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The Surprisingly Long Life of Wire Technology

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The Surprisingly Long Life of Wire Technology

Those of us in dynamic, fast-paced industries have gotten used to keeping our eyes trained forward. We’re always exploring innovations—ways to evolve our processes and make them as efficient as possible. Technology grows at such break-neck speed that adults of any age can look back and marvel at the changes they’ve witnessed in their lifetimes. But surprisingly, many of these technologies aren’t actually new. In fact, most of our modern financial workflows have evolved from processes that are older than living memory. Cool, right?

As we ring in the new year, let’s take a step back and reflect on the origins of a very familiar process to many of us: wire payments, and the subsequent introduction of electronic funds transfers.

Humble Beginnings

Wires, direct deposits, and electronic funds transfers (EFT) have roots in the invention of the telegraph; a tool used in the United States from 1844 until 2013 (some areas of the world still communicate by telegram today).

The telegraph is the catalyst for all modern means of communication. It’s arguably one of the most pivotal inventions of Anno Domini, and it forever changed the speed at which critical information could circulate in and among developed countries. Instead of waiting weeks for mail to arrive by ship, train, and pony express, messages would take only hours to arrive. It was as pivotal to its contemporaries as the Internet is to us.

The invention of the telegraph came just after the first Industrial Revolution, in 1844, when Samuel Morse sent the first telegram from Washington, D.C. to his partner, Alfred Vail, in Baltimore, Maryland. The message: “What hath God wrought?”

Just over a decade later, preparations began to lay the Transatlantic Telegraph Cable across the seafloor—but the project took several years to complete. The first two attempts failed after the cable—made of copper wire wrapped in tar, hemp, and steel—snapped and was lost irretrievably lost at sea. The third attempt, completed in 1858, finally connected the two continents from Newfoundland, Canada, to Valentia Island in Ireland.

After a test message (“Glory to God in the highest; on earth peace, good-will towards men!”) successfully transmitted between the engineers, Queen Victoria and President Buchanan exchanged lengthy congratulations. The Queen’s message—the less flowery of the two, comprised of 99 words with 509 letters—took an exhausting 17 hours and 40 minutes to transmit by Morse code. This may seem lengthy by today’s standards, but at the time, the fastest means of overseas communication was by ship. Eighteen hours was staggeringly fast.

Success was short-lived. The power used to send the first messages was too much for the cable to withstand, and it corroded and fell silent within the first three months. Intercontinental silence ensued until 1866—two years after the American Civil War ended—when efforts to replace the cable began.

Despite the many initial setbacks, the telegraph became a beacon for human invention. It transformed not only the means but also how we spoke to each other. Telegrams were very expensive and usually reserved for affluent patrons and emergencies. Because of the high cost, telegraph companies encouraged senders to ditch the elaborate salutations of the day for succinct (cheap) messages.

For example:

-Sending a ten-word message in 1860 from New York to New Orleans cost $2.70—about $76 in 2018.

-Sending a ten-word message to England around the opening of the Transatlantic Telegraphic Cable would have cost around $100—just over $2,930 in 2018.

Because the prices were out of reach for most middle- and lower-class families of the day, physical mail remained the primary means of communication. This resonates with today’s concerns about the potential expense of newer technologies. The inventions of the telephone and the radio also likely contributed to the telegraph never becoming a common household item. Even so, it still had more to give to society—businesses found another use for this groundbreaking technology.

Incorporating the Telegraph into Bank Processes

The first funds moved via wire in 1872 when the Western Union opened a system to transfer up to $100 (about $2,120 in 2018) at a time. According to Tom Standage in his book The Victorian Internet: “The system worked by dividing the company’s network into twenty districts […]. A telegram from the sender’s office […] confirmed that the money had been deposited; the superintendent would then send another telegram to the recipient’s office authorizing the payment.”

This was a rudimentary, time-consuming process, but still similar to modern operations. It took a while for the concept of non-physical fund exchanges to catch on. Standage writes: “One [person] went into a telegraph office to wire the sum of $11.76 to someone and then changed the amount to $12 because [they] said [they were] afraid that the loose change ‘might get lost traveling over the wire.’”

Stepping into the Modern Age

The transition from telegraphic methods to EFT is somewhat obscured. The first mentions of direct deposit appeared in 1974, just over 100 years after the first wire payments transmitted via telegraph. Newspaper ads like this one in Florida’s Ocala Star-Banner promoted services for “Direct Deposit for Social Security,” which deposited Social Security checks from the government to individuals.

Even EFT payments initially met with some trepidation. In a 1976 article in the Ocala Star-Banner entitled “Computer Money System… Would You Bank On It?”, Louise Cook writes that the banks favored electronic means in order to limit the expensive manual paperwork they had to maintain.

Sound familiar?

When reading through old articles about initial EFT processes, I was struck by how many of the same arguments exist today against switching entirely to electronic procedures.

In Cook’s article, she broke down the cost for banks to maintain physical processes at the time. Banks were processing around 27 billion checks annually for 32 cents a check ($1.45 in 2019). They stressed that EFT was crucial to sustaining their businesses.

A separate 1977 article by Sylvia Porter in The Southeast Missourian entitled “Checkless society,” discussed her concerns about EFT payments. Some of the concerns are very dated. For example, Porter argued that disputes over electronic transactions at restaurants would require lawsuits to resolve. These days, banks frequently handle disputes on behalf of their clients and refund them up front. Other arguments, such as the value of float for companies, remain valid today and are resolved by fintechs.

Same Song, Different Decade

It’s the 21st century, and electronic payment options are already aging—wire transfers are almost 150 years old! Yet companies still struggle to get fully automated processes off the ground. Where is the disconnect?

There are several possible contributors, which include:

Perceived cost. Sending funds electronically is cheaper than ever, but checks now cost around $3.00 each. This equates to roughly 65 cents in 1976—a 106% increase from the original 32 cents (without even accounting for inflation). Despite the reduced cost of electronic payments, the transition, training, and scaling concerns are enough to make most companies too nervous to act. Payment solution providers ease this concern by offering fast implementation, logical user interfaces, andskilled support teams.

Smaller vendors still ask for checks. Checks won’t become obsolete until companies stop requesting them, which is unlikely—at least for now. Many smaller companies typically run their businesses on familiar, outdated processes. Vendors know everyone at their bank, and frequently pay their employees through paper processes. Even so, their business choices don’t need to affect the way your company handles AP. Fintechs like Nvoicepay offer pay file submissions, which enable AP teams to issue payments electronically. Then Nvoicepay disburses the funds in the vendor’s preferred format (credit card, ACH, or print check) without you having to chase down a single check-signer.

Security concerns. Payment fraud instances are more common than ever. Handing some control to a payment partner can be intimidating, especially if you’re not sure that partner is taking fully protective measures for your company. During the research process, be sure to ask prospective payment solution providers whether they will cover you for any issues that occur.

Looking Forward

What can we learn by looking back? Aside from gaining a healthy appreciation for our roots, reflection offers a great perspective on the future of modern AP processes. It highlights the fact that we haven’t changed all that much. Rather than introduce new concepts these past 150 years, we have refined and modernized existing operations.

If you’re researching ways to economize your back-office processes, but all the new-fangled technology sets you on edge, take heart! You may be surprised at how familiar this new technology feels because it isn’t really new at all—it’s evolved.

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 Alyssa Callahan is a Technical Marketing Writer at Nvoicepay. She has four years of experience in the B2B payment industry, specializing in cross-border B2B payment processes.

4 Questions You Should Consider Before Giving Abroad

Whether you’ve traveled to distant parts of the world and were inspired by the inventiveness of the communities you visited, read about an issue in a news article, or maybe just feel a special kinship with a given place, the desire to help somehow can quickly move to the top of your priority list. Supporting the efforts of nonprofits working on issues you most care about is a great way to take action. But giving across the world can also be daunting. Luckily there are lots of resources to help make sure you’re achieving what you want with your generosity.

Regardless of whether you’re considering a one-time donation or sustained support to a charity across the world, there are a few questions you should consider before giving abroad:

1) Where would you like to donate?

There are plenty of issues around the world that could use, and are deserving of, your help. But which of those do you feel passionately about? Rainforest conservation in Brazil? Great! Schools for girls in Kenya? Fantastic! The first step is narrowing it down.

Do some research to find out which charities might align with your giving goals. A quick glance at most charities’ websites will tell you the impact the charity has had in the past and how it is working toward its mission today.

This research can sometimes be more challenging than a simple web search. Some foreign organizations have a great online presence with translations into English and clear information. However, this is not always the case. In these instances donors can rely on a few resources:

There are a number of 501(c)(3) organizations that facilitate international grantmaking and who provide extensive databases of organizations eligible to receive funding through them (see, for example, the CAF America Database). Some countries have national registries of charities such as the UK Charity Commission and the CRA List of Charities in Canada that can serve as good country-specific resources.

2) How do you make sure you’re not breaking any rules?

As you might imagine, giving to charity across borders¾like any financial transaction¾is subject to specific regulation and oversight from the U.S. and foreign governments, which makes cross-border giving more complex than simply writing a check and dropping it in the mail. There is a complicated matrix of regulations that donors are required to follow. These regulations are designed to defend people and organizations who donate against money laundering, terrorism and organized crime.

While you might think most of these regulations exist on the receiving end of charitable contributions, these responsibilities impact the donor—whether an individual, a corporation or an organization. The bottom line is that if you are initiating the financial transaction, you are responsible for making sure that funds are used appropriately.  This seems intimidating, but working with an intermediary grantmaker or another U.S. public charity can take the guesswork out of following the rules. An experienced intermediary organization can conduct the necessary due diligence and protect the donors reputations, ensure regulatory compliance and eliminate possible risks.

3) Are there tax benefits to giving abroad?

When you’re passionately looking for a solution to support the charity that impressed you with their work on ocean conservancy, getting a tax break is probably the last thing on your mind. But it is not a bad thing to consider, because a tax deduction ultimately means that more funds are available to donate and more good can be done.

Not all charitable donations are tax-deductible, and in fact donations made directly to charitable organizations outside of the U.S. do not qualify. That said, there are several U.S. charities that can allow you to receive a tax deduction while supporting charitable work overseas. For example, you can opt to support the international projects of U.S. charities that run programs abroad. If you would prefer that your donation be directed to the foreign charity, you can opt to make your gift through a U.S. intermediary organization. Intermediary organizations are U.S. public charities that often assume the inherent risks in making donations to organizations outside of the U.S. and allow the donor to receive a tax receipt at the time of their donation. Your gift is to the intermediary; however, you will be able to recommend a specific foreign charity to be supported with your donation.

Donors should check how the specific intermediary organization they choose to work with operates, as there will be differences among them regarding the due diligence they perform, the fees they charge, etc.

4) What impact would you like to make with this donation?

Whether you’d like to effect change with a long-term impact like paying for a child’s education or in a more immediate way like supporting a community after a disaster, it is important to think about your expectations at the outset. Clarity about what you’d like to accomplish with your donation helps set expectations between you and the charity.

Giving outside of the U.S. is complicated, but luckily there are a number of organizations that specialize in cross-border giving, making it accessible for Americans to support charitable causes in nearly any country. With the assurances of a comprehensive due diligence and foresight, giving internationally can be a fulfilling experience. By considering the needs on the ground and the goals of your own good intentions, you can take full advantage of the immense capacity to do good provided by charities around the world.

TED HART, ACFRE, CAP® is the President and CEO of CAF America and brings over thirty years of experience in advising global philanthropy. He is the editor of Cross-Border Giving: A Legal and Practical Guide, Workbook Edition (Charity Channel Press, 2019). For more information, please visit, www.cafamerica.org and connect on Twitter, @cafamerica.