Insights
From Gold Coins to Digital Wallets: The Evolution of Payments
By Melody Yuan
How payment processes have changed in our lifetime and what it might look like in the future.
How do you prefer to pay for things when going out? Perhaps you used to carry cash before the coronavirus pandemic, but today you’re more comfortable with contactless payments. If so, you’re not alone. According to a study by PYMNTS and Visa, the pandemic has only accelerated the modernization and digitalization of payment processes, as 80% of U.S. survey respondents claimed that they adapted to new payment experiences and contactless payments due to a perception that cash could lead to exposure to COVID-19.
We’ve come a long way from when we first began carrying physical currency in the form of coins and paper money during 700 B.C. in China. And while paper checks emerged in Holland by the 1500s, the evolution and variety of payment systems only really took off in the late 20th century with the arrival of debit and credit cards. Fast forward to present day where there is a range of ways to process financial transactions, from smart terminals to paying by smart phones.
“It looks like we are now beginning to see that all the noise and predictions around payment disruption, new payment types, innovation, and collaboration between banks and fintechs, have become a reality,” says Jesse Sandoval, senior vice president and director of GTS global payments at East West Bank. “These are no longer predictions—these trends are real and are beginning to pick up serious momentum.”
Here are the various payment options and processes that have emerged and continue to evolve today.
Credit card and debit card payments
These rectangular metal and plastic cards made their first debut as early as the 1930s, replacing physical coins. Once banks and payment systems began to advance, the modern payment card and the idea of a buy-now-pay-later model formally arrived in 1950 as the Diners Club card. With financial instruments in place and cards socially accepted, card payment technology grew by leaps and bounds.
By the late 1960s, major banks and credit unions issued debit cards associated with customer bank accounts. This gave rise to automated teller machines (ATMs) that eventually became the preferred method of accessing capital, thanks to the convenience of the transaction. In 1994, metal chips were inserted into the cards as an added layer of security, and all point of sale (POS) systems needed to be upgraded to accommodate this change.
“Point-of-sale systems, or smart terminals, today are completely different from what they used to be 20 or even 10 years ago,” says Dustin Sullivan, vice president and national merchant sales manager at East West Bank. “They’re now equipment that will help power your business. They will make things more streamlined, efficient and give business owners a more holistic approach at managing their day-to-day operations. It’s no longer just a card processing machine—it’s a software with a full-fledged suite of services.”
In today’s fast-paced society, it comes with no surprise that cards are the preferred payment method for consumers. According to the 2019 Experian Consumer Credit Review, the average American carries four credit cards, each for different reasons such as interest-free financing and rewards programs.
Mobile wallets: Apple Pay, Google Pay and Samsung Pay
Smartphones have revolutionized the way people communicate and engage with the world, and this applies to financial aspects of people’s lives as well. The progress of digital payments was further driven by the onset of COVID-19, causing a rapid shift away from older methods of payments such as cash and even credit card transactions, and a harder lean toward digital payments. According to TechCrunch, in-store mobile payment usage grew 29% in 2020, and experts predict more than 101.2 million consumers to adopt proximity-based mobile payments in 2021.
Mobile apps such as Venmo, Splitwise and Mint also make it easier for consumers to access, manage and disburse their funds. Most banks also have their own apps available in app stores for customers to download onto their phones for mobile banking.
“It looks like we are now beginning to see that all the noise and predictions around payment disruption, new payment types, innovation, and collaboration between banks and fintechs, have become a reality.”
Most notably, mobile payment services such as Apple Pay, Google Pay and Samsung Pay have surged in popularity. Using a secure software, this mobile payment feature can be downloaded through any app store and virtually carries everything from credit cards to coupons. As more consumers embrace this method of payment, merchants have also had to keep up. A survey by the National Retail Federation and Forrester found that no-touch payments had jumped 69% for retailers, and 67% now accept some form of contactless payment such as mobile payment and contactless cards.
“There’s a common misunderstanding by merchants on how mobile payments work,” says Sullivan. “I was at a restaurant one day and asked about Apple Pay, and they said they only accept Visa. I gave them a quick lesson right there about how it’s the credit card that’s linked to your mobile payment software such as Apple Pay or Google Pay. Same thing with Venmo or PayPal—it’s connecting a bank account or a credit card to your actual digital wallet.”
Merchants with a smart terminals are able to incorporate most methods of mobile payments and remain compliant with the Payment Card Industry Data Security Standard.
E-commerce and online payments
With many consumers spending more hours at home, online purchases have skyrocketed. Factors from lower shipping costs to social media marketing have driven this e-commerce boom and change in shopping behavior, especially with the younger generation. In the U.S. alone, e-commerce sales grew by 44% in 2020 and are expected to surpass $740 billion by 2023.
Selling on social media, for example, has been the new frontier for businesses. With fast-moving trends, algorithms and features popping up every day on social media platforms, businesses must move swiftly to capture this new revenue stream. Digital marketing expert and founder of Mobile Monkey, Larry Kim, advises business owners on ways to rise above the competition.
Cryptocurrencies and digital coins have also surged despite rocky starts. While still in the nascent stages compared to many of its payment counterparts, this is an area that businesses should keep an eye on.
Businesses without online presence would be missing out on a substantial market and should shift their model from offline to include online revenue. While the logistical backend of sorting, staffing and shipping may seem daunting, small businesses can dip their toes in by leveraging third-party couriers. Whether you are a restaurant business delivering food through Postmates or a boutique retail store selling products through Etsy, there are many ways to enter the world of digital commerce.
For merchants apprehensive about having a portion of their revenue going to third-party couriers, having a smart terminal could also drive online sales. “Even if they’re not able to allow people into their stores or restaurants yet, they could still set up online sales and offer curbside pickup for customers,” says Sullivan. “What’s important here is that merchants have these options available, and smart terminals can help a business scale from online payments to contactless payments, and more.”
Keeping up as a merchant
“With all these new payment ideas and options, it’s more critical than ever not to overreact to each new idea,” says Sandoval, “but to keep a finger on the pulse and evaluate customers’ needs and existing back-office systems to ensure that they are flexible and can easily adapt to new technologies.”
Staying true to your business identity and purpose is also key to figuring out which system will work best for you. While there is no easy business model that could automatically deploy a comprehensive sales strategy for your business, there are tools available to help craft one.
“Whether you’re looking for a simple point-of-sale machine to process card and mobile payments, or you’re looking to get more in-depth analytics on customer shopping behavior, a smart terminal can scale to your business’ specific needs,” affirms Sullivan. These smart terminals work much like a centralized hub for business operations, and having a process in place to accept, organize and store all the various payment channels could be a life saver for businesses that need to continuously adapt.