Money goes on wire

 Money Goes on wire

Paper was still used for payment messaging and bookkeeping when the US Federal Reserve was founded in 1913. What happened next is so important for the history of money that it merits recounting in some detail. The reader will pardon a few technicalities and a brief step back in time.

After the demise of the Second Bank of the United States (1834), until the Civil War the United States practiced what we called "free banking." A single monetary denomination, the US dollar, had existed since the Founding Fathers. Its name was inherited from the Spanish American colonies, and with a root ("Tal," or valley) deriving from the German location where silver mints were originally located. US dollars were available in two forms, coins minted in species and paper notes issued by banks. US dollar coins were minted only by one federal institution and were thus the same everywhere. However, banknotes were issued by many different private banks and were not always exchangeable at their nominal value.

Banknote issuance by private banks always embodies an inherent conflict between the necessity to keep their value stable in terms of gold and the temptation to issue more banknotes as a cheap form of finance. Banks were chartered by states, hence their trustworthiness depended on their own intrinsic soundness and the financial condition of the respective state. By and large, banks located in northern states (like Massachusetts or New York) were sounder than those in southern and western states (e.g., Alabama, Louisiana, but also Wisconsin). An astonishing one-half of all the banks in that region went out of business during the free banking period, and in one-third of the cases depositors suffered losses.

time there were very few bank failures in New York and other northern states. It is thus not surprising that the banknotes issued by banks in these states traded closer to par.

The southern states had resisted tighter regulation fearing that their banks could not compete. But after the Civil War their influence declined, and the more financially conservative northern states prevailed. With the National Banking Act of 1863, this arrangement changed in two ways. First, the Union started issuing Treasury notes with legal tender status. Once the war was over, those banknotes were naturally more trustable than the ones issued by banks. Second, to strengthen the banking system, banknote issuance was restricted to a limited number of authorized "nationally chartered banks," subject to control by a newly created federal supervisor, the already mentioned Office of the Comptroller of the Currency. This institution printed all banknotes, thus guaranteeing their physical quality; it also supervised the national banks, ensuring they had sufficient capital and a sizeable portfolio of Treasury securities. This legislation, extended to the whole nation after the end of the war, de facto ended the "free banking" era, by establishing a much tighter federal control over banknote issuance. But, as we shall explain, it did not yet give rise to a fully integrated dollar system in the whole US territory.

In spite of the single monetary sign, the actual value of dollar banknotes differed from one place to another: by a lot under "free banking" but still to some extent after the Civil War. The reason was technological and institutional. Monetary transfers could not be faster than the time needed to move paper notes across main trading cities - New York, Chicago, and New Orleans principally, but also Kansas City, Savannah, Detroit, and Omaha. Travel by horseback took several days, preventing arbitrage from equalizing monetary values across different locations. It was also risky: Stagecoaches were occasionally attacked by bandits, as we learn from Western movies.

Absent a central bank, transfers took place not on the books of a central clearinghouse but on those of the banks themselves, through "correspondent" account banks maintained vis-à-vis one another. The US monetary system, far from being the unified whole it is today, was in fact a sort of "domestic Gold Standard" where dollar parities depended on paper or even gold transfers across cities. Parities fluctuated within bands defined by "paper transportation points," or "gold transportation points," which depended on the times, costs, and risks of moving paper or gold from one place to another. The US inner system worked like a miniature of the international monetary system.

Gaps in dollar values were to be completely removed between 1913 and 1918 by the combination of two innovations: one institutional, the creation of the Federal Reserve System (Fed, in short), and one technological, the wired fund transfer network among Fed regional branches. Called the Leased Wire System then, the system is today normally referred to as Fedwire.

Before 1913, exchange between traders at different locations required movements of valuables, either gold or trusted paper certificates, like Treasury notes or banknotes. Bank correspondent relations intervened to simplify these trades and reduce their costs. The traders in the two cities would adjust their deposits at the local bank, and the banks would settle the amount on their correspondent accounts. Correspondent banking, largely superseded within-country today, still dominates international transactions, as we will see in Chapter 12.

Transportation costs could thereby be eliminated, but in practice their elimination required two conditions never completely fulfilled: seamless communication and full reciprocal trust between the two banks. Correspondent banking did reduce geographical differences in dollar parities but did not eliminate them entirely, the remainder depending on the efficiency of the transmission technology in place. Parity fluctuations also depended on whether paper or gold was actually transferred since transportation involved significant costs and risks.

The situation changed after the creation of the Fed and its Fedwire system. After that, both banks had accounts with the central Fed's regional offices at the two locations. The transaction no longer required movements in correspondent account; bank settlement happened more swiftly and securely through changes in the bank's accounts with the Fed regional offices, settled eventually on their central accounts. A Gold Settlement Fund was also created, eliminating gold transfer costs. Effectively, the Federal Reserve System became the correspondent bank of everybody.

This new arrangement was vastly accelerated by the best technology of the day - telegraphic communication. The immediate result was that dollar values stabilized and parity differences across regions permanently ceased. The United States had, for the first time, a unified monetary system.

These two reforms transformed the domestic US monetary system and the form of money itself. But they did not make paper and gold disappear. The link of the US dollar with gold remained, save for the wartime period, to anchor the value of the currency to a tangible commodity possessing intrinsic value. The Gold Standard would be abandoned by the United States and all other nations only later, during the Great Depression of the 1930s. Paper money expanded its circulation among ordinary household investors, in the form of personal checks as well as banknotes. Wire transmitted technology was not yet accessible to individuals, limited for the time being to central bank and interbank transations.

Payment Finality and the Role of Central Banks

The transition just described brought another and deeper change, regarding the "finality" of payments.

Payment finality is a crucial feature of any well-functioning monetary system. A payment is "final" when the receiving side is confident that the sum involved is unambiguously and irrevocably in its possession. In other words, when the receiver of the money (the payee) considers that the sum is definitively owned, free of the risk that the payment be reneged or reversed by the giver (the payer). Evidently, reaching finality fast is vital, especially from the payee's side.

In the system that prevailed in the United States between 1834 and 1863, a payment was final only when the payee had in their hands the corresponding amount of gold - not banknotes, because banknotes were subject to banking risk. After 1863, federal banknotes redeemable in gold or equivalent certificates were suitable surrogates for gold, but still some cost and risk premia persisted across different locations. After 1918, the mechanism ensuring the finality of US dollar payments changed. Once the regional Fed at the payee's location received the sum in its Federal Reserve account, it meant that the regional Fed of the payer's location had released that amount and therefore the commercial bank involved was assured that the importing trader had delivered, or was certain to deliver, the corresponding amount of gold or trusted notes. At that moment the payment was final. The authority of the Federal Reserve and the way the system worked acted as a substitute for the physical possession of species or Treasury notes.

In essence, telegraphic messages substituted gold or paper as a means capable of enacting final monetary transfers. If by "money" we intend the instrument through which final payments can be made, then in the new system electrons travelling on wire had effectively replaced tangible objects like paper and gold as legitimate monetary representations.

Note that "finality" implies nothing about the "real" value of the sum involved, in other words, about how many goods and services that sum can buy. Finality is a "nominal" concept, simply meaning that a certain number of monetary units have changed hands. The "real" value depends on the price of goods and services evolved. It is entirely possible that a final payment may deliver a sum that can later buy fewer goods than originally thought if the price of goods and services in the meantime has changed. The link to gold provided by the Gold Standard in that period was precisely intended to ensure that the "real" value of money would be preserved through time. In a rather imperfect manner, we should say, since the price of gold itself is very unstable relative to the prices of most goods and services that people normally buy.

By all accounts, Fedwire is one of the most enduring and successful monetary infrastructures in history. 

It still operates today as the backbone of the US dollar, supporting not only the domestic economy but also the international role of that currency, which has grown constantly and massively after World War II. Fedwire was a precursor, but it did not remain alone. Comparable systems were set up in other countries in the course of the following decades. Moreover, other systems have flanked it at a later time, also in the United States, with a complementary role. The most important is the Clearing House Interbank Payments System (CHIPS), a privately run system that processes large-value transactions among a limited number of large financial institutions. This system had become so important after the 2008 financial crisis that CHIPS was designated a systemically relevant financial market infrastructure supervised by the Federal Reserve. In all such systems, central banks perform a supervisory role and, in most cases, directly run the system.

The introduction of telegraphic payments in the United States and elsewhere was the first step in a process leading, over more than a century, to the later forms of digital currencies. Initially, wire-transmitted information arrived in Morse code transcribed manually by human operators. The transcription from Morse code had then to be put into the (literal) books of the banks. The operators reading and transcribing the telegraphic messages were carefully selected skilled professionals, but occasional mistakes were unavoidable. Great care had to be taken to ensure the accuracy of the recording. The transactions were recorded on the books of the twelve District Federal Reserve banks, which in turn had to communicate their balances to the Federal Reserve Board in Washington daily at 10 am. This represented a big improvement from the weekly settlement that had been possible earlier. The leased wire system could thus be characterized as electric but not digital. Digitalization came in only when the first computers arrived in the 1950s - a step we describe in a moment. Transaction information had to be digitalized to be processed; ever-faster computers gradually took over the processing work. The term "book entry" survives, but today it usually means an entry in an electronic registry.

Modern Real Time Gross Settlement payment systems generally imply that payments are enacted immediately, without the need for end-of-day netting and settlement. This speeds up the finality and enhances the certainty of payments. Again, this progress was made possible by the technical improvement in information technology, which now permits handling large numbers of payments in electronic form in fractions of seconds - another example of technology at the service of reliable and functional money.

Digitalization

Bank of America occupies a special place in the history of money. Today the second bank in the United States by assets and the fourth globally, if one excludes Chinese banks, with its presence in some thirty-five countries through nearly 5,000 business points, BofA - in short - offers its clients the full range of bank insurance services, from retail lending to deposit taking, from payments to investment banking, from merger and acquisition to insurance products, portfolio allocation, and more. That said, what makes BofA really special is its history. Unknown to many, the bank played a major role in the development of electronic and digital money.

An embryo of BofA was founded in 1904 by Amedeo Giannini, the son of Italian immigrants in California. He initially called it Bank of Italy, echoing the homonymous Italian central bank founded in Rome a few years earlier. Two years later the city where the bank was headquartered, San Francisco, was destroyed by an earthquake. Not discouraged, Giannini lent all the cash he had been able to save to small clients who wanted to rebuild homes and restart businesses. He believed in lending to ordinary people, not to the big guys. From scratch, starting from what was left after a major disaster, he turned his creature into the prototype retail consumer bank and one of the most prominent in history. At some point, he reckoned not unreasonably that in his whereabouts a name like "Bank of America" would probably sound more attractive. The merger with another start-up with that name gave rise in no time to the largest bank in the rapidly developing state of California.

After World War II, BofA faced a conundrum. The postwar recovery multiplied the opportunities for profitable banking and the number of payments. The rising flow of personal checks - some 30 million were written during those years in a single day - could not be processed with the techniques of the time. Each one needed to be processed manually by the receiving bank. This involved identifying the issuing bank and branch, verifying the signature, inserting the amount into a mechanical calculator, separating the checks drawn on the own bank from the others, and sending the latter to the Federal Reserve. The Fed would then distribute all checks to the respective issuing banks, where all controls had to be redone before debiting the account of each client in the bank's ledgers. All this by hand.

When Giannini died in 1949, BofA, already the largest bank in America, faced a crossroads: The burden of check handling was putting the future of the bank at risk. The solution came almost by coincidence. Giannini had enrolled as manager one Clark Beise, a man with a keen taste for technological solutions. A few miles away from headquarters, in Menlo Park, stood one of the main concentrations of applied scientists in the world: the Stanford Research Institute (SRI), a nonprofit unit with the mission of developing technological solutions for public institutions and businesses. The partnership between BofA and SRI would produce the next revolution in monetary history, and one of the biggest ever.

The Stanford researchers set themselves to design a machine capable of performing, within each business day, all main functions in the check-handling cycle: authenticity controls; identification of the parties involved (payee, drawer); recording of transactions; crediting and debiting all client accounts, rejecting blank or faulted checks; and updating all client ledgers. The task was complex, partly because the bank refused to modify the checks' format. Yet after five years Beise was able to announce the introduction of ERMA or Electronic Recording Machine Accounting - a giant mainframe computer weighing twenty-five tons, with 300 kilometers of wire and thousands of diodes and "vacuum tubes" - ancestors of modern semiconductors. The processing system included two critical advances: magnetic ink character recognition, or MICR, the code recording check number, account number, and amount, which still features in personal checks today; and the electronic ledger. Similar or better machines, produced by General Electric and other companies, were soon adopted by all major banks. The path to digital banking, eventually to digital money, was wide open.

Somewhat paradoxically, the advent of electronics did not make paper disappear from the monetary system; on the contrary, automation made processes easier and smoother. The role of checks was far from over at that time. We will tell the rest of their story later. But before that, we need to tell the story of another exploit of BofA, this time having to do with plastic.

While ERMA was cranking its first numbers, the era of money-on-cards was about to begin. That innovation was, once again, Giannini's brainchild.

From Paper to Plastic

According to a popular story, the credit card was invented in 1949 in New York by a finance executive named Frank McNamara. He went to lunch at a restaurant one day, and when the bill arrived, he realized he had forgotten his wallet and had to borrow the money. Back home he thought of a system where restaurant meals could be paid without cash: The Diners Club and the card that bears the same name were the results. This story is nice but rather implausible: When one forgets the wallet, the cards in it are forgotten too. A cellphone, a separate object less likely to be left behind, is probably more useful if equipped with an app or an e-wallet. But that marvel was still in the distant future.

Legends aside, one thing is certain. Around the 1950s the US financial system was ready for the next big leap: payments without cash or checks. As we have seen, retail banking was exploding, and personal clients were growing by the thousands every day. The economy was booming, driven by consumer spending. Banks were in pain to manage the torrent of checks coming in every day. The most ingenious of them, Bank of America, was on the verge of finding the right solution, moving check handling and transaction recording to a mainframe computer, and others would quickly follow suit. The road to technological banking was open and with it a world of lighter, more efficient, and secure means of payment.

The payment card, initially a toy for rich club members in a rich city, would one day become the most astonishing success in the whole history of finance. Visa and Mastercard, today's kings of the card networks, are worth more than most US banks by market cap. In terms of compatibility standards, the card is a miracle. The round-cornered rectangle measuring 85.6 by 53.98 millimeters (corner radius is 3.18 millimeters) is familiar to everybody, having been adopted in exactly the same shape world over. Even China, when it established its own card network, UnionPay or UPI, used that format. Unified global standards are elusive in many areas such as electrical plugs, cellphone recharge cables, and information technology operating systems. Not for "major" credit cards, which are accepted virtually everywhere. 

The initial Diners Card, while remarkable, was still quite archaic. For once, it was made of cardboard. Moreover, it was single purpose as it could only be used for meals at associated restaurants. Other cards issued in that period by stores shared that same limit. All payments had to be settled within standard cycles, typically a month. BofA made the big leap, once again. Its BankAmericard, introduced in 1958, was multipurpose: It could be used at every retail outlet, if, of course, the seller accepted it - which was very likely to happen, as we shall explain. As a second innovation, leveraging on its unique experience in the retail credit market, BofA added a revolving credit facility to the card. Cardholders were allowed to pay only part of the amount due at the end of the month, borrowing the rest from the bank at interest. Effectively, the BankAmericard provided two services, credit and a means of payment.

As the saying goes, imitation is the sincerest form of flattery. Other banks soon started to issue their own cards. However, smaller banks could not sustain the cost of setting up a card network. They thus formed the Interbank Card Association, which later became Mastercard.  Bank of America then had the choice of trying to continue on its own or to entice other banks to participate in its system. Bank of America was big, but it had only a fraction of the entire US banking market. Wisely it chose to open its system to other banks, which were nominally its competitors, and later gave up even control over the card it had invented to a cooperative involving many banks, which later became Visa. Bank of America thus avoided the fate of another large US bank that tried to impose its own standard for international transactions on others. We describe in Chapter 12 how this attempt led to the formation of a rival consortium of banks, known as the Society for Worldwide Financial Telecommunications or SWIFT.

The cooperation among banks made possible the dizzying expansion of credit cards via what economists call the "network effect": The more people use cards, the more retailers find it advantageous, and eventually necessary, to accept them, investing in the required technology, lest being driven out of business. The more this happens, the more other individuals feel compelled to have cards because they can be used everywhere. Imitation and competition lead to further expansion among retailers and consumers, in a self-feeding circle.

But there is more than this. Behavioral scientists have demonstrated that people using cards are more inclined to spend; they make more purchases and also spend more on each of them. Why?

One reason is related to what economists call "liquidity constraints": Simply stated, people like McNamara who have no cash on hand (or even in the bank) can still spend using a card, which in essence means buying now and paying later. Evidence shows that the effect is stronger if the card allows for revolving credit: The more the settlement is procrastinated, the softer the liquidity constraint. But this motive does not explain all: Even debit cards that clear instantly on bank accounts seem to produce a positive effect on spending.

Two cognitive mechanisms are at play. The first is called "pain reduction." Procuring banknotes, extracting them from the pocket, counting them, and handing them over to the seller or, alternatively, extracting the checkbook, writing and signing the check takes time and effort, increasing the buyer's awareness and the perceived pain from parting with the money. This makes the buyer more cautious and reluctant to spend. By contrast, handing over the card is faster and allows the buyer to psychologically separate the purchase from the payment, generating a momentary illusion that the purchase is not actually paid.

The other more subtle effect is called "step in the gas." Neuroresearchers have found that card spending stimulates regions of the brain called "dopaminergic reward centers," normally associated with other forms of excitement and pleasure. The reaction is akin to that associated with forms of addictive behavior, for example, the assumption of drugs or other forms of excitement. According to recent research, these mechanisms "expose important consumer vulnerabilities that will require attention as payment methods rapidly evolve.

The psychological reduction in the barriers to spending helps to explain the astounding success of credit cards. Another factor is that card payment costs are entirely borne by the retailer. The buyer normally is blind to the costs inherent in the credit card payment process. The price paid is the same regardless of the payment method used. The typical cost structure of credit card payments consists of a fee ranging between 1 and 3 percent

charged on the seller, which goes in different parts to the two banks involved, that of the seller and the one issuing the buyer's card. A smaller fee - but multiplied by a much higher number of transactions - goes to the card network, Visa, Mastercard, or others. Sellers usually have little choice but to accept the cost, lest they lose clients to their competitors. The buyer enjoys the pleasure of the purchase, including the psychological one, apparently at no cost. The word "apparently" is necessary, of course, because eventually, costs are likely to affect the purchase price one way or another.

Credit cards are an extraordinary brand marketing success. Most affluent consumers in the Western world have more than one. The cards we carry around are in reality issued by our local bank, not by Visa or Mastercard or whatever the logo that appears on them. It is logical that in reality banks issue the cards, because only they know how much credit we deserve. The credit card companies provide only the standard and the contact with retailers. This implies that the bank also bears all the risk. Spending more, especially if in a state of excitement, can lead to reckless spending beyond one's means. This in fact happened when credit cards spread in the United States. As credit card debt rose in relation to people's incomes in the 1980s and 1990s (from 0 to 10 percent in a few years), delinquency rose too, up to rates of 5 to 6 percent before the turn of the millennium and almost 7 percent during the Great Financial Crisis of 2008–09. Today's delinquency rates are back to around 1 percent, due to improvements in creditworthiness assessment methods introduced, again, as a result of new technology applied to money. We will return to this in a moment.

Brilliant inventions as they were, credit cards at first had very little technological content. The underlying processes were still "paper-based." Readers in their senior age probably remember the "click-clack" machine, a metal device with a rectangular base and a sliding bar on top. The retailer would impress the information embossed on the card on a triple carbon copied paper. One copy would stay with the merchant, one would go to their bank (for further transmission to the issuing bank), while the third was returned to the purchaser for their own records. Bank settlements still required considerable processing done by hand.

A turning point came in the 1970s, following a new technological breakthrough: the magnetic stripe, an imprinted string of electronically readable information. With that, the days of the triple-copier were counted: Paperless transactions took hold at a rapidly growing number of locations worldwide and cards became ubiquitous. "Don't leave home without it" - so went a well-known American Express slogan launched in 1975. The stripe was later to be superseded by the chip-and-PIN (Personal Identification Number), still in place in the 25 billion cards existing today in the world: an engraved microcircuit containing all the card's information and activated by a four-digit PIN.

Banks responded to the challenge by embracing cards but also by developing alternatives. Credit cards presented a challenge to conventional business models grounded on deposit collection and the associated payment services, like checks and money orders. Banknote hoarding competed with bank deposits, while Federal Reserve regulation still prohibited interest on deposits - the prohibition was lifted only in the 1980s. Withdrawing cash at the bank presented a hurdle: One had to physically go to the branch and probably wait in line. More sophisticated competitors were money market

funds (MMFs), offering interest-bearing instruments with automatic transfers to demand deposits. To maintain an edge, banks needed to modernize deposits by developing their "spendability." The response was twofold. The first was the automated teller machine (ATM). Inserting the electronically enhanced card in the machine, depositors obtained cash without trips to the bank and lengthy queues. The second was the debit card, in all appearance similar to a credit card but with direct clearance on the bank deposit. With a single chip-and-PIN card, the bank customer could, depending on need, obtain cash at the ATM or directly spend at retailers equipped with the electronic POS (Point of Sale), drawing on her bank deposit. Credit and debit cards were also available to enact purchases over the phone, a rapidly growing form of commerce impossible a few years earlier.

The commercial success of the debit card continues today. They are easier to obtain and use than credit cards because they spare the bank most of the complexities and risks involved in rating the client's creditworthiness. Their simplicity makes them suitable for unsophisticated users, hence increasing financial inclusion. Their expansion surpassed that of credit cards, especially in Europe, where banks play a central role in the financial structure.

Though each of the elements just described – the digital card, electronic computing, and wire communication – is relevant on its own, it is their combination that opened the door to real advancement in monetary arrangements, domestically and globally. What was still missing at the time we are describing here was a technology enabling computers to communicate with one another. The internet would fill this gap in the 1990s. In the meantime, while the system was growing technologically from a number of private initiatives, central banks were enhancing their oversight role, surveying the payment system, ensuring the "finality" of payments, and, after the end of the gold-based monetary standard in 1971, maintaining money's purchasing power.The private and the public side needed each other, and the efficiency and solidity of the whole system depended on the balance between the two.

Interestingly, while money was turning digital, two notable exceptions stubbornly persisted. Much like frogs and salamanders withstood the glaciations and floods that killed the dinosaurs and still populate our countryside, two monetary survivors outlived the digital age and persist today pretty much in their original form.

The first is cash: physical banknotes issued by central banks. Their extinction has been announced many times, but, similar to the death of Mark Twain, the announcement was always exaggerated. As we will show in Chapter 5, cash holdings are actually increasing almost everywhere in the world.

The second exception is personal checks. It may seem surprising that at a time when transferring money anywhere, quickly and safely, takes just a few touches on a cellphone, people still take the time and pain of writing and handling personal checks. But this is indeed what happens in one not-insignificant country: the United States. We discuss the endurance of checks in the United States in Chapter 7.

Before moving on from here, we should debunk a popular myth, or at least clarify a semantic misunderstanding. The word "digital" applied to money can mean two different things. Literally, "digital money" refers to digital instruments to enact payments and to maintain money balances as digital units (bits and bytes) in the electronic ledgers of central banks and private credit institutions. According to this definition, when the second millennium was nearing its end, the digitalization of money was already virtually complete. In the 1999 United States, the share of broad monetary aggregates – the definitions of money published by the Federal Reserve – held in the form of digitally recorded deposits or other forms of liquid instruments offered by banks had already surpassed 90 percent.

More recently, however, the popular press refers to "digital money" as monetary technologies developed outside the banking sector – mainly crypto and other related instruments. Here the discriminant is not digital technology but the decentralized nature of the platforms where these instruments are created and exchanged – the so-called Decentralized Finance, or DeFi. The same term is used to refer to the myriad of payment apps and platforms available today, mainly offered by tech firms. It is used, finally, for the central banking version of these apps, the central bank digital currencies or CBDCs, still in the planning phase. "Digital money" in this sense is a much more recent phenomenon, which continues to evolve and grow. We will describe these new forms of digital money in later chapters of this book.

Internet Closes the Circle

In the 1980s, banks had already started offfering home banking applications via phone or video. These facilities were never successful though, in part because of the imperfect functioning of the underlying communication infrastructures. Meanwhile, early eversions of the internet were starting to be used in the United States in certain circules, mainly to connect research 

communities and government agencies. In the 1990s and early 2000s, the Web became ubiquitous in business, finance, and the public at large. The global number of users exploded from 2 million to 400 million in the 1990s and up to 2 billion in the next decade. After the internet entered the communication ecosystem, banks started offering web-based facilities to perform basic banking operations without leaving home. Nonbank payment service providers also began to appear. Once more, self-propelled technological and financial acceleration marched together.

Providing a full account, or even a meaningful summary, of the universe of digital payment applications and platforms existing today in the world is nearly impossible. It is a virtually boundless and ever-changing universe. Some common traits exist, nonetheless. First, all the new payment tools are accessed from existing personal devices such as computers and, increasingly, smartphones. Second, communication transits through the existing mobile and fixed-line infrastructure. Third, this is possible only because of shared standards.

This convergence of operational standards is a notable feature of the present environment in contrast with historical precedents and confers an inherent momentum to the process. Consumers and merchants in earlier epochs used multiple processes to enact payments, depending on needs and transaction parties. No longer: Payment acts increasingly resemble one another and are similar to other acts of communication that pervade our daily lives.

The digital payments community is very large and constantly growing, in economically advanced areas and increasingly elsewhere as well. If one adds up the user numbers of PayPal, Apple Pay, and Google Pay, admittedly not a legitimate sum because many people use more than one platform, the total number is higher than the combined populations of the United States and Europe, the areas where those platforms are predominantly used. But less-developed areas are catching up: The single most important digital payment platform in Africa, M-Pesa, counts over 30 million users in Kenya alone, more than half of the country's population. Pix has become the dominant payment platform in Brazil. In China, the combined users of Alipay and Tencent (platforms used mainly in that country, though not only) account for far more than China's population. Cellphone payment apps prove particularly suitable for developing countries with large areas, sparse populations, and less firmly established fixed-line communication infrastructures.

One application merits a specific mention due to its breadth and functionality: the Single European Payments Area, or SEPA. This infrastructure, with an annexed legal regime, was launched in 2008 by the European Union with the principal aim of integrating payments across eurozone countries. It covers thirty-six countries, well beyond the eurozone (today comprising twenty countries). In the eurozone, SEPA ensures that cross-border payments are indistinguishable in cost and speed from domestic ones. A credit transfer facility allows the transmission of deposit funds with next-day settlement at zero cost for the user. Instant settlement is also available at a small cost. The success of SEPA in the eurozone is demonstrated by the fact that the use of personal checks has virtually disappeared in Europe – with the partial exception of France. By contrast, in the United States, where banks charge high fees for deposit transfers both across and within states and multiple separate payment platforms exist, the use of personal checks is still common.