Payments – Disruption is in the DNA

It has become a cliché phrase – disruption. Perhaps the most overhyped topic of conversation for disruption these days are crypto-assets and the blockchain. Although there are reasonably sound technical merits to the potential, blockchain in particular, holds for the future of payments and commerce at large, it is far from an outlier. It is actually more of the norm for the world of payments, cash, credit and financial transactions, and it dates back beyond 3,000 BCE.

The evolution of payments – from P2P – to Merchant/Consumer – back to P2P

The primary reason for the advancements or evolution of payments have remained simple. Faster, with greater efficiency. This has held true North in the payments world since time immemorial. Every time in human history where structured societies have formed, bartering and trading have been replaced by a common denominator of a ‘currency’. The Persian Empire used the Daric (gold coin) and the Siglos (silver coin) as their primary forms of currency. Paper money itself hails back to the year 806 in China. A central bank system did not occur until 1661 when Sweden was the first European country, replacing copper plates, only to go bankrupt three years later (Anyone else seeing a historic trend here with banks at large?).

Gold-backed paper money began in 1816 in Britain, followed soon after by the US. This is of particular relevance today given the constant chatter about crypto-assets, and their high correlation to the erratic price/value fluctuations of gold until it was regulated.

By the late 1800s, technology began to play a significant role in the modernising evolution of currency and trade. Who knew, Western Union began wire transfers back in 1872, using their existing telegraph networks. How’s that for a pivot!? In the automotive space, General Motors began to issue credit, which is still the most substantial route to vehicular ownership in the US today, accounting for some 65% of all purchases even back in the 1930s.

The credit card made its way into our lives in the form of Diners Club and American Express in the late 1950s, and was the first truly synergistic system of cash and credit for the masses. The late 1960s saw the introduction of ATMs and magnetic striped credit cards. This too was an evolutionary disruption in how the world of commerce worked, and built an even stronger vendor/consumer based economy. Consumerism really took shape hereafter, and has never slowed.

The late 1990’s is when the evolution and disruption of payments began to see a sharper delta. Up until this stage, we could say the world was largely analogue. The digital era was an added catalyst to the payments world. Shopping online has become second nature to most of us in the developed world. As a personal example, I bought both the cars I owned in London during and after my MBA off of eBay, using PayPal!

So what is different about Bitcoin and other blockchain-based crypto-assets? Well, it is the evolution of technology and the nature of commerce itself that is changing simultaneously. We are moving back to more of a peer-to-peer economy, much like it was back in the days of the earliest traders and communities. Today these traders are rapidly replacing goods that are produced by larger, well organised companies, and it is their services that are being traded. The gig economy is the future that becomes more of a reality on a daily basis. This is where the value of a cross border technology or system has its greatest value. Not the mere upgradation of trading floors around the world, but in the new definitions of community that are forming around the world. The McKinsey Global Institute estimates $3.7 Trillion of additional GDP growth in Emerging Markets stemming from P2P transactions.

Maybe by 2020, we will be discussing what sort of currency is needed to people living on Mars. Now THAT, would be disruptive, as the bigger ‘our world’ becomes, the less unifying payments can be.

Sources & Inspiration: Visual Capitalist; Glance Technologies.

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