Answer to Question #234987 in Macroeconomics for Precilla

Question

Discuss the evolution of the payment system

Answer 1

Payment systems helps in smoothing transfer of funds between buyers and sellers or borrowers and lenders. Initially in the early ages, there was barter trade which involved payments of goods and services with other goods and services. Mercantilism started trading goods with gold which they used to strengthen their army. They could sell their finished goods in exchange of gold. Gold became the key payment system worldwide recognized. Every form of payment could be assessed using the gold as the basis of measurement. Early 650-600 BC, money was introduced that came to replace the barter trade. the currencies first started with coins which were minted from the gold and silver metals. people and banks could trade with money where if an individual needed funds then he/she had to go to bank and request for funds over the counter and sign the necessary slip for records purposes. In 1958, banks started to offer cards as a payment solution with the first card known Visa being introduced. The aim was to reduce the transactions costs of making trips to bank whenever you needed to make payment or money and also to reduce the incidences of theft. Technology necessiated invetion of other digital payment systems and cards such as MasterCard, Western union, Paypal, among others. Introduction of internet worldwide necessitated these new payment methods. With introduction of cards, agency banking began thereafter where currently people don't have to go to the bank if there is no complex matter to be solved. Around 1990's and with widespread introduction of mobile phones, banks and other financial institutions started to integrate accounts with mobile numbers which has made life more easier that one can make payment, purchase goods online at the comfort of the sofa at home. Kenyan based Vodafone company Safaricom introduced Mpesa which has allowed users transfer funds from one mobile phone to the other.