Payments E-Book

Edson Luiz dos Santos

• Herausgeber: Linotipo Digital
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 176

Veröffentlichungsjahr: 2018

Beschreibung

"By doing the connection between the starting points of man's commercial behavior with the present day, the author does not show this legacy as the result of research or observation, but of an intense experience, of those who have participated in this theater not as a mere adjunct but as an actor of first magnitude", as says Reginaldo Zero, president and CEO of Fidelity Processadora e Serviços SA. It begins with the interesting history of money from the 7th century BC until it reaches the mobility of today and the digital universe of the future. It tells us in detail this evolution in a way that the reader can understand the complexity of payment activity and establish the connection between past, present and future. By reading this book, readers can understand how the structure of the business chain works and for those interested in knowing how technology has been modifying and accelerating the human need to pay and receive in a highly globalized world. In this way, it is strongly recommended reading to people who, directly or indirectly, are linked to the financial sector, and especially to the payments segment. The book has objective and accessible language and the text flows with lightness, being easy to understand even for those outside academia.

Leseprobe

PAYMENTS

THE EVOLUTION OF MEANS OF PAYMENT

EDSON SANTOS

PAYMENTS

The Evolution of Means of Payment

Copyright © Edson Luiz dos Santos, 2017. All rights reserved

EDITORS:Laerte Lucas Zanetti e Luiz Márcio Betetto Scansani

ASSISTANT EDITOR:André Assi Barreto

PRODUCTION COORDINATOR:Laerte Lucas Zanetti

COVER:Rogério Salgado/Spress Diagramação & Design

COVER DESIGN:Moeda romana. © claudiodivizia/iStock by Getty Images

TEXT EDITION:André Assi Barreto

TRANSLATION INTO ENGLISH:Francisco Augusto Júnior

TRANSLATION CORRECTOR: André Assi Barreto

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior permission from the publishers.

2017

Linotipo Digital Editora e Livraria Ltda.

St. Álvaro de Carvalho, 48, cj. 21

Zip code: 01050-070 – Centro – São Paulo – SP

www.linodigi.com.br – 55 (11) 3256-5823

This work is dedicated to my family, especiallyEmilia, Rafael, Renata, Guilherme and Gustavo,My true treasures

Preface

Talent always thrives. It’s a matter of time. And the right time has come, with this book by Edson Santos. The reader will agree with me.

I do not know how it was conceived, but I guess it was during breaks between battles. It has to be so, because his busy life at work leads me to this conclusion.

I am honored to preface such a magnificent book, able to positively influence the lives of the readers. By making a connection between the early commercial behavior of man and the present day, the author does not leave us this legacy as a result of research and observation, but an intense experience of someone who has acted in this play not as a mere supporting actor, but an actor of first rank.

In today’s world, the speed with which information is transmitted makes us eternal students. Whether we are beginners or not in this complex world, we still have much to learn from reading Payments- The Evolution of Means of Payment.

The author outlines a clear, discerning and didactic historical perspective of the evolution of means of payment, showing the ability of an experienced man. It all starts with the interesting history of money from the seventh century BC and ends in today’s digital world and tomorrow’s mobility.

In my opinion, Edson wrote a book that is a must reading for those who enjoy trivia, lay people who want to learn more and scholars who want to better understand how technology is changing and accelerating the human need to pay and receive payment in a highly globalized world.

I think any of us would like to have written this book. I personally knew the talent of Edson as a speaker, but not his ability to condense into a single book such an exciting and vast subject with so many ramifications. In doing so, the author opens a wide field that many professionals will surely follow.

When I read, for instance, “The brave new world of cards” (Chapter 2), I was able to realize with some amazement that life has given me the opportunity to live in this extraordinary world filled with extraordinary people who changed to much better the lives of Brazilians buying products or services in Brazil or around the world.

It was worth remembering, because I thought of all the challenges that professionals in this industry had to overcome to get here. I met Edson at the time he was defending the interests of the sector representing ABECS by the year of 2000.

You are welcome to stop, take note and enjoy the reading of “Payment Cards: A Two-sided Market” (Chapter 3), as understanding it is absolutely necessary for you, the reader, to understand the role and importance of credit card brands in the general context of means of payment. Read with special attention “Means of Payment in the Future” (Chapter 8). Words such as encryption, authentication, tokenization, biometrics, NFC, Mobile Payment and Bitcoin are there haunting our present to illuminate our future. Please be patient, because technology is something that can neither be overestimated in the short term nor underestimated in the long term. Things just do not happen in it. They happen before our eyes.

I am sure that reading this book will be beneficial, informative and motivating. It complements, in a structured way, the learning of all those who work behind the plastic money curtains. No matter what generation they belong, a thousand years hence there will always be someone buying and someone selling something.

The reader will not be the same after reading the last page: This book offers us a reading able to influence our thinking, since life is limited by insurmountable economic realities to which the various means of payment contribute a lot.

Edson, thank you for sharing your practical insight into a complex issue. Thank you for enhancing to simplify.

Reginaldo Zero

President and CEO of Fidelity Processadora e Serviços S.A.

Table of Contents

Chapter 1

HISTORY OF MONEY: ENHANCING TO SIMPLIFY

Commodity money as payment

Paper money

Monetary system

Rise and fall of checks

Chapter 2

THE BRAVE NEW WORLD OF CARDS

Simplifying to go mainstream

Operational advantages

Associations

Cards in Brazil

Joined forces

Chapter 3

BANKS, ASSOCIATIONS AND MICROECONOMIC THEORY

Innovations expanding borders

New paradigms and the role of each player

Payment cards: a two-sided market

A new way to see the market

Chapter 4

DUOPOLY ON ACQUIRING BUSINESS

A concentrated market ... and suspicious retailers

The case of the United Kingdom

Chapter 5

FRAUD – FROM CARBON TO MALWARE

United we stand, divided we fall

History of Microchips and EMV

E-commerce fraud

Mass data theft

The US market

Mobile Commerce

Chapter 6 

REGULATORY ENVIRONMENT

The Origin of Interchange Fee

Regulation of New Currency

Brazilian rules for virtual currency

Chapter 7

FINANCIAL INCLUSION

Access for all

Inclusive Actions in Brazil

Chapter 8

MEANS OF PAYMENT IN THE FUTURE

Innovation vs Tradition

One step further

The origin of Bitcoin

Mining

The dance of values

Acknowledgments

Introduction

To venture causes anxiety, but not to venture is to lose one’s self.Soren Kierkegaard

Inever liked working alone, always preferred interaction with other people and the exchange of ideas. I feel very comfortable when I speak in public. However, what is naturally easy for me has become a difficulty at the time of writing this book. By interacting with the audience, I get feedback and questions right away, and then I modify the language, redo the explanation and, thus, achieve my goal. I missed this interlocution at the time of writing. Hence, perhaps, one of the reasons this book took so long to be written.

In fact, the process can be defined in four moments. It started being produced in 2006 when I was working at Redecard. At the request of Dr. Ana Lucia Barros, we set up a lecture for the law firms that attended us about how the market of means of payment worked. This lecture was filmed and transcribed by friend and filmmaker Sergio Martinelli, and would become the main line of the book that I always wanted to write. But I could not devote myself to it for the next three years because I was always involved in new projects and many trips. In 2009, I tried to get back to the text, but that was a time of many changes in the scenery, so I thought it would be better to wait for everything to calm down. In 2012, my work interrupted a new attempt.

Great editors say that if you have an idea for a book, you have nothing. There is no copyright for ideas. While a book is not written, it is only a project. And as I never leave projects eternally resting in drawers, in the middle of this year I have taken up the challenge of completing this work whose proposal is not to exhaust the subject, quite the contrary, but only to open the discussion.

I consider myself pragmatic, because I learn with practice and the solution of the problems that I encounter along the way. I seek knowledge only of what I need – or as my curiosity demands – I am not an intellectual or an academic. When I read, I live what I am reading, I surrender and try to get new learning out of it. However, it makes no sense to experiment without theorizing, knowing without dividing. Those who live with me know that they will teach me and, in return, learn something as well.

This book was written with care and affection, seeking to clarify, inform and open discussions based on everything I learned from the people with whom I had the happiness to live. I talk a lot about credit cards in it, but it is not my purpose to discuss the issue of credit or the banking system here. My experience has never been tied to this.

I know that many may not agree with some of the ideas set forth here and might be quite critical of them, but I sincerely believe that the diversity of opinions and thoughts adds to knowledge.

After eight years with this book in my head, writing it required total immersion and a huge effort. But when I finally finished it, the sense of accomplishment was so overwhelming that I posted immediately for family and friends “I feel good!”. That was exactly how I felt, fulfilled. I fell in love with the baby! I hope you enjoy this work.

Edson Santos

São Paulo, September 2014.

CHAPTER 1

History of Money: Enhancing To Simplify

What is simplicity? The dictionary defines it as “a natural and spontaneous behavior,” or “absence of complications”. However, the answer can be quite difficult when it comes to assessing the history and achievements of mankind on the planet. It all started in the caves, when man was still a primitive being focused only on meeting his most basic needs for survival, such as protection against cold and the search for food to satiate hunger.

Everyday life in prehistory was ordinary and aligned with the animal world. Being born, growing, procreating and dying were natural stages, without any reflections or concerns, except the concern with physical protection. There was, however, a discordant element in this conception of paradise: the human mind, which developed from observation and perception of each of the five senses, man’s inseparable accomplices, in the evolution of society and, in particular, the means of payment.

If necessity was the mother of invention in various fields of human knowledge, certainly in terms of money, it was the mind that conceived innovation, roused possibly by gluttony, or as they say, eyes bigger than one’s stomach. Didn’t you know? Many women today say that the way to a man’s heart is through his stomach. Maybe they are evoking a visceral memory of the first exchanges of their ancestors, made due to the desire to diversify the menu of the day. The Aztecs, for example, were very fond of chocolate and, like them, other civilizations gave way to exotic foods, turning them into a kind of “currency” with exchange value. Credit card was also born on a dining table, but this is another story, to be addressed in the next chapter.

Our early ancestors ate what they hunted or fished and had no concerns with dwelling, since they lived in the caverns. But it did not take long for these characters to begin the trajectory that would mark the history of mankind: the relentless pursuit of survival through social interaction. And the first step – or the first economic rule, if preferred – was the need to exchange products, objects or even services.

That was the beginning of barter: the simple exchange of one commodity for another, with no equivalent value and without the use of money, which became the first expression of the world economy.

At first, each community or people defined their bargaining chip. When fishing was plentiful, and the fish came in greater quantity than the community could consume, they turned into a bargaining chip for something in another community that had been planted or harvested in excess of what they need to eat. The common exchanges were leather for wool, corn for potatoes, sugar for tobacco, just to name a few. The interesting thing in this still precarious form of economy is that the goods normally used for bartering were in their natural state and corresponded to the basic needs of those people.

While barter – at first with the use of natural products only – was expanding the range of basic needs of mankind and creating needs that were then unknown, the community also evolved in the direction of the means of production. Humans began to build tools and cultivate the land, entering a new stage. The rudimentary senses no longer governed their minds, as they began to establish a concept of value to things, intuiting exchange criteria.

COMMODITY MONEY AS PAYMENT

The time and the specific needs of each community changed the goods used in trade. Thus, meat, salt, sugar, tobacco and cotton cloth got the status of commodity money from one region to another.

Cattle, especially the bovines, stood out for hundreds of years as commodity money, since it had three advantages over the others: moved alone, reproduced easily and was also used in the provision of services. The use of cattle in commercial transactions (pecus in Latin) gave rise to the words pecunia (synonym of goods and wealth, which is translated into “money”), pecuniary value and peculium (accumulated money, equity).

But no one knows for sure when salt was discovered. There are records of its use seven thousand years before Christ. As soon as mankind came into contact with this product, it soon discovered that it was vital for its survival, because in addition to seasoning meats and vegetables, it was able to inhibit the proliferation of micro-organisms and increase the shelf life of perishables, ensuring preservation of many foods.

As it was difficult to obtain, especially in the interior of continents, salt soon became very desired, contributing a lot to the evolution of economic history as it made mankind think, for the first time, of the possibility to use it t beyond exchange: as a “means of payment”. It soon came to be used to pay for the work of Roman soldiers, giving rise to the term “salary”.

I had never understood right a fairly common belief among descendants of the Italian Romans: the belief that it is bad luck to pass salt from hand to hand at lunch or dinner. For them, you can just get the saltshaker when it is on the table. Only by studying the history of financial transactions did I realize that this custom arose at the time Roman soldiers were paid in salt. It probably should be packed in leather or tissue bags in divided amounts according to how much each soldier should receive. The payment involved two parties: the payor and the payee. What would happen if, in the midst of this process, the bag fell and the salt spread on the floor? Who would suffer the loss? I believe that the thing was more or less like this: “Do you want to pay me? Then put the salary on the table and I will catch it under my responsibility.” Maybe the concept of “finality” arrived on the scene at that time – referring to the irrevocable and unconditional financial transaction.  

Historical assumptions aside, even so, most of the goods was easily perishable or difficult to transport, which caused large swings in values, not allowing the accumulation of wealth. Moreover, that was just the beginning of a new economic process that would substantially change the relationship between man and society.

Barter and colonization 

Going forward to more recent centuries of human history, in Brazil and in several other colonies around the world, barter was intensely used in the first moments of contact between the small communities that inhabited the discovered lands and their pioneers. In Brazilian territory, the relationship between Portuguese, Spanish and French with our indigenous peoples was pure barter. In exchange for brazilwood, the Europeans offered mirrors, cutlery, knives and all kinds of shining trinket to attract wildlife interest.

Our Indigenous peoples, for example, had no intention or interest to accumulate goods or wealth. They used to do any activity or work to get what they wanted, and then rested. That was the main reason the barter system lasted for a long time between European settlers who arrived here and our tribes.

In more primitive ages, when a type of commodity money became of value, the demand for it increased. The need for man to find a medium of exchange or even a type of goods that were accepted by all arose.

The discovery of metal changed man’s life. The demand for metal utensils increased and metal began to have its weight measured and its purity evaluated as currency. Later on, it gained a definite shape and a particular weight, besides containing inscriptions of the one responsible for its release.

The precious metal had three major advantages over the then currency commodity: divisibility, beauty and ease of transport, besides of its scarcity. Initially it was exchanged in its natural state and then came to be used in the form of bars or rings, chains or bracelets. Anyway, it soon allowed people to accumulate wealth and governments to successfully collect tax.

The first coins were minted in copper in the 7th century BC, in Greece, giving birth to the era of “money”, favoring the contact and trade between the peoples and the dissemination of knowledge. The first copper coins had the image of an ox, then the most coveted object of exchange. Croesus, king of Lydia (now Turkey), was the inventor of money, which strengthened and boosted trade across the Mediterranean. The State became in charge of establishing and legitimizing the value of unity, which derived from logical thinking: the more valuable the metal and the heavier the coin, the greater value it had.

Rome did not take so long to follow the example, producing coins in pure silver to pay the army and organize the finances of the empire. From 64 AD, the need to raise more funds made emperors mix this material with other metals and was the first inflationary effect, the economic consequence of which was the weakening of the empire.

So, it was not “the mouse that gnawed the clothes of the king of Rome”*, but inflation. At that moment, it is important to know that metal had three major advantages over other currency commodities. The first was – and still is – divisibility; the second, its attractive capacity – leading Uncle Scrooge to fill a tub of gold coins for the simple pleasure of seeing them shine -; at last, ease of transport.

In the times before Christ, the coin was developed with these requirements quickly allowed people to accumulate wealth and governments to successfully collect tax.

Reflecting the mentality of an era, coins have become icons and began to incorporate images depicting leaders, which gave rise to the classic game “heads or tails”. On one side, the coin stamped its value and, on the other side, a celebrity, like Alexander the Great of Macedonia. He was the first historical figure portrayed in a coin around the year 330 BC, and his great merit was to bring the news to the conquered territories and thus expand its use.

Gold and silver were the first metals used to mint coins. The choice was not accidental. According to the standards and religious customs of that time, gold was closely linked to the sun and silver to the moon, which gave magical power to these metals. Anyway, despite the influence of religion, the two metals also represented values that society sought for its fledgling economy, which were beauty, rarity and immunity to corrosion. And especially gold as a coin, a major object of desire as it has always been, was regarded as special because it could not disappear, wear out and did not require maintenance, nor was its integrity or purity lost when divided, keeping its value virtually unchanged.

Official coins, mainly minted in gold, expanded soon and became commonly used throughout the civilized world. For centuries coins were minted only in gold and silver: gold was used in higher value coins, while silver and copper in those of lower values. Only in the eighteenth century other metal alloys such as nickel began to be used to mint coins, when its value became independent of the value of its constitutive metal.

A curiosity is worth-mentioning: if other metals (including aluminum) did not lose their integrity, divisibility and rarity in nature either, why has gold remained so long as such a noble material? Because of its scarcity; also because it is the only yellow metal found in nature and soft enough to have its authenticity easily proved for example, by a bite. This proves that, since the beginning, the rarer the thing is, the more it becomes desired and valuable. Whenever something becomes difficult to obtain, the demand for it increases, thus increasing its value.