Echoes Dispatches From Economic History
An early American Express credit card. Source: Unknown
Visions of a Cashless Society: Echoes
Many technological innovations surfaced first in science fiction and then became a reality.
Think of Jules Verne imagining a flight to the moon and long-range submarines decades before such things existed; H. G. Wells warning of aerial bombardments prior to World War I; or Arthur C. Clarke writing on geosynchronous communications satellites in 1945.
But literature foresaw only limited advances in the way we exchange money. Capitalism was the default social organization of American science fiction, and few authors put much energy into imagining its future. By the 1940s, many had adopted the term "credit" as the universal name for future currencies, including Isaac Asimov in his two main strands of work (the far-future "Foundation" saga and the near-future "Robot" stories). Usually, however, "credit" functioned as a simple linguistic substitution for "dollar," and one reads of credits being slapped onto counters, flung to parking attendants, drawn from pockets and the like.
Such examples tell how readers and writers of science fiction were more interested in the future of rockets, physics and social dynamics than they were in banking, economics or organizational innovation. Disregarding the functioning of the economy even led to notable inconsistencies, as in the Star Trek universe, where the Federation is supposed to have evolved beyond money, but dialog and plot elements continue to reference trading, gambling and the exchange of credits.
The concept of a "cashless society" -- now getting increased attention as countries such as Sweden try to move away from bills and coins -- actually originated first in the world of business and only later moved into the realm of fiction.
Few bankers and consultants in the 1950s foresaw how their recently adopted computers and telecommunications equipment would revolutionize the way consumers exchanged money. Their first target was those costly and cumbersome paper checks, the volume of which was growing at an alarming rate. But two men, in particular, promoted the concept of the cashless-checkless society as the appropriate solution to this problem.
The first was John Diebold, who had earlier popularized the term “automation.” His consulting company, the Diebold Group, constructed several networked computer systems for commercial banks in the early 1960s. Diebold wrote in business journals of an impending "transaction overload," cautioning that "the 'cashless society' is no longer an option but a necessity." He acknowledged that there was "considerable vagueness" surrounding the details of how such a society might be achieved, but argued that "some system must and will develop in which money (and credit) moves quickly and safely" around the world.
This vision won influential support from George Mitchell, a member of the Board of Governors of the Federal Reserve, who began warning bankers in 1966 of the increasing costs of processing paper checks and urging the banking industry to consider how "the computer can drastically change money and its use."
Soon, others in banking and journalism embraced this vision of the future. As they extended their gaze, more concrete predictions emerged, such as a nationwide electronic-funds-transfer system, or an EFT, activated by some kind of economic identification card. Once banks digitized their accounts, and the nation's merchants were connected to them by telecommunication links, it would be relatively easy to usher in a new kind of cashless-checkless society.
Or so they thought. As the bankers of the 1960s and '70s soon discovered, the technical aspects of such a system were the relatively easy part; selling the idea of electronic payments to consumers, merchants and regulators was far more difficult.
The banks themselves also disagreed strongly about just how an EFT system should work. All of them wanted to get rid of costly checks and cash, but they had different opinions on how an electronic system should be structured, owned and operated. Large commercial banks in the U.S. wanted to develop their own proprietary systems and sell access to their competitors. Smaller banks favored cooperative associations or an electronic version of the Federal Reserve's existing check-clearing system.
The recently formed national credit-card associations -- Interbank (which would later become MasterCard) and National BankAmericard Inc. (which would later become Visa Inc.) -- naturally saw their own credit-card networks as the perfect vehicle for a fully cashless society. But their member banks often disagreed, as they saw credit cards as something distinct from "real banking."
Although much of the technology necessary for a national EFT system existed by the late 1970s, lack of consumer interest and disagreements among the banks stymied its development. Not until the 1990s were debit cards -- first issued in the mid-1970s -- widely issued by banks and adopted by consumers.
The cashless society envisioned in the 1950s is now closer, but still far from becoming reality.
Over the past year, Visa has produced a series of videos describing its vision for the next generation of electronic payments, in which consumers all over the world will be able to pay for all kinds of goods and services using only a mobile phone. In a similar vein, the International Finance Corporation recently published a report suggesting a framework for countries looking to establish a mobile money business.
Both portray a compelling new world where cumbersome and risky bank notes are replaced with safe and sterile electronic transactions initiated at the touch of a mobile handset. In these visions, your mobile becomes your "digital wallet," bringing us all one step closer to the banker's dream of a cashless society.
Such a society might be desirable. But if history can teach us anything, the road will not be as smooth and straight as enthusiasts might suppose.
(Bernardo Batiz-Lazo is a professor of business history and bank management at Bangor University in Wales and the editor of "Technological Innovation in Retail Finance: International Historical Perspectives." Thomas Haigh is an associate professor of information studies at the University of Wisconsin-Milwaukee and chair of the Special Interest Group on Computers, Information and Society of the Society for the History of Technology. David Stearns is a historian of money and technology and the author of "Electronic Value Exchange: Origins of the VISA Electronic Payment System." The opinions expressed are their own.)
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