Welcome to our new mini-cycle. Where does this title come from? Of course, “Fiat Wars” is loosely related to the topics of the articles – and more specifically how different interest groups (not only hated by all politicians) have been fighting cash for years. We invite you to read!
“Cash is freedom”, “only cash ensures full anonymity”, “NWO groups want a ban on cash” – you’ve probably heard this type of sentence more than once. As we know today, even cryptocurrencies do not guarantee full anonymity regarding payments (at least at present and in most cases – some controversy in this field even arises with respect to ZCash). Today, banks, services and authorities can theoretically learn almost everything about us based only on analyzing the history of our transfers or card transactions. They can know where we were at the moment, what kind of hobby we have, where we like to eat, and even – in extreme cases – what sexual orientation we have. However, this whole “war” with Fiats is also about something else. For business issues …
If the October Revolution took place in our time, it would have “its” hashtag in social media. All media would only talk about it. The same would happen in the context of any other revolutions. But why didn’t anyone write about a certain volt that took place in 2014?
What happened six years ago? It was then that the value of all transactions concluded using cards amounted to more than those for which we used cash (at least they analyze explicit transactions, because – as already mentioned in this text – cash is anonymous). Today, it is forecast that this process will continue, and in 2025 even drug dealers are expected to switch to other forms of payment. The 2016 UK Payment Methods report even suggested that in 2020 South Korea will completely eliminate cash at home (the year is not over yet!). Today we know that China has a better chance of doing so.
The media did not write about the above breakthrough, probably because there was no revolution. In our eyes, money is only evolving. And the fact described above does not surprise us.
However, why do we prefer card payments more and more often? No, it’s not just about convenience or fear of mathematics (after all, you need to quickly reckon in the head whether the saleswoman has given us the correct amount). Over the last quarter, people may have been afraid of coronavirus infection, but today the number of such people has already dropped significantly.
Returning to the question: why do we prefer cards? Scientists explain this by how the brain reacts to spending cash. Apparently, when we pay with banknotes, our brain lights up. We experience a short – unnoticeable shudder. Finally, we give the present person something that belongs to us – banknotes. Somewhere deep in the psyche there is suffering that we are losing something. There is no “problem” when using the card. After all, we don’t give anything back. We only hear the “squeak” pleasing to the ear and we immediately get the desired gadget, juice, donut or T-shirt that we have long dreamed of! However, we will tell you more about it.
A meeting that changed the world
The above is requested to be used, e.g. in business. And so Peter Thiel and Max Levchin met in this matter in 1998.
Both were not dozens. The first was brought up by a family of orthodox Christians. As a child, he was one of the best chess players in the category of people under the age of 13. He studied philosophy and also founded the Stanford Review magazine. Thanks to the latter, he became famous in certain circles, because he made theses contrary to mainstream thinking.
His interlocutor was partly his opposite. He had great ambitions, which he wanted to pursue on the startup market, but he met the fate of a typical startup entrepreneur – he failed after failure.
Besides, Thiel was not a business giant either. He did well as a speaker and author of articles, but already on the stock market … well, let’s say he wasn’t a Wall Street wolf. He wanted to make money on an internet bubble, but somehow he couldn’t find the right project.
They both had potential. Thiel knew economics and finance, his new colleague programming. The duo wanted to enter the online payments market. Actually, almost create it.
– Finally, we decided that we want to try something with encrypted money on PalmPilots. We thought it would be the future of the world – said years later to Jacques Peretti, author of “Backstage Agreements”, Levchin.
Like a good show, let’s jump to the second thread – neurological research on payment. The neurosurgeon Drazen Prelec, a Serb living in the US, was thoroughly irrationally investigating people’s behavior regarding money trading. Why, for example, do we buy lottery tickets, since it is well known that the win is almost zero? According to the scientist, people have been inculcating strange money rules for years. They don’t think about them rationally. Another example? They can drive half the city to buy a product at a bargain price (which is cheap anyway), and then return home in a way (e.g. by taxi) that means that they pay for the item or promotion as much or as much, as if they had bought it at a higher price in the store next to their block.
Prelec also studied the issues of buying on credit and paying in cash. As part of the research, he asked 5,000 MIT students to submit sealed offers to purchase a basketball match ticket. 50% she was supposed to pay with cash and the other half with a credit card. The effect was … terrifying in its own way. Payers with cards were able to spend up to twice as much for a ticket than their colleagues who were supposed to spend cash. Some offers were up to 6 times higher than average!
The neurosurgeon concluded that the psychological cost of paying by card is much lower than banknotes. It remained now to check where it came from. Is this the effect of upbringing? Or something we have encoded in the brain? Prelec examined brains paying by both methods.
It turned out that as soon as we pay in cash, our nerve pathways become active. A “flinch moment” was discovered that lasted a nanosecond. It is as if the consumer hesitated for a moment (unnoticed by us during everyday purchases) whether it is worth buying a product. So a Serbian scientist discovered that banknotes and coins are a means of payment which, paradoxically … is not suitable for payment. Or, more specifically, it limits us spending money on so-called stupidity. There is hesitation in our brains for a moment: maybe it is not worth buying this t-shirt or expensive cosmetics? However, the same “snap” did not appear in the nervous system when a card was used to conclude a transaction!
At the same time, Prelec was studying the neurological foundations of card payments, while Thiel and Levchin were wondering how to implement the ideas of paying online.