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Payment Industry Evolution: 40+ Years of Innovation

Boaz Gam

Boaz Gam

CEO

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01.06.2022
6 min
Article content
  1. 12 Payment Terms You Should Know
  2. Payments Before the Internet
  3. Transactions After the Emergence of the Internet
  4. The Boom of E-Commerce
  5. Modern-Day Abundance of Payment Services

Payment Industry Evolution: from Coins to Digital Wallets

Payment processing as we know it today hasn't existed in this form for long. What's more, it continues to develop rapidly; hence we can expect many exciting innovations and changes ahead.

But how did the payment industry get to the point where it is now? How has it evolved from coins and banknotes to QR codes and digital wallets? Read on to gain insights into the industry's fundamental concepts, key players, and major turning points that occurred over the past four decades.

12 Payment Terms You Should Know

Payment Industry Evolution: from Coins to Digital Wallets

Before moving on to the payment industry evolution overview, it's essential to understand the main terms related to the topic:

  • Acquirer (acquiring bank) - it is an entity that processes debit and credit card transactions on behalf of businesses.
  • Authorization - The event in which a card issuer verifies a consumer's purchase request. The issuing bank then reserves the authorized sum in the cardholder's account to prepare for the funds' transfer.
  • Card networks (card schemes) - These networks determine the payment processing technical infrastructure, rules, and charges. The biggest card schemes are Visa, Mastercard, American Express, Discover, and UnionPay.
  • Chargeback - The payment sum paid back to a debit or credit card after a consumer disputes a transaction or returns the purchased product.
  • Fraudulent payment - False or illegal transaction conducted by a cybercriminal.
  • Interchange fee - A fee that an issuing bank charges from a business via the acquirer for every card purchase processed. The interchange fee depends on a variety of factors, including merchant category, card type, and transaction value.
  • Issuer (issuing bank) - Such entities supply debit and credit cards to the consumers on behalf of the card networks.
  • Local payment methods - These are alternative payment methods that don't belong to major card networks and are accepted only locally rather than on a global scale.
  • Point of sale (POS) - POS solutions combine hardware and software for in-store shopping.
  • Payment gateway - This tech solution enables businesses to accept site-based, in-app, and POS transactions via various payment methods. Typically, it comes in the form of a web server seamlessly linked to a merchant's site or POS system.
  • Payment Service Provider (PSP) - It's a financial entity that performs the role of both a payment gateway and a payment processor and is authorized to process transactions between the consumers and merchants.
  • PCI compliance - PCI DSS (Payment Card Industry Data Security Standard) was developed by major card networks to maximize cardholder data security and reduce fraud risks. Compliance with it is inherently important for companies processing card payments.

Now that you're familiar with the essential terms let's dive into exploring the payment industry's evolution.

Payments Before the Internet

Even before January 1, 1983, the Internet's official birthday, the payment processes have been evolving at an impressive pace.

The first big step away from cash payments was taken in 1958 when the Bank of America launched BankAmericard, the first general-purpose consumer credit card. It was issued in paper form and had a $300 limit.

The first point-of-sale (POS) terminal was introduced in 1979 by Visa and became very successful. By the 1980s, electronic payment systems were already actively used in retail, inspiring new hardware solutions from companies like Hypercom, Ingenico, and Verifone.

Terminals truly switched the role of payment processors from paper voucher logistics companies to electronic communication providers. This transformation required building a vast network of data management platforms and telecommunications relays to facilitate the acceptance of payments worldwide.

Transactions After the Emergence of the Internet

Payment Industry Evolution: from Coins to Digital Wallets

The increasing adoption of the Internet in the mid-90s demanded more advanced payment terminals that would match the needs of online businesses. Such demand gave birth to payment processing companies like Authorize.net, CyberSource, and Bibit.

These companies could hardly compete with big processors, so instead, they created merchant-and consumer-facing tech, which we now know as payment gateways. This tech solution was the web-based equivalent of a payment terminal that could handle online transactions and channel them to the old-fashioned payment processors.

The Boom of E-Commerce

Amazon launching its operations in 1994, followed by eBay the following year, marked the beginning of the e-commerce era. New online stores began to appear, causing, in turn, a significant increase in the transaction volumes passing through the payment gateways.

That's when many payment processors began integrating payment gateways into their operations by merging the best-performing companies. However, gateways at the time were specializing in specific merchant segments, while the payment processors had to deal with large customer bases with continuously increasing transaction volumes.

That's why payment processors had to opt for connecting with multiple gateways to fulfill the clients' needs. All in all, the whole system could be described as an attempt to retrofit new tech solutions on top of the old ones.

By the 2000s, the majority of merchants were integrating directly with payment gateways and routing the transactions to multiple different processors.

There was other exciting news in the payment industry as well, with emerging solutions, such as:

  • Local data storage and processing power
  • Data encryption and tokenization
  • Mobile transactions
  • Omnichannel e-commerce

Modern-Day Abundance of Payment Services

Payment Industry Evolution: from Coins to Digital Wallets

Nowadays, merchants face a variety of payment services providers (PSPs) that enable them to accept online and offline payments and minimize fraud risks, including:

  • Banks. While banks do offer payment processing services, they often go hand-in-hand with outdated tech, making it a poor choice for companies dealing with large transaction volumes.
  • Gateway-only businesses. Companies that focus on providing exclusively payment gateway services aren't the most effective at processing payments. This is due to the fact that they comprise only a small share of the value chain and often must still plug into the old infrastructure.
  • Standalone fraud solutions. Outsourcing fraud solutions from a company that specializes exclusively in them can require a lot of time and resources to manage.

As you can see, there are many downsides when it comes to opting for separate service providers for every payment processing aspect. That's where Payneteasy comes in.

Our mission is to simplify payment processing for you with all-in-one tailored solutions. We have the expertise, software, and hardware it takes to take your clients from checkout to final settlement seamlessly.

Here are just some of the perks we offer:

The list goes on!

Keep in step with the times with the most advanced and reliable payment solutions from Payneteasy. Reach out to us now to discuss the details of your project!

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