Disruptions in Money

On August 8, 2012, there was big news in the world of payment. Starbucks, the coffee chain that brought double decaf lattes and mocha Frappuccino to almost every street corner in every big city in America, announced that it would begin processing all credit and debit card transactions using Square. It also announced a $25 million investment in the company. Square, Inc., launched in 2010, was the brainchild of Jack Dorsey, the web application developer who arguably changed the course of history with Twitter. This microblogging service proved its mettle beyond announcing the most banal of affairs ("coffee@#grncafe xtra good today!"), when people used it to help locate disaster victims after the 2011 Fukushima earthquake in Japan and to facilitate mass mobilization in the uprisings in the Arab world and the Occupy Wall Street movement later that same year. Twitter was a sensation: allowing users to send messages only 140 characters in length, from virtually any computing or mobile device, it is the kind of technology that is so simple you wonder why no one ever thought of it before. Square, Dorsey's second child, so to speak, is similarly genius: a small plastic square contains a magnetic stripe reader that detects and transmits the data stored on credit and debit cards through the earphone jack of a smartphone. Presto! Your phone has become a card reader; you have become a merchant capable of accepting credit and debit card payments. The technology is small, and the action it requires is familiar. It relies on a behavior — swiping a card — to which almost all consumers in the developed world have become accustomed. It does not require any new infrastructure save the tiny plastic square you plug into your earphone jack. Like Twitter, the technology takes a back seat to the functionality it affords.

Existing behavior. Existing infrastructure. Backgrounded technology. These three key elements can be found in another mobile phone-enabled payment system, but one that hit the scene several years before Square and that reached a scale so dramatic that even Dorsey would be impressed. This is M-Pesa, a service launched in 2007 that permits users to send money to others via a text message on their basic feature phone. The year 2007 is ancient history in the world of application development: consider the fact that the first iPhone was also released in that same year. M-Pesa revolutionized money transfers in Kenya, the site of its initial launch, and sparked enormous interest among development agencies and philanthropic organizations in the potential of the mobile phone to contribute to people's lives by providing them basic, safe, and affordable financial services.

In countries where bank branches are few and far between, and where they are only within reach of the relatively well-off anyway, having your phone serve as your access point for basic financial services like savings and money transfer can change your life. Indeed, in Kenya, by 2011, M-Pesa was in use by more than 50 percent of all households, and had processed in that year more transactions within Kenya than Western Union had done globally.

Like Square, M-Pesa harnessed existing technology and behavior: in this case, the text-message capability of all phones, and the everyday activity of sending a text message. It is simple. The technology is in the background. But the results have been profound. What is at stake is not just technological change or convenience, but bringing the poor and marginalized into the formal financial sector — for good or ill. The global financial crisis that began in 2008 may have given the lie to the goal of incorporating people into the formal sector. And banks have a terrible track record with the poor. At the same time, the alternatives to formal banks may not be much better and may expose people to increased risk of theft and high fees for informal money transfer or lending services. Certainly for the poor in Kenya, M-Pesa filled a need, solved a problem, and was widely adopted.

For its part, the payments industry — both the legacy players like the card networks and banks and the new "disruptors" — have long tried to convince people that cash is bad. Whether they tout its filthiness (and it is pretty dirty) or tell stories about its general disreputability (who walks around with a suitcase full of hundred-dollar bills? who really uses the 500 euro note?), they have a business interest in getting people to switch from cash to plastic or other electronic means of payment. Of course, their business models are based on transaction fees or, increasingly, transactional data for marketing purposes. Cash may come with costs, especially for the poor. Cash is cumbersome to transport and count, especially for businesses that take in a lot of it. But cash has a characteristic that other means of payment do not: it settles at par. That is, when I pay you a dollar for something, you get a dollar; not 99.8 cents (20 basis points or .2 percent off the top, the current rate for Visa debit transactions in Europe). One dollar, no more, no less. Cash is a state-based system, and it is publically mandated to settle at par. We pay a price for noncash transactions. How should such a price be set? By whom? And who bears the cost? If we want to imagine a nonstate system, say, bitcoin, then what? Who ensures it works properly, and consistently? What happens when something goes wrong?

What is at stake is a matrix of questions: along one axis, whether new technologically enabled systems create second-class banking or even second-class moneys, whether cashlessness promises real benefits or merely another way to bilk people or profit from their digital personal data. Along another axis, whether the state has a role in money and payment, and what that proper role shall be. These are big questions, political questions, at the heart of the infrastructures of money.

Hype and Hope

In 2012, Square introduced its Square Wallet application for smartphones. No plastic square needed, one saves one's credit or debit card information with the application. When you are at a store that accepts this means of payment, you simply appear at the register and provide the clerk with your name. The clerk hits a button and you've paid. No extra device; no fumbling with your phone; nothing, payment is as simple as showing up. As with the Square card reader, Square Wallet was promising for three key reasons. It backgrounded the technological innovation, so the technology would not interfere with its use. It leveraged existing functions within the phone — in this case, the geolocation services that help you find stores near you that will accept the service, and that would allow the clerk's terminal to recognize that you (or, rather, your mobile device) when you enter the store. Finally, it did not demand any new behavior from its user. After all, you probably say your name a few times every day ("...