30 Oct

Payment Methods through Ages

Trade was invented together with human ability to communicate and it taken place through most parts of human history. During this unbelievably long period of time, payment method, that is the most essential element of trade, changed significantly. From this point of view it is hard to compare bartering and obsidian stones with PayPal accounts and finger print payments. The purpose of this article is to summarize whole payment method history and present it in the way you can easily understand.

Prehistory

Bartering

This is the first known method of trade and it is the exchange system where goods and services are traded for other goods of services, without using mediums of exchange (money). Bartering was extensive in prehistoric times, and it included exchanges of tools, foods, skins, mates etc.

Interesting fact: Bartering was often done between people who didn’t speak the same language. This was called the silent trade and it involved all aspect of today’s trading including: inspecting the goods, negotiating, goods swap etc. Buyers and Sellers were communicating with alternative language and gestures throughout the whole process.

Easily Traded Goods

Since certain goods were more attractive than others in bartering deals, they were became unofficial currencies. These include: food, fur, sheep skins, cows, goats etc.

Obsidian and Other Precious Materials

Obsidian is a volcanic material used for making Stone Age tools, it is considered to be the first money-like object in history. Obsidian pieces were traded for different goods as early as 9th millennium B.C. Obsidian trade lasted until the 3rd millennium B.C. when it was replaced by copper and silver.

Antics and Medieval Times

Commodity Money

Code of Hammurabi and several different codes that preceded it formalized the use of medium of exchange in different forms that is also known as Commodity money. This system is still used in certain environments, even in 21st century. For example in jails, where inmates don’t have access to regular money (they trade cigarettes). Similar currencies appeared in the time of crisis when gasoline and food became money itself. The main characteristic of Commodity money is that its value comes from a commodity it is made of. Therefore all money ever made from this point until the introduction of paper money, and abandonment of gold standards by Federal Reserve between 1933 and 1970, can be called commodity money.

Interesting fact: Shekel derives its name directly from an ancient Mesopotamian unit used for measuring weight of barely and equivalent amounts of commodity money materials like: bronze, silver, copper.

Standardized Coins

First standardized money was used in China 1000 B.C. Standardized coins became prominent in South-Eastern Europe and Middle East from 700 to 500 B.C. Different money units from China, India, Middle East and Europe were made with different metallurgical processes and they were mostly made from materials that were already in use as commodity money. First known coin with a standardized weight was released in Antic Greek Asia Minor, by King Pheidon. Standardized money was present in almost all Greek city-states, as well as in Roman Empire, Medieval states etc.

New Age

Paper Money

Unlike far-eastern countries, like China that already had paper money at the time Marko Polo pay them a visit, standardized coins were kept as the main payment method in Europe all the way until 17th century. This is mainly due to big influx of precious materials from colonies. First paper money in the Western world was used in American colonies, because money shipments between Europe and the New World lasted so long. Soon the functionality and practicality of paper notes spread to Europe and the rest of the world.

Interesting fact: First paper money in the Western world was issued in Canada. It was basically a set of playing cards, signed by the governor who ordered his soldiers to use them until regular French money arrives.

Charge Cards

These cards were simple paper identifications that enabled different purchases to their beholders, and were issued by financial institutions like Western Union, Diners Club and American Express. Some of these cards were predisposed for usage in certain niches, like Diners Club card for example that was made for tourist and entertainment markets.

Credit Cards

Charge cards had problems with recognition, because before 1958, nobody was able to establish a strong enough credit financial system that will enable more merchants to start recognizing third-party cards in their stores. This changed with the introduction of BankAmericard in 1958, by Bank of America that became the first widely recognizable credit card.

Interesting fact: first mass produced credit cards were mailed to unsolicited bank customers, including compulsive debtors, drunks, gamblers etc. These mailings were called “drops” and became illegal in 1970, due to the chaos they caused.

Digital Age

E-Commerce Payment System

This system enabled internet shopping and it works with both credit and debit cards. It enables online money transactions and electronic banking. E-commerce payment system can also work through many online applications such as PayPal, Google Wallet, Payoneer, Skrill and through many other alternative payment methods. Increase in online sales, brought new innovative currencies such as Bitcoin, which works through peer-to-peer system with the same name, and enables its users to transact directly, without intermediary services.

Although different payment methods through history look so distant, human trade still works on same principles, no matter humanity went a long way from exchanging sheep skins to online money transactions and Bitcoins.

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