The History and Future of Payments
4th February 2021

In this piece, our E-commerce experts document the history of payments and the changes that have been witnessed throughout the years, whilst also looking towards the future and discussing how they are likely to evolve going forwards.

A Brief History

It’s impossible to predict the future without a magic ball. But responding to clients' purchasing patterns will provide a clear idea of where transaction patterns are heading. We have travelled a long way away from our ancestors early money and trading practices to conduct transactions. Between 600 and 700 BC coins were invented in Western Turkey and they were molded in all shapes and sizes. This was until the royal ruler of the land minted the coins and allowed for easier commerce and less friction when having to weigh the individual coins. Soon followed the invention of paper money by the Chinese in 600 AD, which was not adopted in Europe till the early 1600’s.

Payments are the monetary instruments used by individuals and businesses worldwide to move money. This lets the business easily and quickly manage the currency. Payments themselves are enormous since many payment services are available in a given nation and each mechanism has its specific processing method. With the introduction of emerging technologies such as SWIFT, PayPal, and Cryptocurrencies, the payment environment will change significantly in the near future. On the other hand, payment systems are a collection of technologies and processes that exchange financial value between entities. Payments can be made in return for satisfaction of products or services. One can use many currencies, including cash, online transactions, cards, and cheques. 

Payment structures are essential for the efficient running of our existence as human beings. They enable money to operate as agreed exchange instruments when buying services or goods. A well-designed transaction system enables markets to work properly and helps reduce trade uncertainty. This smooth operation of payments, trading, and settlement mechanisms play a significant role in economic stability, and it is a public and corporate service objective. A successful payment service produces a healthy market and a thriving society as a result. 

Before payment systems came into being, the barter system was used in a transaction; people exchanged services or goods without money between two parties. In its fundamental sense, barter is literally trading commodities between two persons, each of whom had an interest for the other. It is the most extended form of exchange that dates back to when there was no currency. Practically any service or product could be exchanged if the concerned parties strike a deal - think of poor Jack & his Beanstalk who couldn’t get 5 gold coins for his cow and had to settle for 3 magic beans instead

Here are a few suggestions on how one can successfully barter: Describe your assets: from which things you can conveniently part? But use a critical look to walk around your residence and accept belongings you may have in inventory or used by another relative or friend. If you choose to provide the services, determine what you can give others objectively, which otherwise should be paid for by a specialist. This could be a skill, a talent, or an interest, like photography. The barter system encouraged people to exchange items they possessed while retaining their cash for expenditures that may not be covered by trade. The exchange also benefited individuals psychologically, as parties’ involved developed a stronger personal connection.

Currently, gold is most common in jewellery production. Gold was only used for adoration, as shown by a pilgrimage to some of the world's oldest religious sites. The gold standard is a currency system where banknotes can be freely exchanged into gold. In other words, gold reinforces the worth of money in such an economic model. The gold standard was established and formally formalized as the advent of paper currency raised some issues. The gold price is now dictated by metal demand, and though it's no longer seen as a benchmark, it still plays a significant role. Gold is a useful financial commodity for financial institutions and nations. The banks would also use it to hedge their government's loans and measure financial stability.

A Look To The Future

Electronic payment on e-commerce websites means paperless currency transactions. Electronic payments have fundamentally changed business transactions. It allows businesses to extend their consumer scope by being user-friendly and faster than material handling. Credit card payments are one of the most common methods of electronic transactions. A small plastic chip with a specific number connected to an account is used. Electronic payments have fundamentally decreased bureaucracy and transaction fees.

 So how will transactions be done in future? One issue is whether cash will last or if digital money is going to be substituted, leading to what we call a cashless society. Others might assume there would inevitably be a kind of digital currency instead of cash that provides the very same absolute privacy such as a Blockchain. This removes others' motivation to seize electronic money and makes it a healthier asset to keep than cash. Some analysts believe that demand for liquidity and cash for central banks, in general, will continue to decline significantly over the years and gradually drop to zero. Considering this, they claim that shifts in the money supply from central banks would have a lesser power effect on the broader economy, with no impact on the border. The transaction environment will change significantly, introducing emerging innovations like Apple Pay, PayPal, and BlockChain technology. With steady technological innovation, the landscape of transactions is dynamically evolving every day, always with the aim of ensuring money moves faster to the recipient, at a lower cost. Multiple electronic payments will be available worldwide, and with bitcoin, PayPal, and BlockChain, the transaction environment is anticipated to drive the next step in innovation.

However, it is important to note that for now, banks are the mandatory intermediaries between payment methods and customers as they possess permission to produce deposits and transfers under regulations. They hold accounts, credited or debited, whenever a transaction or funding are issued, on behalf of clients. Central banks serve as a settling agent in particular. Nevertheless, the central banks are mainly accountable for supervision. However, the role of the Central Bank is under threat from new decentralised ledgers built on Blockchain technology including the Facebook backed Libra.

The method of taking payments has been everchanging to cater for the technological developments occurring in our society. The movement between the different payment solutions are being adapted to suit a certain demographic. With the prospective future of payments heavily focused on E-Commerce and the rise of Cryptocurrencies, we must be ready to accommodate for this transformation. 

To discuss the change in landscape in payment method acceptance and how merchants of all sizes can capitalise on these opportunities, feel free to get in touch with the DNA Payments team by clicking here.