credit card issuers are banks.

Economies that started developing significantly after the 1990s (ie Global South, when the personal computer & phone error started) broke away from this paradigm, given a push to digitize payments at a lower level of development and higher availability of personal computers & phones at this time. 

• Telco-backed stored value wallets (ie mobile money) made waves in several SSA countries because telcos had a better footprint than traditional banks so they were able to become the effective "bank”.

• Tech company-backed stored value wallets thrived in SE Asia and China given they were lower fee to merchants than Visa, Mastercard, & other network cards and didn't require a special PoS device; just a QR code or other way for the consumer to pay from their 

• Government-backed account-to-account payments have recently risen in prominence with UPI taking over India, Pix become a significant force in Brazil, and similar rails in several European countries gaining traction.