From Cash to Card
Do you remember having to go to the market and dragging with you three kilos of salt and seven bales of hay, just so you could purchase some fish? Me neither. I have a contactless card.
Throughout the centuries we have seen the coming and going of various payment methods. And we often take this evolution for granted. The introduction of cash was a revolution in itself; coppers, silvers and golds could carry the value of hundreds of bales of hay. Thankfully, cash is a lot lighter.
In this article I am going to give a quick overview of the history of payment methods, focussing mainly on the introduction of the plastic payment cards. I am doing this to give a contextual framework for the articles that are to come; analysing the effect credit cards and contactless methods have on expenditure, expenditure recall and debt accumulation.
Historical Overview Since the introduction of value-holding cards, society has moved towards being increasingly cashless. The UK Cards Association provides a great historical overview of this development, focussing on its many milestones (retrieved, 2018).
Cash as a method of payment was introduced centuries ago and managed to maintain is dominant position for quite a long time. It took until 1880 before the first “credit voucher” was produced in the UK. Customers were issued with vouchers that they could use in shops, but only if they were on an approved list. The payment process wasn’t that easy either. Payment could only be made via store representatives who called at the customer’s home. Although it must have been quite the innovation at the time, it seems rather inconvenient now.
Then came the big transition into cards. However, they weren’t plastic, they were metal. Metal cards were introduced as an alternative to cash in 1914. These cards gave free deferred payment privileges to customers in the US Western Union, and became known as “metal money”. This metal card can be argued to be the very first credit card.
From 1914 onward, multiple charge cards, like the metal card, were launched by various companies and institutions to boost sales. It is not until 1958, however, that the term “credit card” is developed. The Bank of America called their charge card the Bank Americard. In 1965, the Bank of America starts licensing the use of this credit card to other banks. The following year Barclays, a UK-based bank, launches its own credit card. In 1967, they install the first cash machine in the world.
The next wave of innovation occurred in the 1980s, as credit cards became world-wide and electronic point of sale terminals were introduced within stores. Cash and cheque were no longer the only alternatives for buying small purchases in store.
The second breakthrough was finalised in 1987: Barclays introduced the Visa Debit card. A card that directly linked to its user’s bank account and deducted the amount directly from the current balance. The next big launch for debit cards was in 1992, when MasterCard launched the Maestro as an international debit card.
The debit card proves to be a great success as debit card ownerships exceeds that of credit cards in 1995. In 1998, the debit cards accounted for more than half of all non-cash spending in supermarkets, beating even the personal cheques in popularity.
As popular as the debit card is, the credit card is not losing out. In 1999 half of all UK adults hold a credit card. The average value of a credit card purchases exceeds £50 for the first time.
Combined, the cards beat cash in the UK, as more than half of retail spending is on payment cards as of 2001.
The cards are obviously a success in store. But their success does not end in the physical environment. Spending has moved into the e-era. In 2001, over 100 million card payments are made online. Three years later in 2004, it is not just in retail shopping that cards beat cash. General UK card expenditure exceeds cash expenditure for the first time, with an average debit card user spending over £100 per week.
The cards have proven convenient and safe enough for large scale uptake. Banks saw usage and profit massively increase, even with the instatement of the Consumer Credit Act, which provides protection to consumers buying goods with their credit cards, with price limitations of £100 - £30,000, in 2005. Protection was against products being sub-standard or not having been delivered. The Act also limits customer liability to no more than £50 if cards are stolen, and used by someone else.
However, as history has pointed out, the cards could be even more convenient. Banks then introduced the contactless card in 2007. Not using PIN-verification but a tap&go system, in which the card is presented to the terminal and the terminal reads the card. To increase perceived safety, The Consumer Credit Act was extended to cover these payment methods as well, and contactless was limited to £30 per transaction. Contactless cards (and mobile devices) have become increasingly popular, following a development similar to that of the debit card.
We can see that the trend is towards developing smaller, safer, easier and quicker methods of payment. According to Rosenberg (2006) this is what progress looks like. Rosenberg argues for a completely cashless society. Personally, I’m not too keen. In the articles to come I will explain the previously unknown side-effects of credit cards at their introduction. I will draw a parallel with the introduction of contactless. But mostly, I’ll be making an argument to not let go of cash yet.
References Rosenberg, A. (2006). Better than Cash? Consumer Protection and the Global Debit Card Deluge. Columbia Journal of Transnational Law, 44(2), pp.520-601.