From Bitcoin to Apple Pay, big changes seem to be afoot in the world of money. Yet the use of coins and paper bills has persisted for 3,000 years. In How Would You Like to Pay?, leading anthropologist Bill Maurer narrates money's history, considers its role in everyday life, and discusses the implications of how new technologies are changing how we pay. These changes are especially important in the developing world, where people who lack access to banks are using cell phones in creative ways to send and save money. To truly understand money, Maurer explains, is to understand and appreciate the complex infrastructures and social relationships it relies on. Engaging and straightforward, How Would You Like to Pay? rethinks something so familiar and fundamental in new and exciting ways. Ultimately, considering how we would like to pay gives insights into determining how we would like to live.
|Publisher:||Duke University Press Books|
|Edition description:||New Edition|
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About the Author
Bill Maurer is Dean of the School of Social Sciences; Professor of Anthropology, Law and Criminology, Law and Society; and the Director of the Institute for Money, Technology, and Financial Inclusion at the University of California, Irvine. He is the author of Pious Property: Islamic Mortgages in the United States and Mutual Life, Limited: Islamic Banking, Alternative Currencies, Lateral Reason.
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How Would You Like to Pay?
How Technology is Changing the Future of Money
By Bill Maurer
Duke University PressCopyright © 2015 Bill Maurer
All rights reserved.
Disruptions in Money
On August 8, 2012, there was big news in the world of payment. Starbucks, the coffee chain that brought double decaf lattes and mocha Frappuccino to almost every street corner in every big city in America, announced that it would begin processing all credit and debit card transactions using Square. It also announced a $25 million investment in the company. Square, Inc., launched in 2010, was the brainchild of Jack Dorsey, the web application developer who arguably changed the course of history with Twitter. This microblogging service proved its mettle beyond announcing the most banal of affairs ("coffee@#grncafe xtra good today!"), when people used it to help locate disaster victims after the 2011 Fukushima earthquake in Japan and to facilitate mass mobilization in the uprisings in the Arab world and the Occupy Wall Street movement later that same year. Twitter was a sensation: allowing users to send messages only 140 characters in length, from virtually any computing or mobile device, it is the kind of technology that is so simple you wonder why no one ever thought of it before. Square, Dorsey's second child, so to speak, is similarly genius: a small plastic square contains a magnetic stripe reader that detects and transmits the data stored on credit and debit cards through the earphone jack of a smartphone. Presto! Your phone has become a card reader; you have become a merchant capable of accepting credit and debit card payments. The technology is small, and the action it requires is familiar. It relies on a behavior — swiping a card — to which almost all consumers in the developed world have become accustomed. It does not require any new infrastructure save the tiny plastic square you plug into your earphone jack. Like Twitter, the technology takes a back seat to the functionality it affords.
Existing behavior. Existing infrastructure. Backgrounded technology. These three key elements can be found in another mobile phone-enabled payment system, but one that hit the scene several years before Square and that reached a scale so dramatic that even Dorsey would be impressed. This is M-Pesa, a service launched in 2007 that permits users to send money to others via a text message on their basic feature phone. The year 2007 is ancient history in the world of application development: consider the fact that the first iPhone was also released in that same year. M-Pesa revolutionized money transfers in Kenya, the site of its initial launch, and sparked enormous interest among development agencies and philanthropic organizations in the potential of the mobile phone to contribute to people's lives by providing them basic, safe, and affordable financial services.
In countries where bank branches are few and far between, and where they are only within reach of the relatively well-off anyway, having your phone serve as your access point for basic financial services like savings and money transfer can change your life. Indeed, in Kenya, by 2011, M-Pesa was in use by more than 50 percent of all households, and had processed in that year more transactions within Kenya than Western Union had done globally.
Like Square, M-Pesa harnessed existing technology and behavior: in this case, the text-message capability of all phones, and the everyday activity of sending a text message. It is simple. The technology is in the background. But the results have been profound. What is at stake is not just technological change or convenience, but bringing the poor and marginalized into the formal financial sector — for good or ill. The global financial crisis that began in 2008 may have given the lie to the goal of incorporating people into the formal sector. And banks have a terrible track record with the poor. At the same time, the alternatives to formal banks may not be much better and may expose people to increased risk of theft and high fees for informal money transfer or lending services. Certainly for the poor in Kenya, M-Pesa filled a need, solved a problem, and was widely adopted.
For its part, the payments industry — both the legacy players like the card networks and banks and the new "disruptors" — have long tried to convince people that cash is bad. Whether they tout its filthiness (and it is pretty dirty) or tell stories about its general disreputability (who walks around with a suitcase full of hundred-dollar bills? who really uses the 500 euro note?), they have a business interest in getting people to switch from cash to plastic or other electronic means of payment. Of course, their business models are based on transaction fees or, increasingly, transactional data for marketing purposes. Cash may come with costs, especially for the poor. Cash is cumbersome to transport and count, especially for businesses that take in a lot of it. But cash has a characteristic that other means of payment do not: it settles at par. That is, when I pay you a dollar for something, you get a dollar; not 99.8 cents (20 basis points or .2 percent off the top, the current rate for Visa debit transactions in Europe). One dollar, no more, no less. Cash is a state-based system, and it is publically mandated to settle at par. We pay a price for noncash transactions. How should such a price be set? By whom? And who bears the cost? If we want to imagine a nonstate system, say, bitcoin, then what? Who ensures it works properly, and consistently? What happens when something goes wrong?
What is at stake is a matrix of questions: along one axis, whether new technologically enabled systems create second-class banking or even second-class moneys, whether cashlessness promises real benefits or merely another way to bilk people or profit from their digital personal data. Along another axis, whether the state has a role in money and payment, and what that proper role shall be. These are big questions, political questions, at the heart of the infrastructures of money.
Hype and Hope
In 2012, Square introduced its Square Wallet application for smartphones. No plastic square needed, one saves one's credit or debit card information with the application. When you are at a store that accepts this means of payment, you simply appear at the register and provide the clerk with your name. The clerk hits a button and you've paid. No extra device; no fumbling with your phone; nothing, payment is as simple as showing up. As with the Square card reader, Square Wallet was promising for three key reasons. It backgrounded the technological innovation, so the technology would not interfere with its use. It leveraged existing functions within the phone — in this case, the geolocation services that help you find stores near you that will accept the service, and that would allow the clerk's terminal to recognize that you (or, rather, your mobile device) when you enter the store. Finally, it did not demand any new behavior from its user. After all, you probably say your name a few times every day (" — Hi, it's Bill!").
It was a colossal flop. Unless you live in a tech hotspot like Silicon Valley, you probably never even saw it. The company pulled the plug on it in 2014. Square is not alone. There have been a number of new payment services launched since the release of the first iPhone. They are barely a ripple in a payments landscape still overwhelmingly dominated by cash and cards, debit or credit. And a number of them have had phenomenally bad luck. Exactly one week after Square and Starbucks announced their partnership, there was another news release. Major American retailers unveiled a new joint venture, the Merchant Customer Exchange, or MCX. Made up of Walmart, Target, Sunoco, CVS Pharmacy, 7-Eleven, Sears, and other name-brand retailers, MCX declared its intention to develop its own platform for processing payments via smartphone among its network of merchants. In 2014, on the heels of the launch of Apple Pay, MCX's payment application, called CurrenC, was hacked. Meanwhile, a consortium of the major U.S. carriers (AT&T, T-Mobile, and Verizon, together with American Express), formed isis, a mobile payment service piloted in 2011. It renamed itself Softcard in 2014 to avoid any association with the Islamic militant organization calling itself the Islamic State. Probably few consumers even knew of its existence until the media bump it received from its rebranding. Google launched GoogleWallet in 2011, in its gambit into the world of mobile payment services. MasterCard started a new PayPass product, allowing customers to use their phone at point-of-sale terminals enabled with its existing PayPass technology that had already been embedded into some of its cards. Citi, a partner in several of these mobile payment schemes, partnered with Jumio, a service that ingeniously turns the camera of a smartphone into a digital card reader — hold your card up to the smartphone camera and, without storing an image of the card, the camera detects and transmits the data needed to process the transaction. LevelUp, a similar service, creates graphic codes on the smartphone screen that can be read by another phone to transmit payment data. The iPhone 6 came equipped with Apple's own foray into mobile payments, Apple Pay. It's too early to tell how Apple's fingerprint-enabled payment tool will fare — but a few short weeks after it debuted, a number of major merchants flipped the switch on their point-of-sale terminals to disable its acceptance.
Despite the setbacks, however, the temperature has been steadily rising in the world of money, technology, and payment. In October, 2012, representatives from the diverse collection of companies and sectors trying to revolutionize how we pay gathered in Las Vegas for an event dubbed "Money2020," showcasing the latest in payments technologies and business models for processing transactions. Meanwhile, the online cryptocurrency, bitcoin, exploded on the scene when its value crossed the $100 mark in April, 2013. It nearly reached an exchange rate of $1,000 per bitcoin in November, 2013. By June, 2014, it stood at more than $600 and then fell to $350 by October. Despite the fluctuations, its impact on the imagination of application and service developers and their venture capital patrons could be seen at the next two "Money2020" conferences, where entire sessions were devoted to it (while at the conference in 2013, live demos of isis hit glitches during the plenary session, perhaps the most awkward time possible). Bitcoin proponents and representatives from bitcoin-related startups were starting to fall into two camps: those who stressed its role as a new form of money, and those who, more soberly, promoted it as a new payment protocol.
You would think that with all the large-scale players assembled here — the card networks like Visa and MasterCard, the mobile carriers like AT&T, companies like Google, device manufacturers like Apple, major retailers like Walmart — at least one of these new ways to pay would have taken off the way M-Pesa did in Kenya. Maybe the market has not been ready; maybe these are solutions looking for problems to solve; maybe no one has yet discovered the secret sauce that will lead millions of consumers in the global North to switch to mobile payments.
The turn of the new year in 2014 witnessed other developments — or, rather, disasters — in the world of money and payment. The giant retailer Target and the upscale clothing chain Nieman Marcus were both targeted by hackers. In the former case, they stole more than forty million credit and debit card numbers; in the latter, they captured data from more than sixty thousand transactions. Then, in April, news broke that the SSL encryption protocol used by many online merchants had been vulnerable to attacks. People worldwide were advised to change all their passwords. In June, the Chinese restaurant chain P.F. Chang's also reported a credit card data breach and instructed its staff to process card purchases manually, using the old imprinting machines that probably few of its customers under age thirty had ever seen before. Data has been on people's minds, too, perhaps leading some to be skeptical of services that base themselves on the monetization of our "personal" data, from WikiLeaks to the U.S. National Security Administration, and just general consumer exhaustion with "targeted marketing," electronic means of payment whose business models are based on leveraging transactional data have yet to prove themselves in terms of profit or consumer adoption, acceptance, and trust.
Although its demise is frequently foretold, cash is still king — or, if it is not, it's like the old sovereign who steps in to save the day after everything else has failed. But why have these new systems not taken off like M-Pesa in Kenya has? Why, at the same time, are so many people and businesses so preoccupied with trying to find the secret ingredient that will revolutionize how we pay for things?
Money as a Means of Payment
To answer these questions, we need to understand money, and not how money has been conventionally understood, as a means of exchange. We are taught that money solves the problem of barter. When one party to a transaction has something to trade but it is not what the other party to the transaction wants, we have what the economists call the problem of the "double coincidence of wants." Money, as a neutral medium of exchange that can be accepted for the purchase of any good or service, solves that problem. I may not have an item you want, but I can give you money to get what I need from you. My contention is that when we treat money solely as a means of exchange like this we depersonalize it, abstract it from all social relations save the most rudimentary, formulaic — and ultimately fictional — pure market relation. When we see money as a means of payment, however, we spotlight its technologies, how it moves from person to person or from Point A to Point B. We are confronted with its infrastructures.
The distinction between exchange and payment is a subtle one. Payment brings in all the other relationships, infrastructures, behaviors, and meanings involved in money. It also lets us think about instances where money is used in nonmarket ways, or in unreciprocated transactions. It lets us ask, how do we understand the basic practice of transferring value from one person to another? And how are new technologies like mobile and wearable computing, the so-called Internet of Things, and new distributed systems like bitcoin changing this most ancient of questions — how would you like to pay? Furthermore, how should we like to pay? What are the moral and philosophical aspects of payment that the collision of new technologies and money brings to the fore?
We have lived through a relatively brief historical period of only 150 or so years when money was monopolized by the state. That is, governments issued currencies in order to facilitate exchange among their people and between their people and others in more distant lands. Prior to the invention of state-issued currency, a variety of private moneys circulated — as recently as the 1860s in the United States, there were around eight thousand currencies, issued by banks, railroad companies, retail stores, and other entities. The National Bank Act of 1863 began a decades-long process of consolidating the national currency in the United States, completed by the Federal Reserve system in the early twentieth century. The history of national money in the United Kingdom goes back further — but really, in the grand scheme of things, not by much. The Bank of England was founded in 1694 but pounds floated against gold and silver until World War I and precious metals could serve as a nonstate money well into the twentieth century. Gold still occupies a place in the everyday monetary imagination: not coincidentally, "gold ATMs" or teller machines that look like cash dispensing machines started springing up around the world after the global financial crisis. For many people around the world, especially in places with unstable currencies and long traditions of using it as a store of value, gold has never lost its luster.
We may be entering a period again where private moneys come to the fore. Bitcoin has opened the possibility of a money maintained in a peer network without any central issuing authority or guarantor. Mobile payment services in the developed world allow you to receive digital coupons and rewards for your loyalty. Softcard (formerly isis) offered $10 Amazon.com gift cards for users who got their friends to enroll. Now, if points and coupons themselves become tradable and exchangeable for other vendors' products or rewards — if I can start to use my Starbucks Stars or reward points to get a discount at Walmart over the MCX system, for example, or if I can use an Amazon.com gift card on Apple's iTunes store — then has a new private currency been created, or a new private exchange that permits some but not all gifted funds to be convertible? Practitioners refer to open and closed systems: do payment systems permit exchanges across their own boundaries or circuits? What are the broader implications when they do not — for money, for society, for our in-built notions of access or equality? These and other questions occupy both developers of these new systems and regulators, as well as a few academics and political observers of the changing world of payments.
Payments are a complicated space. The business case for payment is counterintuitive, making money not by selling things but by providing the channel through which money passes — building the "rails" over which payments are carried as a kind of freight. The field is crowded — by new startups like LevelUp, Zapp, Wave, and YellowPepper (some of which come and go quickly) as well as legacy players like Visa, MasterCard, wire services like Western Union, or, in the United States, the largely invisible Automated Clearing House (ACH), which sits underneath many credit, debit, check, direct deposit, and direct bill pay transactions, handling trillions of dollars in transactions each quarter.
Excerpted from How Would You Like to Pay? by Bill Maurer. Copyright © 2015 Bill Maurer. Excerpted by permission of Duke University Press.
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Table of Contents
Acknowledgments vii Introduction. Who This Book Is For 1 1. Disruptions in Money 17 2. What Is Money? 37 3. Two Scenarios: A Day in the Money Life 51 4. The Evolution of Money 63 5. Use Cases for Money 79 6. What's in Your Wallet? 95 7. What Can You Do with a Mobile Phone? 107 8. Airtime 119 9. Monetary Repertoires 129 For Further Reading 145 Index 153
What People are Saying About This
"A lucid and entertaining work that shines a light on many of the complexities of money and payments. Bill Maurer makes us realize—and remember—that money is not just economics and process, but also an integral part of human life, and that the psychology and behavioral dynamics around money are just as important to understand as the business aspects. A must-read!"