Both consumers and merchants enjoy the innate convenience of e-gateway payment and various digital payment modes. But the evolution of the electronic payment system has been quite complex and intriguing. The barter system was in place when people exchanged goods during initial human settlements.
As societies evolved and trade became more complex, the concept of currency came into being. The same evolved from mollusk shells in 1200 BC to the first metal coins in 1000 BC, and eventually the first paper currency in the 7th century AD.
During the 9th century, travelling merchants began using checks to avoid carrying too much currency. For centuries, these remained the only modes of payment.
The Emergence of Card Payments
The need for a credit card emerged when big stores found it increasingly difficult to keep track of the credit issued to regular customers. In addition to making ledger records, cards manually printed with the customer’s name and ledger number came into being. 1950 was the year when the Diner’s Club Card came into use, and nine years later, in 1959, American Express began issuing the first plastic credit card.
However, these were plastic cards without magnetic strips. IBM introduced the first magnetic strips in 1960. In 1967, Barclays (London) issued the first debit cards for their customers. Thereon, banks and card manufacturers began adding various security features (such as the Personal Identification Number or PIN) to debit and credit cards to secure and popularize their use.
Paving the Path for Robust Digital Payments
The first ever electronic funds transfer was introduced in 1871 by Western Union in the US. But digital payments didn’t gain immediate popularity. It took several decades till the birth of the modern internet in 1983 and its global popularization from the 1990s and onwards. The first financial institution to provide internet banking facilities to its customers was the Stanford Federal Credit Union (US) in 1994. The Presidential Bank came in 1995, after which several other banks followed suit over the years. However, only a very small section of elite/tech-savvy customers used these services for the next decade.
Rising Use of Smartphones and the Covid-19 Pandemic
Only select people did electronic funds transfers on their computers during the dawn of the new millennium. Paypal emerged as the first-ever payment service provider and digital wallet. From 2010 onwards, global smartphone sales skyrocketed, and mobile data gradually became cheaper.
Google Wallet was introduced in 2011, followed by Apple Pay in 2014, Samsung Pay in 2015, and so on. Mobile payments started gaining popularity, especially with the rise of e-commerce as a strong alternative to traditional retail.
However, the single-largest catalyst that augmented the popularity of digital payments still needed to come. The Covid-19 pandemic has fundamentally altered the way consumers paid for services. For the first time in history, online payments became more popular than cash.
As the year 2023 nears its end, the Covid-19 pandemic is largely over. Yet, the innate consumer preference for electronic transactions and contactless payments remains predominant. Especially in India, UPI and other digital payment initiatives have heralded the rise of highly competent and innovative payment service providers. Electronic payments are here to stay and evolve, from instant ‘scan and pay’ options to BNPL and e-wallets.