Money transfer solutions have come a long way: from text messages via telegraph to mobile cryptocurrency wallets. What awaits them next?
The medium of exchange is one of the three key functions of money. Since the advent of trade relations, humanity has been looking for ways to speed up and simplify the process of exchanging money.With the development of technology, especially with the spread of the Internet, there are more and more solutions to facilitate transactions.
Although the first money transfers began to be made in the world in the XVIII century due to the development of the system of banks, usurers and guarantors, as well as postal services, it was the advent of the telegraph in the XIX century that brought the money transfer industry to a new level. In 1858, the Mississippi Valley Printing Telegraph Company (NYMVPTC), founded in 1851, rebranded and was renamed Western Union. The founders of the company – former sheriff of Monroe County, New York, Hiram Sibley, and judge Samuel Selden-did not know then that in the future the company would abandon the simple sending of telegrams and focus on money transfers. The first wire transfer was made by Western Union in 1871. The service was in demand: by 1876, the company had made 37,190 money transfers.
In general, the scheme of work was the same as with postal orders, which were used for more than a century. It worked as follows: the sender came to the post office, gave the mail employee the amount that he wanted to send, and he wrote the amount on a form in a special accounting book. The form was sent to the post office, where money was issued to the recipient. With the help of the telegraph, it was possible to speed up the process: it was no longer necessary to send coupons and accounting forms by mail. Information about the recipient and the amount of the payment was transmitted by telegraph.
From the telegraph to the first credit card
In the XX century, the development of non-cash payment systems went faster. The same Western Union was the first company to issue a kind of payment card-the forerunner of a bank card. In 1921, regular Western Union customers were able to issue a prepaid payment card. The idea was so popular that it was picked up by many large retail companies in the United States – from gas station chains to fast food restaurants and grocery stores.
The first credit card was the Diner’s Club card, issued in 1950. It could be used to pay at the chain’s restaurants in New York. In 1958, credit cards were issued by Bank of America (BankAmericard) and American Express (Carte Blanche). With their appearance in the United States, a boom in consumer lending began. American Express used a simple scheme of operation: it issued credit cards, charging their owners an annual fee, they paid with cards, and American Express billed card users on a monthly basis. The following decades gave the world the payment systems Visa and Mastercard.
World Wide Web and Pizza
The speed and volume of transactions increased, and so did the appetites of users. They wanted it even faster, even easier, and even cheaper. By the early 1990s, the Internet, which began as a development of the ARPANET defense industry in the 60s, began to reach the world and a wide range of users. The beginning of this process is often called 1989. In March 1989, Tim Berners-Lee, a British software engineer, later named Sir and known online as TimBL, developed the concept of a network of web pages that would be linked together by hyperlinks. The concept was called the World Wide Web. In November, it performed the first successful client-server communication over the Hypertext Transfer Protocol (HTTP) over the Internet. The development of the Internet has made it possible to use the new communication for money transfers. In 1994, Stanford Federal Credit Union became the first bank to offer online banking services to its customers. However, the operations were not performed by the users themselves, since the interface of these early systems can not be called friendly, but by the operators, who needed to have special knowledge in computer technology.
In August 1994, the world’s first online purchase was made. It was a pizza from Pizza Hut – a large Pepperoni with mushrooms and an extra portion of cheese. However, some claim that the first purchase was still a music CD “Ten Summoner’s Tales”by British artist Sting, paid for online at the Net Market Company store in New Hampshire a week before the online purchase of pizza. One thing is known – since then, online payments and transfers have started to develop rapidly. In 1995, the services of electronic micropayments Millicent and eCash (a trademark of DigiCash, founded in the 80s by a native of the University of Berkeley and the legend of cryptography David Chaum) appeared. Both offered an alternative to cash and a quick way to transfer value.
In 1998, programmer Max Levchin and financier Peter Thiel, as well as Luke Nosek and Ken Khoury, founded Confinity, which in 1999 launched a money transfer service called PayPal – a name that is known all over the world. At the same time, entrepreneur Elon Musk tried to develop his bank service for fast payments X.com. In 2000 X.com and PayPal joined forces, and in 2002, PayPal successfully conducted an IPO and was sold to eBay for $1.5 billion. PayPal owes its popularity mainly to eBay users. In 2002, more than 70% of all eBay auctions were paid for using PayPal.
PayPal not only developed the popularity of online payments, but also actively participated in the technological development of the industry. Special attention was paid to security, the development of appropriate software-VeriSign, PayPal Secure Card and other solutions.
China and its way
Payment technologies developed all over the world, but one of the largest markets – China-due to a number of geopolitical factors for a long time developed separately. At the same time as PayPal, Alibaba, a company operating in the field of online commerce, appeared in China. In 2004, Alibaba launched the Alipay payment system, which initially acted as an intermediary between sellers and buyers on the Taobao c2c trading platform. In fact, it was a kind of Chinese equivalent of eBay with its PayPal. The main advantage of payments via Alipay was that the seller did not receive funds from the buyer until the buyer confirmed receipt of the ordered products.
Over time, Alipay was so popular with sellers and buyers that other businesses began to use it. Already in 2009, the number of registered users of AliPay exceeded 200 million. In 2013, Alipay overtook PayPal as the world’s largest mobile payment platform. Now Alipay payment services are used not only by affiliated giants Taobao, Tmall, but also by more than 460,000 online and offline Chinese companies. Alipay is especially popular among small and medium-sized businesses, for which acquiring services from banks are not as accessible as the cheaper Alipay service. With Alipay in China, you can pay for goods in stores, both large and small, top up your mobile phone, order food, pay for bus, train, or taxi tickets, pay for movie theater visits, and pay for utility bills. Alipay has long reached the international level, but outside of China, it has not received such a large-scale distribution, although it has occupied a certain niche, supporting transactions in 18 foreign currencies.
In China, its main competitor was the social network payment service WeChat, which appeared in 2013. In August of that year, the micro-messaging service WeChat released the Wallet application, which allowed you to operate any payment cards issued in China. Now WeChat Pay users can link bank accounts in Chinese banks, as well as Visa and MasterCard cards issued by foreign organizations to their wallets.
In 2018, Charlie Munger, the legendary American investor, vice chairman of investment Berkshire Hathaway and an associate of Warren Buffett, mentioned WeChat as a potential competitor to credit card companies such as American Express.
“There is only one small cloud on the horizon of payment systems, and that is WeChat in China,” he said. Munger at Berkshire Hathaway’s annual shareholder meeting in 2018.
In 2017, Tencent, which owns WeChat, reported that they managed to overtake Alipay in terms of the number of active mobile payment users – 600 million against Alipay’s 450 million. However, if we compare the market share in terms of transaction volume, Alipay remains the leader – 54% against 37% for WeChat in 2017.
Global financial Crisis
In 2007, the US mortgage bubble burst, which led to a crisis in the banking sector. On September 15, 2008, the investment bank Lehman Brothers, one of the largest banks in the United States, declared bankruptcy. Panic gripped the world. It was the distrust of the financial system that was the catalyst for the emergence of a completely new tool, which was called bitcoin. On October 31, 2008, an anonymous developer or a group of developers named Satoshi Nakamoto sent a description of the world’s first cryptocurrency to a narrow circle of cryptographers and developers:
“The fully peer-to-peer device of the electronic money system allows you to make electronic transactions between participants directly, bypassing any financial institutions.”Although the idea of creating private electronic money using cryptographic means of protection has been circulating in a narrow environment of developers since the 80s of the XX century, it was in bitcoin that it was possible to combine all the existing developments at that time.