• Dr. Timothy Smith

What Happens to My Money When the Lights Go Out?

Photo Source: Wikimedia Commons, Photographer: Steve Morgan

Banks today, as the place where people store money and get credit, began in Medieval Europe with the Knights Templar. The Knights Templar were an order of warrior monks founded in 1119 and were active for nearly 200 years. The Knights Templar were closely related to the crusades, providing protection and financial infrastructure for the thousands of Christians making pilgrimages from all over Europe to Jerusalem in the Holy Land. A pilgrim leaving London would have to travel over 3,000 miles to get to Jerusalem. They had no way to carry enough provisions to cover such a great distance and carrying enough gold and jewelry to pay for provisions along the way, and carrying large sums of money would have made the pilgrims good targets for bandits. The Knights Templar, apart from fighting and protection, also devised a system of banking where a pilgrim could leave an amount of money with the Knights Templar, for example, back in London at the beginning of the pilgrimage. In exchange, the Knights would provide a letter of credit stating how much money they can receive from the Knights Templar strongholds all the way to Jerusalem. Essentially, the Knights Templar created the first debit card. Later, Italian bankers such as the Medici Family perfected the issuance of credit loans with interest that would allow merchants to travel without money but get local currency using the Medici banking system that stretched across Europe. In essence, banking is the same today; it is based on trust and exchange. People trust banks to keep their money safe and banks offer credit and assure that financial transactions are legitimate between the sender and receiver.

Today, many financial transactions happen electronically. If money is to be transferred from one bank to another, the banks talk to each other through computers over the phone or on the internet. The day of the paper statement is dwindling as more banks are pressuring their clients to give up their paper bank statements for electronic records only accessible through the internet. Although convenient, there are some downsides to not keeping paper records of your banking. In an interesting report from the National Consumer Law Center titled “Paper Statements: An Important Consumer Protection” by Chi Chi Wu and Lauren Saunders determined that paper statements serve to better safeguard customers from hidden fees and unscrupulous conduct. “Consumers who see their statements are more likely to notice if they have been subject to fees or charges they did not authorize or expect, or that were far more expensive than anticipated.” The authors point out that not everyone has access to the internet, and even if they do the small screen of a smart phone is harder to examine than a paper statement. Moreover, they cite a case study that found electronic statements can get lost in a large email files, resulting in missed payments.

Paper records also provide evidence of the existence of an account in the case of data corruption due to cyber-attacks, the loss of power, or a natural disaster. According to Russel Brandom at The Verge in an article “A New Ransomware Attack is Infecting Airlines, Banks, and Utilities across Europe” that cyber attacks have compromised banking records in the Ukraine. Cyber attacks are getting more sophisticated, and records can get corrupted or even encrypted so that the bank cannot read any of its records. Recently, we have seen natural disasters such as Hurricane Maria that devastated Puerto Rico, leaving many without power for weeks making electronic banking nearly impossible. Massive solar flares could also could corrupt electronic records on a massive scale. Back in 1859, a solar superstorm hit the world that took out the telegraph system and in some cases caused the telegraph machines to spark and even burst into flames. Experts predict that a solar superstorm today would take out many computers and perhaps damage electronic records.

Using paper money and credit statements began nearly a thousand years ago with the Knights Templar as a way to help travelers not have to carry gold and jewels that would make them good targets for thieves. Today we still use banks to safeguard our money and obtain credit. As banks look to reduce the cost of mailing paper statements, they are pushing consumers to forgo the paper statement for all electronic statements. Consumers should not give up their paper statements so readily. The paper statement serves a number of uses from a helpful reminder of payments due to providing physical evidence of your account in the case of a cyber-attack or natural disaster corrupts the computers and networks serving them.