In the beginning there was swopsies (barter), which became money, and later printed money, which became IOUs in the form of cheques and these were fine for 100s of years. Then, the consumers cash and cheque banking environment was revolutionized by Automated Teller Machines like this:
The first UK ATM was at the Enfield Branch of Barclays Bank, on 27 June 1967; inaugurated by comedy actor Reg Varney. This ATM used paper cheques issued by a teller or cashier, marked with carbon-14 for machine readability and security, which in a latter model were matched with a personal identification number (PIN). The design is credited to John Shepherd-Barron of printing firm De La Rue, who was awarded an OBE in 2005. SMS and card systems rapidly followed and cards became the driving payments system during the last 2 decades. There are effectively 2 types of card; credit cards and debit cards.
In a credit card, the issuer provides credit (loans) on a monthly basis and doesn’t charge if the loan is cleared every month. The retailer pays for the system in order to facilitate improved customer access and credit at a retailer cost of up to 3% per transaction. Clearance companies (e.g. VISA/MasterCard) provide consumer credit protection. Significant interest rates apply if the card is not paid off every month and a minimum pay back is required to retain access to the system.
The use of cards increased the ways in which fraudulent transactions could be made, the original system was almost like printing a local ‘cheque’ or counterfoil on a mini imprinting machine. Thus signature forgery and copying the card numbers could create a liability for the credit house. Retail security became a key deliverable and was balanced against consumer demand for expansion.
However, as paper and receipt handling was as costly and complicated as cheque clearing, the banks soon devised ways to automate the process which, finally, resulted in the chip and PIN system and the digital terminal we use today. Card cloning and internet shopping required new management of card systems and the rear security numbers were introduced. Card or number cloning and fraud still cost £bns every year.
Debit cards provide direct access to a current/deposit account and do not provide credit facilities (aside an overdraft). In essence they are plastic and flexible cheques. They provide two key functions; access to cash (from machines and retailer cash-back) and instant electronic payments. Predominantly they are used for 'spending money'. Retailers like debit almost as much as, if not more than, cash; it has lower transaction charges and money is transferred nearly instantly. In addition, 'Cash back' reduces their cash holdings and costs - a win-win! The 'cash machine’ was made by IBM for Lloyds Bank in 1972 and named Cashpoint. The newest ATM at Royal Bank of Scotland allows customers to withdraw cash up to £100 without a card by inputting a six-digit code requested through their smartphones (emergency cash).
Mobile Money? Image: katyray / Katy Ray - http://www.flickr.com/photos/katyray/44526817/
What's next? Smartphones, cashless systems and innovative wearable technologies.