Early days of the payment industry and card networks

Peyton Hamel on | 6 min read

The early days of the payment industry were vastly different from what we know it to be today. Instead of the payment industry being consumed by credit cards, subsidies, and wire transfers, payments were completed mainly through a type of cash or bartering system.

The History

Bartering and trade have been a part of human civilization since the beginning of recorded history. Early humans exchanged goods and services with each other in order to meet basic needs, such as food, clothing, and shelter. Some tradable goods were animal skins, salt, or weapons. Originally, the bartering and trade system exclusively existed to provide for human necessities, but it quickly became a system that people took advantage of to fulfill their desires for luxuries.

The longer people learned to take advantage of the bartering and trade system, the more sophisticated it became, allowing civilizations to develop and expand based on the opportunities their skills or lands provided. In the ancient world, trade was often facilitated by the establishment of trade routes, such as the Silk Road, which connected Europe and Asia. The Silk Road was not a single route, but an interconnected system of networks used by traders for more than 1,500 years, when the Han dynasty of China opened trade in 130 B.C.E. until 1453 C.E when the Ottoman Empire closed off trade with the West. Goods such as spices, silk, and precious metals were traded along these routes because of high foot traffic, which began the general understanding of an international economy.

One aspect of early societies that are similar to modern day is that trade and commerce were still tightly bound to religion and politics. For example, as early as 9000 B.C.E. in ancient Mesopotamia, temples served as economic centers where goods were stored, traded, and distributed. In other societies, trade was controlled by powerful merchant guilds or royal monopolies.

Despite the more advanced developments, bartering remained an important part of the economy for many centuries. Even as currency and trade routes became more established, people continued to barter for goods and services, particularly in rural areas and among poorer populations. Today, bartering still occurs in some parts of the world, although it is typically less common than other forms of exchange.

As societies became more complex, systems of currency were developed as payment systems, where goods with intrinsic value such as seashells or coins melted from precious metals were used as mediums of exchange. These developments allowed for more efficient trade and commerce. Those who had been previously excluded from the bartering system could now participate with assets obtained from working or family lineage.

Over time, commodity money (those used in bartering and trade) evolved into representative money because it became apparent that there were costly limitations to carrying around heavy goods and coins. Commodity money was often difficult to transport, and it was vulnerable to theft or loss. The lack of security left many unsure of their financial security. As a result, new forms of currency were developed in the 17th century where banknotes or coins represented a certain amount of precious meal held by a bank or government. The mobility of trade also evolved as a result.

Representative money was the first form of modern currency, which is paper money and coins that “represent” a certain amount of precious metal held by a bank or government. This concept formed the silver and gold standards in the United States. Representative money made it easier to conduct transactions because of its portability. The first banknotes were issued in China in the 7th century, and paper money became more widespread in Europe during the 17th century.

Fiat money is a type of currency that is not backed by a physical commodity but is instead supported by the government’s authority and the trust of its citizens. Fiat money is used throughout the world today, and it is the most common form of currency. The value of fiat money is determined by supply and demand (and their subsequent laws), backed by the government’s ability to regulate the economy and stability.

Money has been a part of human history for the last 5,000 years. Here is a brief timeline of the most important developments beyond barter and trade:

  • 3000 B.C.: Barley money was used as token money, reinforcing money as a commodity.

  • 700 B.C.: Coins were minted and payments held distinct, physical value.

  • 17th Century: Heavy coins were deemed inconvenient, so banknotes were developed to increase mobility.

  • 1659: Checkers were developed to aid in the distribution of the banking system.

  • 1979: Visa significantly aids in the development and proliferation of electronic payment systems, beginning the era of the online banking system today.

  • 20th Century: Access to the Internet transforms the payment system and digitizes it.

  • 21st Century: Digital payments evolve at exceptionally fast speeds, advancing to e-wallets, cryptocurrencies, and industries solely devoted to online payment platforms e-commerce.

“We took a giant leap here but let us know at [email protected] if you would like us to expand on the years above”

The modern developments would not have occurred without some essential players within the ecommerce industry. Here are a few major contributors and their accomplishments within the industry:

Visa's Contribution

Eventually, currency turned electronic. Visa made the largest contributions to digitizing the economy. Even though they did not develop the first credit card or the first credit card terminal, Visa’s efforts resulted in a new era of online payments.

The first credit card terminals were developed in the 1950s and 1960s by a variety of companies, including IBM, American Express, and the Diners Club. These early terminals used a mechanical system to imprint the credit card information onto a sales slip so that payments could be approved, but not at the same time as the purchase.

These early cards were not a part of a payment network, and they were only accepted by a limited number of merchants. However, they did allow consumers to borrow money from a bank or other financial institution to make purchases.

In 1970, Visa (which was then known as BankAmericard) introduced a new credit card system called the “Authorization Center.” This system used electronic authorization and verification to speed up the processing of credit card transactions. Instead of waiting for a sales slip to be sent to a bank for authorization, the transaction could be approved or declined within seconds. This was the beginning of defining the convenience potential for credit card systems and online payment platforms.

To support the Authorization Center, Visa developed a new type of credit card terminal called the “VisaPhone,” which was an early version of an electronic payment terminal. It used a touch-tone phone to transmit credit card information to the Authorization Center for approval.

Mastercard's Mobile

Mastercard has made significant contributions to the growth of ecommerce through its innovative payment solutions and its role in promoting the security and reliability of online payments. Mastercard was one of the first card networks to develop online payment solutions that allowed customers to make purchases on the internet.

In the early days of ecommerce, online payments were often cumbersome and unreliable, but Mastercard’s development of secure and streamlined online payment systems helped to make online shopping more accessible and convenient for customers.

Mastercard has also developed innovative payment technologies to aid in producing new types of online transactions. For example, the developed mobile payment solutions that allow customers to further streamline the online shopping process and make it more accessible to consumers.

American Express

The contributions of American Express (Amex) has helped to advance the growth of ecommerce through developing online payment solutions. Amex was one of the first companies to develop a digital wallet along with Masteracrd, allowing customers to share their payment information in a secure account online. To complement Mastercard, Amex developed a mobile payment solution, which further streamlined the payment process and made it more convenient for customers to make purchases on the go.

One of their greater successes was developing the SafeKey program, which helps to prevent fraud and other types of financial crime in online transactions. Amex has partnered with merchants and various other financial institutions to promote secure online transactions to educate customers on how to protect their personal and financial information when shopping online.

MX Technologies and Automated Data

MX is a top institution within fintech that aims to allow people and their businesses to access their financial data in an automated manner. It’s essentially a data aggregation platform that allows financial institutions to access and analyze data from a variety of sources, including bank accounts, credit cards, and investments.

By providing this data in a unified and structured format, MX Technologies enables institutions to offer a more comprehensive view of a customer’s financial situation. They identify opportunities for cost savings and suggest investment opportunities for participating businesses.

Most importantly, MX has contributed to improving the security and reliability of electronic payments. By providing a single platform for data aggregation and analysis, MX Technologies reduces the risk of errors of inconsistencies in transaction data. This can help prevent fraud and other types of financial crime.

E-Commerce as an Entity

The development of physical cards was an introduction to online payments and, overall, the modern online ecosystem. The production of e-commerce can be traced back to the 1970s with the first electronic data exchanges (ED) between businesses. However, it wasn’t until the 1990s with the popularization of the World Wide Web and the creation of online marketplaces such as Amazon and eBay, that e-commerce began to develop into the industry we know today.

Over the last twenty years, e-commerce has developed significantly with the growth of online marketplace, mobile commerce, and social commerce. The ability to have completely mobile commerce was finally achieved with smartphone applications and e-wallets, while social commerce was integrated with social media to create new ways for businesses to engage with customers and promote their products.

Online marketplaces are individualized and personalized due to advances in technology to tailor products to specific individuals. E-commerce has managed to integrate credit card systems and online payment platforms in order to maintain convenience and mobility.

A few systems that have taken advantage of the new convenience and mobility of shopping are Amazon and Ebay, who lodge merchant shops and products into one platform for a smooth consumer experience. However, businesses are moving away from utilizing Amazon and Ebay as consumer platforms because they want to maintain the exclusivity of their products. The numbers of distinctive online stores are rising because of it, allowing online payment platforms to further expand.

The production and success of e-commerce would not exist without the beginnings of barter and trade evident thousands of years ago. E-commerce has become a vital part of the global economy, uniting businesses in a manner that increases their capability and consumer satisfaction.

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