The Future of Money

A few centuries ago, the Italian Medici brothers had the brilliant idea to borrow money in order to lend it out. They enticed borrowers using fixed interest rates, while hiring guards so that investors knew their hard currency could be kept safe. This proved to be the first bank in history, a prototype for the financial institutions that evolved to become the dominant provider of currency on the planet. According to the Daily Reckoning, however, banks today appear to be more closely related to dinosaurs, soon to die out as a new institution takes their place. It may be too soon to sound the death knell of banks, but as markets and currency evolve, the Medici brothers’ formula for fiscal success may be in jeopardy.

E-Currency

How much money do you have in a PayPal account? A quarter of a billion dollars flow through PayPal each day, making it one of the largest currency providers in the world — all without ever handling a single dollar bill or copper cent. Bitcoin, a crypto-currency without any physical backing, also allows users to pay for purchases online. With the availability of e-currency like PayPal and Bitcoin, as well as the ubiquity of credit cards, how much longer will people need cash?

Risks

E-currency provides far greater security than cash or credit cards, since transactions depend on a specific password and thus cannot be stolen in the same sense that a wallet could. This does not mean e-currency is immune to theft; quite the opposite, in fact. Identity theft in an e-commerce world has become more common, since a hacker or phisher who gets hold of a password can do just as much damage as a thief who steals a wallet. Methods to stop phishing include using identity protection and monitoring services. These services provide round-the-clock protection and support for any potential victim of identity theft. In many cases, phishing (and its voice-equivalent “vishing”) can be prevented by keeping passwords and sensitive information private.

3-D Banks

If you find it frustrating to have to deal with a bank on their hours and their terms, good news may be on the horizon. Three-dimensional video banking, which involves interacting with a virtual representative using biometrics like facial scanners to determine whether or not the user is the true holder of the account, may be arriving within the next ten years. This has the potential to eliminate the fraudulent practices of (among other things) ATM skimming, where thieves put a bogus PIN pad or card reader display on top of an ATM in order to steal data. ATMs themselves will likely not disappear anytime soon, but new technology will allow users to get their money using a mobile instead of manually entering, and thus exposing, PIN information. Eventually, e-currency on your smartphone may be the driver of all purchases, with a single text message allowing you to purchase groceries or gas with a push of a button.