A competitive way of money transactions

The amount of money has been growing even as our society has become increasingly networked and computerized, and we can expect this trend to continue. Money has historically been a store of value and a medium of exchange, and those roles will need to be filled.

The growth in quantity and importance of money will be accompanied by continuing difficulties in defining what it is.

Money has had many forms, from beaver pelts to the stone disks of Yap.

Even among modern industrialized countries, there are great variations. For example, checks are widely used in the U.S., and virtually absent in Japan

Our economy has seen some recent creations of money-like instruments such as airline frequent flyer credits.

Although worldwide commerce argues for reducing the variety of financial instruments, electronics also makes such instruments easier to create, and so we are likely to have many types of money.

The future of money can be glimpsed today. Money will be primarily electronic, since it is already largely electronic; our checking and savings account balances are just entries in banks' computers, and cash is less than 10 percent of broad money supply.

The bulk of financial transactions (when measured in dollars) are electronic, such as the trillions of dollars in daily foreign exchange trades.

Thus the main remaining questions are whether and how soon the numerous but usually small transactions by individuals and businesses that are conducted in cash and checks will become electronic.

Electronic transactions are less expensive and increasingly becoming more convenient than those with cash or checks.

For large institutions such as corporations and governments, this provides strong inducements for eliminating paper, and we will see an acceleration of the already rapid move towards business-to-business electronic commerce.

Business to business electronic commerce is where the cost of money transactions is of vital importance.

But at the light of the new huge development of ecommerce of business to private and even more private to private, a safe, inexpensive, easy, fast way to money transactions is essential.

Micropayments are the technology of the future, and always will be.

The size of the money transaction is getting smaller because the consumers are purchasing directly from the source.

The full picture of the economical markets is changing.

The Internet has declared war to the middlemen, the deal is faster, cheaper and safer when done directly with the producer.

And the electronic hardware will make it possible.

The PC can handle many more transactions than a full office of employees, it works after hours, on Sundays, even on Christmas.

What microtransactions need is a safe, fast, cheap way to send and receive money.

That was and is the big obstacle to microtransactions.

If to get 1 dollar I have to pay a 3 dollars fee to my bank, the price of the transaction overcomes the value of it and thus makes it uneconomical.

But if I can pay with 1 credit and it costs me nothing, than not only the transaction is possible, it is highly convenient.

The slow pace of adoption of new payment schemes does not doom micropayments.

However, it does demolish the hopes of venture capitalists who invest in micropayment startups, and certainly goes counter to the general expectations of micropayment proponents for rapid acceptance. (In particular, it does decrease the "first mover advantage" that many startups count on.)

It also leaves an opening for competing payment systems to take over much of those parts of the economy that seemed natural preserves for micropayments

Liberally taken and commented from A. Odlyzco.