Brief history of electronic payment technologies

Brief history of electronic payment technologies

Money transfer solutions have come a long way: from telegraphic text messages to mobile cryptocurrency wallets. What awaits them next?

A medium of exchange is one of the three key functions of money. Since the advent of trade relations, mankind has been looking for ways to speed up and simplify the process of exchanging money. With the development of technologies, especially with the spread of the Internet, more and more solutions appear to facilitate transactions.

Western Union

Although the first money transfers began in the world from the 18th century due to the development of a system of banks, money lenders and guarantors, as well as postal services, it was the appearance of the telegraph in the 19th that brought the money transfer industry to a new level. In 1858, the Mississippi Valley Printing Telegraph Company (NYMVPTC), founded in 1851, rebranded and was renamed Western Union. The founders of the company – the former Sheriff of Monroe County, New York, Hyrum Sibley, and Judge Samuel Selden – then did not suspect that in the future the company would refuse to simply send telegrams and focus on money transfers. The first transfer by telegraph Western Union completed in 1871. The service was in demand: by 1876, the company made 37,190 money transfers.

In general, the scheme of work was the same as with mail transfers, which have been used for more than a century. It worked as follows: the sender came to the post office, gave the amount of the mail that he wanted to send to the postal employee, and the sender wrote down the amount on a form in a special accounting book. The form was sent to the post office, where the recipient was given money. Using the telegraph, it was possible to speed up the process: it was no longer necessary to send coupons and registration forms by mail. Information about the recipient and the amount of payment was transmitted by telegraph.

From telegraph to first credit card

In the XX century, the development of cashless payment systems went faster. The same Western Union was the first company to issue a kind of payment card – a harbinger of a bank card. In 1921, regular customers of Western Union were able to issue a prepaid payment card. I liked the idea so much that it was picked up by many large retail companies in the United States – from gas station chains to fast food restaurants and grocery stores.

The first credit card was a card from Diner’s Club, issued in 1950. With its help, you could pay in the restaurants of the network in New York. In 1958, Bank of America (BankAmericard) and American Express (Carte Blanche) issued credit cards. With their appearance in the US, a consumer lending boom began. American Express used a simple scheme of work: it issued credit cards, charging their owners an annual fee, they paid with cards, and American Express billed card users on a monthly basis. The following decades gave the world payment systems Visa and Mastercard.

World Wide Web and Pizza

The speed and volume of transactions increased, and the appetites of users grew with them. They wanted it even faster, easier and cheaper. By the early 1990s, the Internet, which began as the development of the defense industry of ARPANET in the 60s, began to cover the world and a wide range of users. The beginning of this process is often called the year 1989. In March 1989, the British development engineer Tim Berners-Lee, who later received the title of Sir and is known on the network under the nickname TimBL, developed the concept of a network of web pages that would be interconnected by hyperlinks. The concept is called the World Wide Web. In November, he performed the first successful communication between a client and a server using the Hypertext Transfer Protocol (HTTP) over the Internet. The development of the Internet has allowed the use of a new connection for money transfers. In 1994, Stanford Federal Credit Union Bank was the first to offer online banking services to its customers. True, the operations were carried out not by the users themselves, since the interface of these early systems could not be called friendly, but by the operators, who needed to have special knowledge in computer technology.

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In August 1994, the world’s first online purchase was completed. She turned out to be Pizza Hut pizza – a big Pepperoni with mushrooms and an extra serving of cheese. True, some argue that the first purchase was still the British music album “Ten Summoner’s Tales” by Sting, paid via the Internet at the Net Market Company store in New Hampshire a week before an online pizza purchase. One thing is known – since then, online payments and transfers began to develop rapidly. In 1995, Millicent and ECash electronic micropayment services appeared (a trademark of DigiCash, a company founded in the 80s from Berkeley University and cryptography legend David Chaum). Both of them offered some alternative to cash and a quick way to transfer value.

Paypal

In 1998, programmer Max Levchin and financier Peter Thiel, as well as Luke Nosek and Ken Howry, founded Confinity, which in 1999 launched a money transfer service called PayPal, a name that is known all over the world. At the same time, entrepreneur Ilon Musk tried to develop his bank service of quick payments X.com. In 2000, X.com and PayPal joined forces, and in 2002 PayPal successfully completed an IPO and was sold to eBay for $ 1.5 billion. PayPal owes its popularity mainly to eBay users. In 2002, over 70% of all eBay auctions were paid using PayPal.

PayPal not only developed the popularity of online payments, but also actively participated in the technological development of the industry. Particular attention was paid to security, the development of appropriate software – VeriSign, PayPal Secure Card and other solutions.

China and its way

Payment technologies have developed all over the world, but one of the largest markets – China – has developed separately for a long time due to a number of geopolitical factors. Along with PayPal, Alibaba, an e-commerce company, appeared in China. In 2004, Alibaba launched the Alipay payment system, which initially acted as an intermediary between sellers and buyers on the Taobao c2c trading platform. In fact, it was a kind of Chinese analogue of eBay with its PayPal. The main advantage of payments through Alipay was that the seller did not receive funds from the buyer until he confirmed the receipt of the ordered products.

Over time, Alipay was so liked by sellers and buyers that other enterprises began to use it. Already in 2009, the number of registered AliPay users exceeded 200 million. In 2013, Alipay overtook PayPal as the world’s largest mobile payment platform. Now Alipay payment services are used not only by affiliated giants Taobao, Tmall, but also by more than 460,000 online and offline Chinese companies. Alipay is especially popular with small and medium-sized businesses, for which acquiring services from banks are not as affordable as the cheaper Alipay service. With Alipay in China, you can pay for goods in stores, both large and small, recharge your mobile phone, order food, pay for bus, train or taxi tickets, pay for cinema tickets and utility bills. Alipay has long entered the international level, but outside of China it has not received such a large-scale distribution, although it has occupied a certain niche, supporting transactions in 18 foreign currencies.

In China, its main competitor was the payment service of the WeChat social network, which appeared in 2013. In August of that year, the WeChat micro-messaging service released the Wallet application, which allowed you to operate with any payment cards issued in China. Now users of WeChat Pay can link bank accounts in Chinese banks to their wallets, as well as Visa and MasterCard cards issued by foreign organizations.

In 2018, Charlie Munger, the legendary American investor, vice chairman of investment Berkshire Hathaway and ally of Warren Buffett, mentioned WeChat as a potential competitor to credit card companies such as American Express.

“There is only one small cloud on the horizon of payment systems, and this is WeChat in China,” Munger said at the annual meeting of shareholders of Berkshire Hathaway in 2018.

In 2017, Tencent, the WeChat-owned company, reported that they managed to overtake Alipay in the number of active users of mobile payments – 600 million against 450 million from Alipay. However, if we compare the market share in terms of transaction volume, Alipay remains the leader on it – 54% versus 37% for WeChat in 2017.

World financial crisis

In 2007, the US bubble of mortgage loans burst, which led to a crisis in the banking sector. On September 15, 2008, Lehman Brothers Investment Bank, one of the largest banks in the United States, declared bankruptcy. Panic seized the world. It was distrust in the financial system that became the catalyst for the emergence of a completely new instrument, which was called Bitcoin. On October 31, 2008, an anonymous developer or development group under the name Satoshi Nakamoto sent a narrow circle of cryptographers and developers a description of the world’s first cryptocurrency:

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“The completely peer-to-peer device of the electronic money system allows you to make electronic transactions between participants directly, bypassing any financial institutions.”

Although the idea of ​​creating private electronic money using cryptographic means of protection has been circulating in a narrow environment of developers since the 80s of the XX century, it was in bitcoin that all the existing developments by that time were able to be combined.

The Bitcoin network was launched in January 2009. On January 3, 2009, the first block in the Bitcoin network was mined. The genesis block of bitcoin contains a symbolic message from Satoshi Nakamoto: the headline for an article from The Times – Chancellor on brink of second bailout for banks (The Chancellor is considering the second possibility of saving banks). Thus, the creator of the cryptocurrency hinted that Bitcoin is a response to financial instability, a drop in confidence in banks and government institutions.

In 2010, the first transaction using Bitcoin was conducted: using cryptocurrency, goods from the real world were first paid. As with the first online payment, this item was … pizza. More precisely, two pizzas from Papa John’s. On May 22, 2010, Jacksonville, Florida programmer Lazlo Hanesh transferred 10,000 BTC to his friend Jeremy Sturdivant, who ordered $ 25 Papa John’s pizzas from Lazlo using his credit card.

In 2019, Bitcoin is an asset worth $ 200 billion with a user base of more than 633 thousand active addresses.

“It is difficult for people of the 21st century to sell the services of the banking system of the 14th century. We get information faster, move faster between cities, we communicate with people from the other side of the planet. The money system is also adapting to this, ”notes Sergey Esipov, co-founder of the UK-registered Bitlish cryptocurrency exchange. “Bitcoin is a tool that gives the user not only the ability to quickly and cheaply transfer value, but also what banks did not give – complete control over their assets.”

Apple Pay and Google Pay

In the middle of the second decade of the 21st century, solutions for transfers and online payments using mobile phones began to come to the fore. In September 2014, Apple showed off new models – the iPhone 6 and iPhone 6 Plus, as well as the Apple Watch, which were equipped with an NFC chip to be able to pay using them through a regular terminal. So Apple launched the Apple Pay payment system. It was enough for users to enter data on the card into the system. When paying for a smartphone or watch, you need to bring it to the payment terminal and confirm the payment through the Touch ID fingerprint scanner. During the presentation on September 9, 2014, Apple CEO Tim Cook suggested that over time, the new service could replace plastic cards.

In parallel with Apple, the electronic payment system from mobile devices was developed by Google, which completed the creation of the Android operating system, the main competitor of iOS. In 2015, Google launched Android Pay based on the already existing Google Wallet system, created back in 2011. In 2018, both payment solutions were merged under the same Google Pay brand.

In fiscal 2018-2019, about 10 billion payments will be made through Apple Pay. “This is colossal!” – Tim Cook said, announcing such a forecast in March 2019 at Apple’s Keynote conference.

According to forecasts of Morgan Stanley analysts, by 2022 the volume of transactions through Apple Pay will reach $ 190 billion, and by 2027 – $ 304 billion. For comparison: according to the forecast of the same Morgan Stanley analysts, the volume of transactions through PayPal will reach $ 431 billion by 2022, and in 2027 – $ 579 billion

Apple intends to compete not only with PayPal, but also with the credit card market, having released its first Apple Card in the fall of 2019. Thus, she will try to get part of the market, which is currently dominated by Visa and its closest competitor Mastercard. True, while Visa has an undeniable advantage: in 2018, 124.3 billion transactions were conducted through the Visa system, and in 2019 their number will reach 140 billion.

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Cryptocurrency projects Facebook and Telegram

Apple, Google and Chinese Alibaba and WeChat have shown that now the main key to success in the electronic payment market is the availability of an extensive database of active and loyal users.

In early 2018, the media got information about the plans of the Telegram messenger to create the TON (Telegram Open Network) blockchain platform and build its own cryptoeconomics around it. There will be tokens for internal user payments – GRAM. To finance the project, Telegram founder Pavel Durov chose the ICO method, which was popular at the time on the cryptocurrency market. Telegram managed to raise $ 1.7 billion in two closed rounds of financing, according to documents filed with the US Securities and Exchange Commission (SEC).

In April 2019, Telegram launched a test version of TON and gave access to it to a limited number of professional blockchain teams around the world. It is expected that TON will be launched before the end of 2019, but the exact date is still unknown.

At the same time, Facebook was thinking about creating its own cryptocurrency. It is curious that the head of the blockchain division of Facebook is none other than David Marcus, the former president of PayPal. In June 2019, Facebook officially announced plans to launch its own digital currency, whose stability rate will be tied to the US dollar and other national currencies. Facebook called the main mission of Libra – the creation of a simple global financial infrastructure that will be available to billions of people around the world.

“This is especially true for people who do not have access to traditional banking and financial services. Right now, about a billion people in the world do not have a bank account, but they have a mobile phone, ”Zuckerberg wrote.

The stablecoin, called Libra, will be developed by the company association – Libra Association, which already includes 28 companies, including Visa, MasterCard, Uber and many others. The launch of Libra is expected in 2020.

A look into the future

Now the world industry of electronic payments is developing faster than ever. It took mankind thousands of years to move from metal coins to paper, centuries to go from bank accounts to electronic wallets, but the advent of the Internet gave an incredible power boost. Almost every year, new providers, platforms and payment instruments are launched. And this despite the fact that the level of Internet penetration in the world has not yet reached its limit. According to the developer of the platform for managing social networks HootSuite, at the beginning of 2018, more than 4 billion people in the world had Internet access. This means that the industry will continue to move along an ascending path due to the influx of new users.

“Now the main focus is the synthesis of all payment solutions in one. Users do not want to choose between PayPal and Bitcoin, they want to be able to use everything and, preferably, from one interface,” notes Sergey Esipov, co-founder of Bitlish. “In this direction, we are moving themselves: for operations with crypto assets, Bitlish customers can use transfers from many payment systems, bank transfers, cryptocurrencies, special vouchers with which users can transfer cryptocurrencies to each other without commission. we’re trying to offer all possible ways to exchange assets, because we see that this is what users are waiting for. “

Recent years have shown that the financial market is no longer the prerogative of large banking organizations, and large players who come from other industries may appear on it in the near future.


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