License To Pay

When you pay for your cumparaturi with a plastic card, you perform a cashless transaction.
This system has a long history with many chapters.

Bartering was once a standard- method of payment used around the globe long before currency was introduced. A farmer would bring a chicken to town in exchange for warm clothes for his children for instance. In modern times, bartering is used primary in times of crisis as recently in Greece, when banks were shutdown.

As far back as the late 1800s, consumers and merchants exchanged goods through the concept of credit, using credit coins and charge plates as currency.

The first plastic money was a ‘debit card’ named “Charge-It,” introduced in 1946 by John Biggins, a banker in Brooklyn, New York. Purchases could only be made locally, and Charge-It cardholders had to have an account at Biggins’ bank.

The first ‘credit card’ came 4 years later. Frank McNamara was dining with clients and realized he had left his wallet at home. His wife had to pay the nota and McNamara thought of a way to avoid similar embarrassments in the future.
He founded ‘Diners’s Club’, the first bank-independent credit card. The card was named for being a “club of diners” that would allow patrons to settle their bill at the end of each month through their credit account.
When the card was first introduced, Diners Club listed 27 participating restaurants.

Debit card vs credit card

Most people in Romania have a ‘debit card’ to pay for goods in shops and to withdraw money at cash machines. The money is automatically taken from your current account when you spend it, so you must have enough money in your account or an agreed overdraft to cover the transaction.

A ‘credit card’ on the other hand is a credit facility that enables you to buy things immediately, up to a pre-arranged limit, and pay for them at a later date. The cost of the purchase is added to your credit card account and you get a statement every month. You can use credit cards also to get cash from the bancomat but it is cheaper to use debit cards.

Mastercard vs Visa

Your debit card is most likely a Mastercard or a Visa. The first thing to understand is that neither Visa nor Mastercard actually issues or distributes the cards. They are issued by your bank. Visa and Mastercard are networks that process payments between banks and merchants for purchases made with the cards.
When it comes to deciding on Visa or Mastercard, it’s thereby more important to consider what the issuing bank is offering. The difference between Mastercard and Visa lies more in the structure of the two companies.

Mastercard is a US public company, listed on the New York Stock exchange. It has shareholders (mostly institutional) and a board of directors like any other listed company such as Apple, General Electric or IBM.

Visa (Europe) was since 2007 a non-public “co-operative” owned by its members, about 4000, who are largely European banks and payment providers. Visa (Europe) is headquartered in London and had a separate legal entity and separate ownership control and governance from the american Visa Inc. Until November 2015, when Visa Inc acquired Visa (Europe) for 23.4 billion USD to create a single company.

Both organizations act as the middleman/regulator. Banks play a dual role as both a supplier and a customer and in the case of Visa (Europe) they have an additional key role as owner and director.

Currently, about 1.5 billion payment cards are in circulation in Europe. With 42.9% of payment cards in issue in Europe, Visa is slightly ahead of Mastercard (42.6%).

In contrast to Visa and Mastercard, a card company like American Express (Amex) is a stand-alone organization that issues its own credit cards and has built its own card acceptance network with millions of merchants worldwide.

But Amex often charges merchants higher fees than Visa or Mastercard. It is not perfectly legal, but sometimes you can negotiate with a merchant (who’s accepting Amex) for a better price when you offer to pay with Visa or Mastercard.

Banks – just like the bookstores?

The way we pay cashless is most likely to change soon. Banks charges fees for the service, but fintech companies are pushing the payment industry to the next level.

Just like Amazon cut the traditional bookstore out of the value chain, fintech is tackling the traditional banking system.

Antony Jenkins, the former CEO of Barclays, has a nightmare vision for the future of big banks. Jenkins says a series of Uber-style disruptions in the industry could shrink headcount at traditional big banks by as much as 50%.

Whether it will be that bad, or if the banks and card-companies will come up with innovative solutions to keep their marketshare – expect a new chapter in the long history of cashless transactions to open soon.

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