The Pay Off: How Changing the Way We Pay Changes Everything by Gottfried Leibbrandt and Natasha de Terán. Elliott & Thompson, 320 pages.
In 1950, still new to Rome, the writer and filmmaker Pier Paolo Pasolini was on the Ponte Garibaldi when he encountered a boy selling roasted chestnuts. Consumed by his work, the boy “looked no one in the face, as if his relationship with the rest of humanity were at an end, or as if he had been reduced to only a hand,” Pasolini observed, “an abstract hand, a mechanism for accepting payment and delivering merchandise in a rigidly calculated and predetermined exchange.” The calculation was not one of equivalence: the boy was cheating his customers because the customer, too, was an abstract figure. “Morally speaking, the fraud hardly registers,” offered Pasolini. If the boy was barely a member of the human community, what obligation could he have toward others?
Pasolini became a great poet of Rome as this abstract hand groped across the city, transforming it into a local hub of international finance, tourism, and investment. And then he left, repulsed by a “degenerative phenomenon” transforming not only Rome but all of Italian society. “Now it has changed and I don’t want to understand it anymore,” he put it in a 1973 interview. Those living after 1973 may not understand it any better, but we don’t have such freedom to refuse.
In his evocation of the boy reduced to a payment mechanism, Pasolini was playing a harmonic of one of the Communist Manifesto’s most stinging lines: “The bourgeoisie, wherever it has got the upper hand . . . has left remaining no other nexus between man and man than naked self-interest, than callous ‘cash payment.’” But the object of Marx’s scorn has since been perfected. While naked self-interest may once have been partially veiled by the anonymity of cash, digital transactions now trail discoverable ledger entries in their wake. With the advancing disappearance of cash, we appear more and more, and more eternally, as bare hands.
Much recent commentary on money has been mesmerized by the prospect of its coming abstraction, the promise of cryptocurrency liberating money from the state and its central banks by dematerializing it. The early months of the pandemic seemed at first to fulfill this prophecy: physical money itself became a toxic asset. The U.S. Federal Reserve began quarantining dollars returning from Asia months before a human lockdown, while South Korean and Chinese authorities moved to disinfect or destroy bills from high-risk locales like hospitals. The CDC issued guidance encouraging businesses to use touchless payments even before recommending surgical masks. “In the throes of the Covid-19 pandemic, payment without physical exchange suddenly gained a newfound allure,” write Gottfried Leibbrandt and Natasha de Terán in The Pay Off, a bright overview of an arcane topic: payment systems.
The occasion for the book is a development older than the pandemic: there is an “ongoing revolution” in payments, we learn, or alternately a “payments war.” But the duo, seasoned international finance hands, begin from the clarifying position that it is not the objecthood of money that needs a guide but what money does and where it goes. They peer evenly over this revolving terrain to deliver a light-hearted report on the “payments space,” as investors in financial technologies call it. Together they brave deep human history (cash is by far “our oldest form of payment”) and our crystalline future (“the mechanisms behind Bitcoin are pure genius”) to pronounce on the intriguing question of the “payments endgame.” Taking a whirring, mundane view of human society from the perspective of money, they tour the plumbing of the world economy and its modest brushes with exhilaration, like a ride on a roller coaster at a financial services-themed amusement park, or an image of the earth from a SpaceX satellite.
Having attained this height, they barely come down. What is the endgame? Our authors demur. Tech companies are moving into payments, and recent eye-popping valuations rest on the assumption that there is a final play, that a newcomer can wrest payments from banks and provide the same global movement for money at profitable margins. Leibbrandt and de Terán suggest that it won’t be so neat. “Payments are a story without end,” they point out, “except, perhaps, in heaven.” Here on Earth, banks are likely to retain their central role even if their appearance may change. Payments are the fundamental form of economic life, and for years banks have effectively enjoyed a monopoly on providing payment services to consumers. In exchange for access to savings, consumer banks allow the public to withdraw cash, transfer money, take out loans, perhaps even earn interest. But over the past decades, as technology has concentrated the working world, growth has likewise dwindled, and so investors looking for scarcer returns have turned their eyes toward the prospect of chiseling off payments from banks. Tech companies already facilitate consumer payments and operate their own markets. Imagine if they controlled not just payment among users but access to money itself.
For all the heat currently generated by cryptocurrencies, Leibbrandt and Terán argue, the larger category of payments demands attention of its own. This would include legacy banks, credit cards, and money remitters like Western Union, digital services like Apple Pay or Venmo, and new startups like Klarna, an online service which offers subprime “checkout credit” as well as debt collection, or e-banks like Wirecard, which is insolvent. As they were writing, at least, the global market capitalizations of both crypto and payments sectors were roughly equivalent, but while the total number of global crypto transactions first touched an average of 7.5 million per day in October of last year, daily mobile payments in mainland China alone totaled roughly 82 million in mid-2020. And the payments industry encompasses transactions both much simpler than crypto does (we are treated to the image of Chinese street vendors and beggars with printed QR codes) and much more complex, as in the celestial sphere of interbank settlements and foreign exchange markets.
Money classically has three faces: it must serve as a store of value, a unit of account, and as a means of payment at some level of universality. Depending on how long of a view you take, cryptocurrencies perform adequately at the first two but are clumsy with the third, which limits their adoption as currency rather than an asset (and so might undermine that, too). Small, fast, anonymous payments, on the other hand, are one thing cash excels at, but states and capitalists have no automatic way of tracking, let alone tallying, what transactions happen with cash, so some rapprochement with digital currencies appears to be in the cards.
Though our authors see the evaporation of cash as somewhat inevitable, they amiably sketch the longstanding history of non-cash financial technologies, and are sanguine about prospects for banks and the state. They paint much of the technological development in facilitating payments as entrenching incumbent financial institutions due to their indispensable role in providing liquidity and carrying risk, neither of which private technological initiatives or investment capital can offer systemically. This is because the payments industry is, to begin with, huge. It takes in 1.5–2 trillion dollars annually, roughly the size of Russia’s GDP. Half to 70 percent of that is paid by consumers on remittances, fees on daily purchases, interest, etc. The Chinese e-commerce platform Alibaba’s parent company, the Ant Group, had a 2020 IPO slated to be the largest in history, partially on the strength of its colossal payments app, Alipay, before Xi Jinping personally intervened, reportedly over concerns over Alipay. More blinding numbers: there were 500 billion card transactions in 2019; 500 billion mobile payments in China on just two apps alone.
All of this has happened extremely fast. Much of the relevant technology—smartphones, for one, but behind-the-scenes interbank transaction networks and protocols as well—is hardly more than a decade old. The Chinese payment behemoths Alipay and WeChat Pay have no more than five or so years of adoption behind them and yet by 2019 accounted for 60 percent of all global non-cash payments, or some 1.2 trillion transactions per year. Even PayPal is only as old as the Furby. Then again, consumer credit cards, a paradigmatic payment technology, were themselves only introduced in the mid-twentieth century. Credit scores, too. And public money turns out to be a somewhat modern development: before the National Bank Act passed in 1863, there was a period in the United States when state-chartered banks issued private notes that all commanded different exchange rates.
But despite the youth of all of these captivating mechanisms, Leibbrandt and de Terán usefully summon the memory of earlier epochs. They sketch the history of bookkeeping, correspondent banking, letters of credit and exchange, and the like to show that much of the financial sophistication of our age is only embellishment on the techniques developed by the great Mediterranean trading powers like Venice, Genoa, and Florence in the Late Middle Ages. Correspondent banking, a mechanism for buying and selling across different national markets via a small network of banks that trade between themselves, financed the international mercantile networks that were a precursor to the modern capitalist order. The Hawala system, an older and still-used network of money traders across the Islamic world, also operates on similar principles. And despite more direct digital connections, these fundamental conventions are still how modern foreign exchange operates. Their stamp on the present is so indelible that when a U.S. and a Chinese bank effect a cross-border transaction, they refer to “Vostro” and “Nostro” accounts—“yours” and “ours” in Italian.
Still, as Leibbrandt, a scholar of “network effects,” would know, the introduction and wide adoption of a new technology are two different things. Venice may have spent the fourteenth century innovating financial technologies, but Pasolini was still capable of astonishment at their transformation of postwar Rome. “The monetary economy that goes with money was nowhere fully developed, even in a country like France in the sixteenth and seventeenth centuries, or indeed in the eighteenth,” wrote the historian Fernand Braudel. He furnished records from 1548 in which two old peasants in Brittany complain that the introduction of coins has drained homes of their previous abundance: “Chickens and goslings are hardly allowed to come to perfection before they are taken to sell for money,” which was a new arrival to the village. The new century doesn’t even taste the same. Lawyers, doctors, and money have ferried spices like pepper and sugar from the cities, “quite ‘unknown’ to our predecessors.” One of their audience agrees: “It seems to me I am in a new world.”
Indeed. The Pay Off’s view of this now fully elaborated world from inside money somewhat downplays the fact that the global payment structure it’s describing is an adjutant of U.S. hegemony. But it keeps jumping out. An anecdote about the Iran-Contra scandal is their chosen example of why bank account numbers should protect against “fat finger” error: a detail of the covert arms trade scandal involved National Security Council member Oliver North “mistakenly” wiring $10 million from the Sultan of Brunei to Crédit Suisse account number 368.430.22.1, rather than 386.430.22.1, a secret account North used for soliciting international donations to fund anticommunist forces in Nicaragua. The temporary recipient of Brunei’s millions remains officially unconfirmed, and the lawyer for the Senate committee investigating the affair who suggested that North or his secretary had simply transposed the six and the eight went on to play his own criminal role in the Tyco accounting scandal. Another example: a U.S. Customs department employee infiltrates a Miami bank known to take on traffickers and dictators as clients, only to discover it’s the bank the CIA uses to finance covert ops (as does the NSC, involving North again). This arrangement makes the entire world vulnerable to domestic U.S. priorities, to say the least. The SWIFT interbank network, where our authors were previously colleagues, is a medium for primary and secondary sanctions against political actors or entities worldwide that the United States Treasury department deems non grata. Primary sanctions work in a straightforward way, but secondary sanctions mean that any other (non-U.S.) party accused of doing business with these entities themselves can be barred from processing payments, too. It is a blunt instrument, as millions of Afghans can tell you.
Infamously, the online platform OnlyFans faced exclusion from payment processing when, earlier last year, it came under pressure to bar sex workers who used it for their livelihood. The sanctioning body in this case seemed to be Christian sex trade abolitionists who took credit for targeting OnlyFans’ payment processor, MasterCard, to restrict services to activities they found exploitative. Payment companies have long penalized legal though morally freighted sectors like porn or gambling with higher fees, ostensibly on the grounds that their customers have a higher rate of contesting charges. And creditworthiness itself, a concept only adopted widely in the last few decades, governs access to health, work, and shelter with no religious zealots to take the blame. In this, it seems Leibbrandt and de Terán do not overstate their claim: payments can be a matter of life and death.
Sanctions are one reason why banks are required to “know your customer,” and why cryptocurrency and digital payments companies seem so eager to evade state regulation or oversight. A recent report found that nearly 40 percent of UK-based e-banks had “potential money laundering red flags.” Dancing with grisly characters while keeping your shirt clean must be one of the rarified thrills of international finance. But of course, one of money’s overall charms is its indifference to who holds it or where it comes from. Is it political allegiance, bankers’ omertà, or incuriosity that led Leibbrandt and de Terán to repeat the doubtful, exonerating story about Oliver North? The genre regulations of pop economics books don’t leave much room for considered thought. Reading this book, you might miss that capital’s need for offshore banking grew apace with the very technological advances facilitating money movement that organize its chapters, or what it means exactly that Iran and North Korea are the two nations excluded from the international banking system. Operating at such a level of abstraction, it can be hard to see a historical through line. But the transformations in money they describe have a cost.
Until 2021, banks’ margins had been relatively low since 2008, and fees from payment services remain one of their most reliable revenue streams. The story Leibbrandt and de Terán suggest is that investors, looking for returns in a sector they hadn’t yet torched, began eyeing up financial institutions in the years after the financial crisis, and payments seemed like the most fruitful line in banking to peel off, with revenue growth over the past decade double that of other financial services. Innovating in the payments space became the basis for the past decade of “fintech” growth—U.S. exemplars are Square, Venmo, or PayPal. How did inherited Apartheid wealth become Palantir and Tesla? One word: payments. Thiel and Musk owe their current positions to their prior luck at PayPal facilitating online transactions.
Liebbrandt and de Terán are fond of counterposing the antiquity of banking fixtures with the modernity of their use as a way of tempering some of the speculation around what will come out of social media behemoths’ steps into financial services, like Facebook’s proposed Libra (now Diem) digital currency. “Yesterday’s transport and mail companies such as Western Union, American Express and Wells Fargo have successfully transformed themselves into today’s payment giants,” they write, “but a social media company at the epicenter, really?” Regulators, in fact, appear to detect overwhelming financial power lying unexercised in these social networks. In May 2020, the European Central Bank released a paper estimating that if Facebook users were to start using its proposed cryptocurrency Libra as a store of value at rates comparable to PayPal or Alipay users, it would control from $170 billion up to nearly $3 trillion dollars, by far the largest fund of any sort in the world, capable of destabilizing global markets. So it’s no surprise that central banks like the ECB, the U.S. Federal Reserve, and the People’s Bank of China are exploring issuing digital currencies to head off any challenges to their dominance.
It seems that the financial establishment, whose temperature our authors aim to credibly report, is still ambivalent about digital currencies and the end of cash. A central bank-issued digital currency (CBDC) would surely be simpler for some transactions, less price-volatile than crypto assets, and open to targeted interest rate manipulation with a precision currently impossible for the Fed or its counterparts. But it could exclude anyone without internet access or a smartphone from economic life and yoke all market existence to the electric grid and telecommunications networks. In Sweden, one of the countries furthest along in this cash–digital transition, a protest movement in defense of cash has emerged, with the Swedish former president of Interpol at its head. He argues, of course, that elimination of cash places Sweden’s economy at existential risk from Russian interference.
In Moscow, by contrast, the metro has rolled out a pilot program to replace the smartphone-based fare payment system with one that automatically debits an account linked to a rider by reading biometric markers on their face. Unnerving, certainly, but what does the integration of payment into an existing facial recognition system mean? One clue, from the autocratic nation of Togo: a Bloomberg-praised pandemic payments scheme that was based on existing election rolls. Technocratically sound, except that the previous elections had been boycotted by opposition parties, making access to pandemic relief a political privilege.
Elements of the political marrow of the payments system reappear throughout the book, despite the air of innocence that clings to money. It is less the “thin blue line and more the payment system that sits between us” and anarchy, Leibbrandt and de Terán note approvingly, drawing a bracing equivalence between the carnage of policing and the serene realm of compound interest. It is this insight that guides their vision of the world that money has made, and the history of revolt offers some confirmation. By the time Pasolini’s chestnut seller would have been a young man, working-class Italy was in open battle. A distinctive feature of the struggle was “self-reduction” campaigns, collectively imposed discounts on bus fare, utilities, and rent, or “proletarian shopping” at grocery stores. Chileans took up the same tactic over a subway fare hike in 2019, setting off a movement that led to the election of a president seeking “more equitable distribution” of the nation’s mineral wealth, as the Mining Journal coolly observed.
Their schema fits the uprisings across the United States in 2020, too, which began with a police murder over a supposedly counterfeit bill. People demanded an end to policing and momentarily abolished payment through property destruction and looting. Not for nothing, as the forces of order condemned the activity as theft, they corralled a movement for freedom into questions of funding. Presumably, the authors would look on such challenges to police power with horror. They are on the side of payments, which make money for the class who already has it out of the money that’s already been made. They lift slivers of the working class’s wages on the way to their wallets and then on the way back out. Money provides a screen of equivalent exchange to mask its role in the planetary violence of class rule. But revolt’s immortal recurrence gives us a clue that people still see through it. Do capitalists buy their own tricks? Collectively posed, the question of your money or your life is an easy one. When a reversal comes, they had better hope their money’s still good.