Payment systems evolve to keep pace with a changing economy

The business world isn’t the same as it was 20 years ago. Technological advancements have changed most commercial aspects. The same advancements have given rise to different types of businesses that didn’t exist until a few decades ago.

Business has changed

Earlier, businesses were localized and served only a fixed community. With advances in transportation, manufacturing and communication, small businesses gradually started expanding to multiple locations across countries.

Globalization opened up the world to businesses that couldn’t have dreamed of selling their products and services to a foreign customer. Today, a basement business in Glenwood Springs, Colo., can have clients from Rosario, Argentina, and Xinghua, China.

Earlier, businesses had a fixed place of operation, like a physical office where all employees worked together, but new-age businesses have virtual offices, which enable employees to work from their homes in different parts of the world.

Newer avenues of seamless communication like email, Skype, messaging and teleconferencing, and the ubiquitous smartphones, have given rise to the “ever-connected businessperson.” Cloud data storage and computing services have freed up server space and are becoming more affordable to small businesses.

The advent of online shopping spawned e-commerce businesses, and people latched on to the idea of shopping from the comfort of their homes. E-commerce predated the internet, but picked up steam when the internet was opened for commercial use in 1991. 

With the growing popularity of e-commerce businesses, marketing has taken a whole new meaning. Any strategy that attracts customers to shop with you is good marketing. This also holds true for payment systems.

An e-commerce business that provides customers with multiple secure and easy payment options will attract more customers. An e-commerce business also needs to ensure the safety of customer data.

How payment systems have evolved to keep pace with newer forms of business

It seems like only yesterday when cash was king and all payments were made in cash. But the changing business scenario, thanks to online shopping, created the need for more convenient, evolved and cashless transactions.

Electronic Funds Transfer (EFT) originated with the first automated teller machines, or ATMs, in the 1960s. The concept of making financial transactions over an electronic network powered by telecommunications technology became immensely popular because it did not involve moving large amounts of physical cash from one place to another. Banks and financial institutions started using wholesale EFT for transfer of large amounts.

The rise of e-commerce necessitated the use of consumer EFT, where people were able to pay for goods and services through online payment platforms. Point-of-sale EFT was introduced, taking into account the wide acceptance of debit cards among consumers. Visa and MasterCard introduced credit cards that popularized offline debit transactions.

Next came the creation of a system for online authentication of the credit and debit cards used in online purchases. To make online payments secure and easier, platforms like PayPal came into existence.

They allowed payments for a wide range of services through a linked card. PayPal allows merchants and other professionals to receive payments, and consumers to make them.

As the world looks to enter a phase of truly cashless transactions, the remaining challenges can only be removed through proper implementation of technology and empowerment of businesses to adapt to the change.

Today, online banking is becoming the most preferred mode of payment for the majority of the developed world. Settlement and data-hacking risks have created wariness around payment systems involving cards. Also, most transactions involving cards and e-wallets carry transaction fees. This has further contributed to the rising popularity of online payment systems.

Trustly, for instance, has created a simple, safe and secure online payment system for merchants, customers and banks alike. It allows the direct use of the individual’s bank account for all kinds of transactions — payments and receipts.

This Swedish company started operations in 2008 and reached 1 million transactions within 18 months. Today, it has driven the true digitization of the humble bank account and made online transactions possible at any time of day.

In an age when simplicity and user experience are paramount, people are looking for uncompromising safety when making transactions. The global e-commerce business scenario is necessitating the use of multiple payment options. Yet, the added burden of transaction fees and the risk of data hacking have triggered a gradual understanding amongst customers and merchants to utilize their own bank accounts through an online platform for payments and receipts.

Parting thoughts

Money is the engine that powers the economy of the world. With ever-changing business scenarios, it is only natural for monetary transaction systems to evolve. Businesses are breaking new ground, dissolving geographical boundaries and serving the people of a brave new world. Payment systems are keeping pace with this advancement to allow for a safe, robust and secure way of paying for products and services.