Electronic Payments: A Brief History
Imagine. You want to purchase a doughnut at the local bakery, but instead of handing over your credit card, you reach into your pocket and pull out a few grains you picked on your farm earlier that day. After all, the baker can use the grains to make more dough. Seems crazy, right? However, the barter system was a cornerstone of transactions in our early history. Lucky for us, advances in payment acceptance means you no longer are tied to your farm (in fact, you don’t even need to have a farm nowadays). But the biggest advance in payment acceptance isn’t particularly tangible. Why? Electronic payments. The invention of electronic payments makes receiving and making payments online, via mobile and at the point-of-sale a whole lot simpler.
A Brief but Important History of Electronic Payments
Electronic payments have their roots in the 1870s, when Western Union debuted the electronic fund transfer (EFT) in 1871. Since then, people have been enamored with the idea of sending money to pay for goods and services without necessarily having to be physically present at the point-of-sale. Technology has been a driving factor in the development of electronic payments. Today, making a purchase is as easy as tapping a button on your smartphone. Work with streamlining payment methods has been hard-won.
From the 1870s until the late 1960s, payments underwent a slow but gradual transformation. In the 1910s, the Federal Reserve of America began using the telegraph to transfer money. In the 1950s, Diner’s Club International established itself as the first independent credit card company, soon followed by American Express. In 1959, American Express introduced the world to the first plastic card for electronic payments.
Entering the 1970s, people became more reliant on computers as part of the buying process. In 1972, the Automated Clearing House (ACH) was developed to batch process large volumes of transactions. NACHA established operating rules for ACH payments just two years later.
The (Wide, Wide) World Wide Web
Then along came the Internet. In the 1960s, ARPANET, a precursor to the modern Web, was built as a military network to improve communication. In the 1990s, online internet banking services were offered to bank customers. Those first online payment systems were anything but user-friendly—users had to have specific encryption knowledge and use data transfer protocols.
Soon, development across the Web, and the eventual invention of Web 2.0, set the stage for online sites to participate in what’s now known as e-commerce. In 1994, Amazon, one of the pioneers of eCommerce, was founded, along with a slew of other websites that we know and love to purchase on.
Payment acceptance and securing payments has been a specific challenge for e-merchants and payment processors. In the early days of electronic payment processing, you needed special equipment and software to send a payment for goods. Now, payment acceptance can be integrated into websites, mobile platforms, and at the point-of-sale for scalability amongst merchants big and small.
Keeping Your Private Data Safe
As technology changes at an increasingly rapid pace, however, keeping your data safe has been at the forefront of most merchant’s minds. It’s easy to see why. Data breaches can have long-reaching financial and systematic impacts for businesses, and can damage the reputation of long-standing organizations. What’s more, breaches can also spell financial ruin for companies without the financial, legal and logistical bandwidth to weather the storms of a hack.
Regulations by both NACHA and PCI standardize how payment data is received, stored, transmitted and processed for each transaction, and help reduce the likelihood of an attack. However it’s important that payment processors who offer PCI compliance programs stay ahead of those who wish to do harm to hardworking business owners by hacking their systems.
For point-of-sale transactions, EMV-enabled (also known as “chip card”) transactions add another level of encryption to your sales when performing card-present sales. End-to-end encryption, like what CSG Forte offers, provides a level of security to your entire payment processing system from terminal to payment acceptance and beyond. When accepting payments online, SSL webpages and other methods of data encryption help ease the worry of consumers and take some of the burden off merchants to remain PCI-compliant.
What’s Next for Electronic Payments?
According to a new McKinsey study, 78% of Americans currently use at least one form of digital payments. Offering consumers more ways to efficiently pay bills and purchase the things they want should be a key objective for all modern business owners.
Hot-button technologies like cryptocurrency and blockchain could be another way payment processing gets another technological push into a new era. After all, some cryptocurrency contenders aim to revolutionize the processing time for electronic payments, and if successful, can completely change the game for the payments industry. But in the interim, new trends like PIN on Glass acceptance to allow customers to use their PIN for mobile point-of-sale transactions, as well as contactless payments, same-day ACH and advancements in payment APIs all are geared towards making payment processing simpler, faster and more efficient.
For the last century and a half, the world of electronic payments has seen several notable technological shifts. As we speed through the industrial advances that the payment industry currently faces, we will only see a payment processing scheme that is safer, faster and operates how consumers and merchants need.