Top 10 Inventions in Money Technology
Before we know where are going in the future, we have to know where we've come from. In preparation for the upcomingFuture of Money Summit™ we have been examining the world of money and have identified the Top 10 inventions in money in the last 100 years (in chronological order).
The research team at the DaVinci Institute has spent the past six months reviewing hundreds of innovations in the money world. Using a scoring system designed to assess the overall impact of each technology, a group of the Institute's staff and advisors weighed in.
Some significant technologies like vending machines, travelers cheques, and slot machines didn't make the list because they were developed in the late 1800s. Our goal was to focus on the innovations from the last century, narrowing the list significantly.
Other technologies developed in the 1990s didn't make the list because most have not reached the level of impact that the following items have.
1.) The Electronic Cash Register - 1906
Charles Franklin Kettering invented the first electrical ignition system and the self-starter for automobile engines and the first practical engine-driven generator. Born in an Ohio farmhouse, Kettering graduated from Ohio State University in 1904 as an engineer then joined the National Cash Register Company, where he oversaw development of the first electrically operated cash register in 1906.
SOCIAL IMPACT:The ECR paved the way for previously unimagined transactional data collection and analysis, which has led to modern predictive modeling, inventory control…
2.) Electronic Money - 1918
Today's Fedwire funds transfer service traces its roots back to 1918 when Federal Reserve Banks first moved currency via telegraph. However, the widespread use of electronic currency didn't begin until the automated clearinghouse (ACH) was set up by the US Federal Reserve in 1972 to provide the US Treasury and commercial banks with an electronic alternative to check processing. Similar systems emerged in Europe around the same time, so electronic currency has been widely used throughout the world on an institutional level for more than two decades.
SOCIAL IMPACT:Payments made today in nearly all of the deposit currencies in the world's banking systems are handled electronically through a series of interbank computer networks. One of the largest of these networks is CHIPS (Clearing House Interbank Payments System), which is owned and operated by the New York Clearing House. It is used for large-value funds transfers. In 1994, CHIPS and Fedwire combined handled 117.5 million transactions for a total value of US$506.6 trillion.
Although banks have been able to move currency electronically for decades, only recently has the average consumer had the capability to use electronic transfers in any meaningful way. The increasing power and decreasing cost of computers - coupled with advancements in communication technology that make global interaction available at vastly reduced costs - have together made the digital transfer of funds a reality for millions of individuals around the world. As a result, we are now witnessing the early stages of development of the digital economy.
3.) The First Armored Car – 1920
While some credit Leonardo da Vinci with inventing the armored car, he never actually built one. Today's armored car industry found its roots in 1920 with the introduction of the first commercial armored car in St. Paul, Minnesota.
SOCIAL IMPACT:The armored car made it safer to move vast sums of currency around quickly, decreasing the need for banks to have cash on hand, and indirectly allowing more virtual movement of money.
It wasn't until 1927 when the first armored car robbery occurred. The Flatheads Gang was responsible for this robbery near Pittsburgh, PA. It was reported that $104,250 was taken in the heist.
4.) Credit Bureaus - 1937
In Manhattan during the 1830s, Lewis Tappan handled the credits in his brother's wholesale silk business and developed extensive credit records in their line of business. Tappan recognized that this aspect of their wholesale business could be extended to other suppliers who needed information. By separating out the credit-information activity and serving many suppliers, Tappan realized what economists call "scale economies" and helped to found the business of credit reporting in the United States. Tappan contracted with agents and correspondents throughout the country to "gossip" about the solvency, prospects, and character of local businesses. He established an information hub that could rapidly service new inquiries and add new information. Tappan's agency later became known as R. G. Dun & Co., and merged in 1933 with The Bradstreet Company to form Dun & Bradstreet, which now dominates the field of commercial credit reporting.
Prior to World War II, few retailers sold on credit, and those that did confined their credit business to well-known customers. Creditors kept their own accounts and engaged in information exchanges with each other, sharing lists of names known to be poor credit risks. The first bureaus were non-profit cooperatives, owned by the merchants who participated. A national association called Associated Credit Bureaus was organized in 1937.
Sensing a need for standards, Fico Credit-scoring was invented in 1956 by two Stanford mathematicians, Bill Fair and Earl Isaac. They correctly guessed that lenders didn't really want credit "history"; they wanted point-accurate prediction. By crunching the right numbers, Bill and Earl could come up with a figure between 300 and 900 which would precisely forecast an individual's future creditworthiness.
Up until about 1970, the records were kept manually in paper-based filing systems. In 1970 there were approx. 2250 credit reporting companies in small cities all across the country.
SOCIAL IMPACT:Today there are three main credit reporting systems – Equifax, Experian and Trans Union. Each of these has a large number of smaller, affiliated credit bureaus. As of 1998, ACB had 591 member credit bureaus around the U.S., selling 600 million credit reports annually.
5.) The Automatic Teller Machine (ATM) - 1939
Few inventions of this magnitude and complexity are successful in their first iteration. In 1939, a serial inventor by the name of Luther George Simjian created the Bankmatic automatic teller machine. Simjian filed 20 separate patents related to the device and persuaded what is now Citicorp to give it a trial. After six months, the bank reported that there was little demand.
Don Wetzel was the co-patentee and chief conceptualist of the modern automated teller machine, an idea he said he thought of while waiting in line at a Dallas bank. At the time (1968) Wetzel was the Vice President of Product Planning at Docutel, the company that developed automated baggage-handling equipment. The other two inventors listed on the patent were Tom Barnes, the chief mechanical engineer and George Chastain, the electrical engineer. It took five million dollars to develop the ATM. The concept of the modern ATM first began in 1968, a working prototype came about in 1969 and Docutel was issued a patent in 1973. The first working ATM was installed in a New York based Chemical Bank.
The first ATMs were off-line machines, meaning money was not automatically withdrawn from an account. The bank accounts were not connected by a computer network to the ATM. Therefore, banks were at first very exclusive about who they gave ATM privileges to, giving them only to credit card holders with good banking records. Wetzel, Barnes and Chastain developed the first real ATM cards, cards with a magnetic strip and a personal ID number to get cash. ATM cards had to be different from credit cards so account information could be included.
SOCIAL IMPACT:Since surcharges became legal in 1996, the number of ATMs has increased by more than 200,000, to a total of 352,000. Banks and other institutions have installed more ATMs in the past six years than in the previous quarter century.
These days, ATMs outnumber bank branches by more than four to one. Cruise ships have ATMs. The U.S. Navy started putting ATMs on warships in 1988 to make cash accessible to sailors, and 144 ships now have them. Americans do more than 1.1 billion ATM transactions a month -- which breaks down to 26,000 transactions a minute.
6.) The Credit Card - 1950
Frank McNamara, the founder of Diners' Club, is credited with having invented the first universal credit card for use in restaurants in 1950. He issued his card to 200 customers who could use it at 27 restaurants in New York. In 1958, the American Express Company entered the scene with their version of the universal credit card.
The credit card industry actually began in the United States in the 1930s when oil companies and hotel chains began issuing credit cards to customers for purchases made at their own gas stations and hotels. During World War II, heavy expenditures were used to aid the military and government. As men went to battle, the commercial industry shifted its focus onto the war effort. However, after the War ended, as reunited families and a U.S. economy shifting its focus back to the consumer industry the buying public became more attuned to using credit again.
A second type of credit card, the bank credit card, was introduced in the 1950s. During this decade, several financial franchises evolved to form today's major credit card companies. In 1951, The Franklin National Bank in New York introduced the first real credit card. On August 16, 1966, a group of banks collaborated together to form what is now MasterCard International.
Bank of America issued the BankAmericard (now Visa), the first bank credit card later in 1958. They were first promoted to traveling salesmen (more common in that era) for use on the road. By the early 1960s, more companies offered credit cards, advertising them as a time-saving device rather than a form of credit. American Express and MasterCard became huge successes overnight, and by the mid-'70s, Congress had to begin regulation of the credit card industry by banning such practices as the mass mailing of active cards to those who had not requested them.
Today, Visa, MasterCard, and American Express are some of the most recognized brand names in the world.
SOCIAL IMPACT:The social impact of the credit card cannot be under-estimated. Credit cards have allowed consumers to carry debt, something that previously required a bank loan – a much more intensive process than a credit-card approval. Credit cards have been the primary instrument that fueled international consumerism and high consumer debt, each of which has spurred multiple trickle-down industries and, for an entire class of citizens, a financial trap that is the defining characteristic of their personal choices, including jobs, travel and in some cases, survival. But because of the ease of getting credit and the intangible nature of credit card money, the credit card has also led to unprecedented personal bankruptcies.
7.) Barcodes – 1952
Barcodes were first developed in the railroad business to keep track of which cars went with which engine. The barcodes were imprinted on the side of the railway cars that went with a particular "system" at a uniform height above the ground. When the business world realized how well this system worked, these "railway barcodes" mutated into the UPC system we are all familiar with.
Wallace Flint was the first person to suggest an automated checkout system in 1932, and although Flint's system was economically unfeasible, it was an important step toward the bar codes we have today. 40 years later, Flint, as vice-president of the National Association of Food Chains, supported the efforts which led to the Uniform Product Code (UPC).
In late 1940's the supermarket industry approached Drexel Institute of Technology, Philadelphia, to find out a solution to automate their check out counter. At that time checkout counters used to take long time in clearing the customers and used to make lot of mistakes in data entry. Though the dean declined the project, a mechanical engineering Instructor Mr. Norman Joseph Woodland and his friend Mr. Bernard Bob Silver took up the project themselves, and in 1952 they were issued a joint patent.
Later Joseph Woodland took a position in IBM to develop the automated check out counter using his invention. In 1959 he succeeded to make the prototype, but the feasibility studies led him to recommend that the project be dropped. Later Philco Corporation bought the patent from Woodland and Silver. Philco Corporation later sold this to RCA Corporation. Mr. Francis Beck of RCA Corporation fabricated an automated check out counter and co-authored the patent with counter.
Finally in July 1972, Kroger's in Kenwood, Ohio became the first fully automated Supermarket. In 1973 one of Beck's prototypical checkout stands was donated to the Smithsonian's National museum of American History. On June 26th 1974, a jumbo box of Wrigley's Spearmint gum with today's UPC code became the first consumer item ever scanned signaling the beginning of Barcode world.
SOCIAL IMPACT:The bar code has spawned the data mining industry by allowing unprecedented information about the movement and sales of products. This information has allowed the evolution of production-on-demand, a reduction in inventory cost and insight into delivery chains, purchasing patterns and myriad other logistical measures.
8.) The Smart Card - 1974
Roland Moreno, father of the microchip, filed his first patent in March 1974 for the Smart Card. The first cards were issued a few years later but the initial reception was unenthusiastic. These first cards were highly advanced but very expensive to manufacture.
The miniaturization of electronic components in 1978 made it possible to mass produce Smart Cards for general release. Since then, the demand has grown considerably, to a stage where Smart Cards can now be found on every continent throughout the world.
SOCIAL IMPACT:The smart card allows for much more complex information to be stored locally, including allowing the movement of currency from the center (credit card centralized network) to the edges (stored value on the card). Although Smart Card usage has caught on in several applications, the biggest social change is yet to be felt, as more and more transactional information will be stored locally.
9.) The Spreadsheet - 1978
Accounting spreadsheets have been around for centuries, but Dan Bricklin's electronic spreadsheet not only revolutionized the accounting industry, but became the first "killer" application for personal computers.
In 1961, UC Berkeley Professor Richard Mattessich conceptualized the development of the computerized spreadsheet first in a paper "Budgeting Models and System Simulation" published in The Accounting Review, July 1961 and later in two books Accounting and Analytical Methods and Simulation of the Firm Through a Budget Computer Program which contains, among others, print-out illustrations and the computer program written in FORTRAN IV by two of his research assistants, Tom C. Schneider and Paul A. Zitlau.
However Mattessich's work was of little influence, and Bricklin proceeded to build the first viable product in the spreadsheet arena, making him the "father" of the electronic spreadsheet.
Dan Bricklin was developing a spread sheet analysis for a Harvard Business School "case study" report and had two options – either do it by hand or use a awkward time-sharing mainframe program. Bricklin thought there must be a better way. He wanted a program where people could visualize the spreadsheet as they created it. His metaphor was "an electronic blackboard and electronic chalk in a classroom."
By the fall of 1978, Bricklin had programmed the first working prototype of his concept in integer basic. The program helped users input and manipulate a matrix of five columns and 20 rows. The first version was not very "powerful" so Bricklin recruited an MIT acquaintance Bob Frankston to improve and expand the program.
About 1 million copies of the spreadsheet program were sold during VisiCalc's product lifetime.
The market for electronic spreadsheet software was growing rapidly in the early 1980s and VisiCalc stakeholders were slow to respond to the introduction of the IBM PC that used an Intel computer chip. Beginning in September 1983, legal conflicts between VisiCorp and Software Arts distracted the VisiCalc developers, Bricklin and Frankston. During this period, Mitch Kapor developed Lotus and his spreadsheet program quickly became the new industry spreadsheet standard.
The next milestone came with the introduction of the Microsoft Excel spreadsheet. When Microsoft launched the Windows operating system in 1987, Excel was one of the first application products released for it. When Windows finally gained wide acceptance with Version 3.0 in late 1989 Excel became Microsoft's flagship product.
SOCIAL IMPACT:Individuals and businesses are now able to do much more sophisticated financial planning, research and development of scenarios. Numbers can now be represented by formulas, allowing information in the spreadsheet to change across the document with the change of one value.
10.) RSA Encryption - 1983
The key breakthrough in the RSA encryption was that it allowed for encryption in a multi-user environment. In other words, there didn't need to be any active participation between the person encrypting the data and the person (or people) decrypting it at the other end.
The algorithm came out of work by Ronald Rivest, Adi Shamir, and Len Adelman (the term "RSA" is derived from the initials of their respective last names) at MIT's Laboratory for Computer Science in 1976-77.
The group had been inspired by earlier work at Stanford University by Whitfield Diffie and Martin Hellman, who were pursuing multi-user cryptographic techniques.
Rivest was struck by the idea while nursing a headache on a couch. Rivest devised the system based on the notion that it is easy to multiply two large prime numbers to create an even larger number, but hard to start with the big number and find the prime factors. Encrypted communication relies on each party having a public key and a secret key. By obtaining someone's public key, it's possible to independently agree upon a formula that lets you exchange encrypted information.
Before they could present the system, however, Rivest was contacted by an employee of the National Security Administration, who warned him that if he presented the cryptography scheme at an upcoming conference, he risked violating the 1954 Munitions Control Act. The act prohibited exporting knowledge about cryptography, and since foreign nationals would be at the conference where he was scheduled to present, he could well be exporting prohibited encryption technology. MIT was able to resolve that issue with the NSA, which later said that the employee who contacted Rivest was acting on his own.
MIT decided to patent the algorithm, but because it had been published before the patent was applied for, it couldn't get foreign rights to it. MIT received the patent on September 20, 1983, and granted an exclusive license to the company, RSA Security.
SOCIAL IMPACT:Encryption is the sine qua non for the exchange of private information via public information networks, including the Internet. The battle between the rights of the individual and the responsibilities of the government are hinged upon how much of the exchange of information is available to regulatory and oversight arms of the government.
Probably the most revealing part of doing this research was seeing the lag time between the technology first being developed and general market acceptance. In the case of the ATM machine, the lag time was over 50 years. We often wonder about the technologies that didn't make it onto the radar screen - the big things that simply faded from existence before they were able to get any real market feedback.
Several new technologies are making significant inroads into the money world. Micropayment technologies, prepaid credit cards, mobile payment systems, and biometrics are industries on the verge of success. Public policy decisions, general economic conditions, financial backing, and the sheer determination and resolve of the startup team are the primary factors that will separate the winners from the losers as we move forward.
About The Author:Thomas J. Frey is the Senior Futurist at The DaVinci Institute.His specialty is the study of global systems and the emerging impact they will have on the world to come.