From Beads to Bitcoin
The way people pay for stuff is changing, UCI experts say. Will paper money become passé?By Kathryn Bold
In a cluttered storage room in UCI’s Social & Behavioral Sciences building, Bill Maurer, dean of social sciences, rummages through shelves filled with old foreign bills, vintage Monopoly games, Venetian glass beads and New Guinea shell necklaces once used as currency, and other examples of real and play money. Maurer’s not auditioning for an episode of “Hoarders.” As founding director of UCI’s Institute for Money, Technology & Financial Inclusion, he uses the loot for educational purposes.
Maurer, a cultural anthropologist, is not only interested in how people paid for stuff in the past and what that says about their society but also curious about what forms payment will take in the future. (He is, after all, an unabashed Trekkie, having once dressed up as Captain Kirk to raise funds for University of California scholarships.)
What will be in people’s wallets – if they even have wallets – also concerns business owners, technology and security experts, and anyone who hopes to make a profit in the digital age.
Defending the dollar
When considering which types of currency will survive and which will go the way of the cowry shell, many people expect cash, coins and paper checks to disappear in their lifetime, Maurer says.
“Everyone thinks these ancient technologies are on their way out,” he wrote in a commentary titled “Extinct by 2020: The Swipe” for Visa’s Tech Matters website. But he’s betting against the demise of the dollar bill and other cold, hard cash.
“Cash is part of a huge public system,” Maurer says. “It’s accessible to everyone; there’s no barrier to using it.” Anyone can pick up a dollar and spend it – there’s no need to open an account and no fee for using cash.
“It can be transferred freely, whereas with almost any electronic medium, the transaction does not settle at par,” he continues. “Say you pay $10 for something on a credit card; the merchant may only receive $9.78. Merchants pay the fees for accepting credit card transactions, and those costs are passed on to us.”
Babysitters, laundromats, dog walkers, parking meters, hotel and restaurant staff, taxi drivers –plenty of business operations still rely on cash.
While there are drawbacks – cash can be stolen, get lost or disintegrate, especially if accidentally put through the wash – it will forever have an advantage over digital currency.
“Cash and coins always work,” Maurer says, “even when the lights go out, even in a war zone.”
Consider one of the more recent artifacts in Maurer’s collection:
“It’s called a knuckle-buster,” he says, showing off a metal contraption used to manually process credit card transactions. The machine got its name because cashiers sometimes nicked their knuckles when moving its slider back and forth to imprint a card’s embossed information on multiple carbon copies of a sales slip.
Once a common sight at checkout counters, the knuckle-buster has all but disappeared from stores. Most merchants now rely on an electronic point-of-sale device that reads a card’s magnetic strip through an action called a “swipe.”
Yet, in a case that shows how difficult it can be for societies to transition from one mode of payment to another, knuckle-busters were pressed back into service as recently as June 2014 at 200 P.F. Chang’s restaurants when the company’s electronic credit card system was breached.
“Paper and metal come in handy,” Maurer notes wryly.
No one doubts the convenience of credit and debit cards. Those with magnetic strips have been in widespread use since they were introduced by IBM in the early 1970s. But security problems with the cards and the advent of smartphones and other mobile technologies have many people speculating about what will take plastic’s place.
“Right now, they’re working to build a cheaper, faster, more secure system of electronic settlements than a debit or credit transfer,” Maurer says. “So far, none of the devices through which we access value has really stuck. It’s still the plastic card. But we’re certainly seeing a lot of interest in changing the technology of money.”
For merchants, keeping up with digital technology is crucial, says Vijay Gurbaxani, the Taco Bell Endowed Professor of Information Technology Management in UCI’s Paul Merage School of Business.
“The world we grew up in is changing into one that’s far more digital, and that applies to money and payment systems,” says Gurbaxani, who directs the school’s Center for Digital Transformation, which helps businesses stay abreast of technology. Through workshops, peer-to-peer forums, research partnerships and other programs, the center shares information on the rapid transformations caused by IT so that executives and managers can create new strategies for success.
“Cash and coins always work, even when the lights go out, even in a war zone.”
“Companies must reinvent themselves continually,” he says. “They have to understand what evolving digital technologies do to their business.”
To stay competitive, for instance, they have to consider investing in such innovations as apps that allow customers to make purchases with just their smartphone, he notes. Starbucks and Target are among the retailers who’ve already done so.
“Payment apps are proliferating,” Gurbaxani says. “It speaks to how much change we’re observing.”
One example he cites of a company embracing technology is the Walt Disney Co., which knows a thing or two about Tomorrowland. Disney has invested more than $1 billion in MyMagic+, a cashless system featuring a colorful wristband that works as an automated entry pass at the company’s Florida parks. Guests can use the Magicband to pay for food, mouse ears and other merchandise; avoid long lines by accessing FastPass; and even open their hotel room door.
Such mobile systems, though, are still tied to credit cards and bank accounts. “Apple Pay, Google Wallet, PayPal – they all link to existing payment mechanisms,” Gurbaxani observes.
Going off the rails
Electronic transactions only appear to be instantaneous to the consumer; they’re actually routed through traditional financial institutions, which take a day or two to process them.
“The information is transferred on a mobile device, but you’re still going back to the rails,” says Maurer, referring to the worldwide network of banks and financial services companies (MasterCard, Visa) connected to each other physically, via cable. (“Rails” is the payment industry’s term for value transfer infrastructure dating back to when telegraph lines ran alongside railroad tracks during the period of westward expansion.)
“Over the next 50 years, there’ll be a lot of experimentation with new gizmos to access money, but the real change will take place in the value infrastructure,” he says. Those [payment] systems will exist solely in the digital world and offer faster and cheaper means of electronic payment.
One such system, bitcoin, lets users purchase stuff by pressing “send” on their wallet app. The network has many critics due to security concerns and wild fluctuations in the bitcoin’s value. (Bitcoin has a volatility 18 times greater than the U.S. dollar, according to finance expert Mark T. Williams.) There’s no bank or central authority acting as an intermediary to regulate or control the currency.
“It’s very hard to predict where bitcoin will go, even though more and more companies are accepting it,” Gurbaxani says. “Many consumers are uncomfortable with the idea of a currency that isn’t backed by a country, though some form of peer-to-peer payment system will take hold in the future.”
While acknowledging its flaws, Maurer considers bitcoin a harbinger of a future type of decentralized digital payment system that will eventually gain acceptance.
“What’s interesting is the computer infrastructure behind it,” he says. “I’ve joked with my graduate students that we have to see bitcoin as an art project. It can be seen as elegant, even if it’s not ready” for the market.
Whether or not bitcoin eventually replaces plastic, Maurer feels sure of two things: Some form of secure digital currency is around the corner; and 50 years from now, people will still have quarters and other coins to jangle in their pockets and toss into fountains.
“The coin has been around for 3,000 years,” he says. “It’s one of the oldest pieces of technology we’ve got. I don’t see it dying anytime soon.”
Note: Maurer’s latest book, How Would You Like to Pay? How Technology Is Changing the Future of Money, came out in November.