Money has come a long way from gold coins stamped with the Emperor’s likeness. Today, the vast majority of money is digitised - in the US, notes and coins comprise only 7% of cash in circulation.
So with the arrival of so-called “peer-to-peer money transfer”, the average person in the street can now directly participate in banking activities that until recently were the sole province of established banks and financial institutions. If you have a computer and an internet connection, you can plug yourself into the global economy and be your own banker.
Transferring money electronically is hardly a new phenomenon. What is remarkable, though, is that the barriers to entry and the costs involved have fallen to such low levels.
Western Union is a well-known early example of the traditional method of “wiring” money to people in other parts of the world. They are still going strong, though with their substantial fees, they face some stiff competition. Enter PayPal.
PayPal has dominated the internet-based money transfer business since being acquired by eBay in 2002. In the years that followed, PayPal has extended its reach around the world and now processes transactions in the order of hundreds of millions of dollars daily.
But now, some new players have taken to the field, their business models having fresh appeal to internet-savvy consumers. Google Wallet, Square Cash, TransferWise and BitCoin are representative of the growing number of peer-to-peer money transfer technologies now available to citizens of the online economy.
Google Wallet turns an Android-powered smartphone into a mobile payment device. Using Near Field Communication (NFC) you bring the phone into close proximity with a PayPass reader at the point-of-sale and the funds are automatically transferred from your account to the vendor’s. However, Google Wallet has recently had some embarrassing security vulnerabilities that Google are busily working to solve. In the coming months, Google Wallet will be extended to Gmail. Making a payment will be as simple as attaching a photo to an email. Compose the email, click on the “Attach Money” icon, enter the amount, and send. The recipient can accept (or reject) the payment upon receipt of the email with the funds being deposited into the recipient’s linked account.
Square Cash is a new service from innovative point-of-sale company Square. To send money with Square Cash, you send an email to the payee with a currency amount in the subject line and “email@example.com” in the cc field. The recipient types in their account details and Square transfers the funds within 48 hours. A flat fee of 50 cents is charged to the sender and the recipient is not charged. Square is yet to make a formal announcement about their new service, though this should not be long in coming.
TransferWise is a London-based service that uses the same peer-to-peer networking principle as Skype (indeed, one of the founders was Skype’s first employee). The service is likely to appeal to anyone who wishes to send money from one country to another without paying the 5% fee associated with bank-to-bank currency conversions. The idea is simple enough; TransferWise acts as a low-cost broker to convert funds from one currency to another at the more favourable mid-market exchange rate. The customer transfers the funds from their bank account to TransferWise who converts the funds into the desired currency then deposits it into the recipient’s account within 48 hours.
- Bitcoin is a somewhat mysterious and controversial payment system. It is a “crypto-currency” that relies on decentralised peer-to-peer technology to fully anonymise transactions. While it’s not the only crypto-currency around, it is certainly the best known. Bitcoins are purchased with regular money from an online broker. The customer makes an over-the-counter bank deposit into the broker’s account. The purchased Bitcoins are then deposited into an escrow account, ready to be paid to a vendor on successful conclusion of the sale. Bitcoins are completely untraceable, a fact that annoys governments and regulators no end. This libertarian ethos makes Bitcoin the currency of choice for people trading on Silk Road, the online black market on the Deep Web where illegal drugs and other contraband can be purchased. But not every vendor who accepts Bitcoins is trading in illegal commodities - a growing number of legitimate vendors are accepting crypto-currencies because some customers insist on extreme privacy as a matter of principle.
As more people in developed and developing countries participate in the global economy, we are going to see a proliferation of digital currencies. The ones reviewed here are just the beginning.