With the advancement in internet technology popularizing eCommerce businesses, electronic payments have transformed from technological unconventionality to one of the most popular payment alternatives today.
Since the inception of electronic payments, this technology has dramatically evolved to achieve its superiority today. Electronic payments have become so popular and dependable that perhaps you can’t fathom a world without electronic payments. In a report issued by Statista, in 2019 alone, an estimated 950 million electronic payment transactions were carried out globally.
But how did electronic payments become that popular? To answer this question, you must first go back in time. Here’s a short history of electronic payments:
The Earliest Electronic Payment System
Physical payments were the dominating payment options at the point of sale for centuries. However, this became part of history in 1871 after Western Unions (back in the days known as the Western Union Telegraph Company) established electronic fund transfers (EFTs). The payment giant launched EFTs as a payment option for exchanging funds, otherwise referred to as ‘wiring.’ Quickly, EFTs gained popularity as the easiest method to send cash without physically exchanging the money between the transacting parties.
In 1914, Western Union advanced payments by launching charge accounts leveraged in different ways — contrary to preceding models that were restricted to individual retailers that offered them. The accounts were connected to cards (charge cards) which clients could use to buy products on credit. A charge card was a popular electronic payment system during the first half of the 20th century.
The Transformation of Electronic Payment Systems (from the 1940s)
Despite being popular then, the drawbacks of charge accounts and cards triggered innovations in the 1950s, leading to the introduction of credit cards. The main difference between charge cards in those days and today’s credit cards is that with charge cards, balances had to be entirely paid off following a predetermined interval.
In contrast, credit cards are permitted for an extension of credit. However, this provision comes with an extra cost for the client, allowing balances to be carried over from a past pay duration. The Bank of America used this payment in 1958 to develop the earliest current credit card.
A Short History of Credit Cards
Nicknamed the BankAmericard, and currently referred to as Visa — Bank of America’s credit card thrived where other payment innovations failed. Its sharp issuance technique entailed sending these cards to inhabitants of a neighborhood where most of the landlords were Bank of America clients. The strategy swiftly established a base of cardholders to raise the probabilities of retailers accepting the bank’s cards.
Nevertheless, the bank and the cardholders still experienced many hindrances concerning the extensive adoption of credit cards. Perhaps this was because of the complexity of their usage. Before digitizing credit cards, clients who paid using credit cards required retailers to contact the issuing bank, which then contacted the credit card company. Then, a worker from the company would validate the client’s name and credit balance manually to ratify the transaction. Due to this inconvenience, most retailers started accepting invalidated transactions, increasing the risk of credit card fraud.
The Era of the Internet and Payment Processing
With the advent of the internet, the transformation of the electronic bill payment systems progressed even more. In this era, eCommerce emerged as a more efficient, faster, and secure form of card-not-available electronic payment transactions.
This paved the way for electronic verification systems swiftly and in real-time validated and approved digital payments across various channels. Shortly after, mobile devices surfaced as popular payment methods, enabling clients to carry out mobile payments through their mobile wallets, like Google Pay and Apple Pay. That’s the short history of electronic payment systems, and you can expect it to evolve even further in the coming days.
Electronic payments continue to gain popularity, enriching innovative companies for satisfying the needs of today’s technologically-savvy clients. Besides, success in electronic payments allows forward-thinking organizations to gain and sustain a competitive edge in the market. Electronic payments have continued to evolve with the digital evolution of point-of-sale systems and omnichannel payment processors. Therefore, even as you look back in history, expect new history to be written as electronic payments continue to evolve.