10.4 Banking on Technology #Notebook

10.4 Banking on Technology #Notebook

The advent of cheap electronic computing and digital telecommunications after World War II did eventually significant innovation.

After World War II, Diners Club applied the idea to restaurants, essentially telling restaurateurs that it would pay their customers’ bills. (Diners Club later collected from the customers.) However, it's very costly and did not successfully spread.

In the late 1960s, when improvements in computer technology and telecommunications made it possible for machines to conduct the transactions at both the point of sale and card issuer sides of the transaction. Since then, several major credit card networks have arisen, and thousands of institutions, including many nonbanks, now issue credit cards.

Visa and MasterCard have created private payment systems that benefit the economy. Retailers win because they are assured of getting paid, only have to pay a small fixed fee, and a few percentage points for each transaction because people like to pay by credit card. Carrying a credit card is also much easier and safer than carrying around cash. 

Retailers like debit cards better than checks, because a debit card can’t bounce, or be returned for insufficient funds. Automatic teller machine (ATM) allow customers to withdraw cash. 

Technological improvements made possible the rise of securitization, the process of transforming illiquid financial assets like mortgages, automobile loans, and accounts receivable into marketable securities. Securitization allows bankers to specialize in originating loans rather than in holding assets.

Reference
Wright, R.E. & Quadrini, V. (2009). Money and Banking. Saylor Foundation. Licensed under Creative Commons Attribution-NonCommercial-ShareAlike CC BY-NC-SA 3.0 license.