The Evolution of Payments: Paper to Plastic to Digital Payments

Posted on January 27, 2020

Before plastic cards, credit cards were made of paper and contained a customer’s important banking information. This may sound archaic, inefficient, and insecure, depending on your age and whether you’re one of the millions of people who still use paper checks (or cheques). 

For one reason or another, the evolution of payments from checks to safer, more convenient plastic checking or debit account cards never eradicated the original paper version. Canada, for example, processes nearly a billion checks every year, even though it still takes days to process (and they’re fraught with fraud). Likewise, unlike the rapid credit card evolution to mobile wallets and instant online payments, the evolution of checking accounts to instant online payments has had slower adoption. 

Let’s consider the history and evolution of both credit cards and checks—and predict the (present) future of online bank payments. 

Motivated innovation: The credit card evolution

In 1970, IBM launched a pilot project with American Express and American Airlines. They developed the first-ever magnetic stripe—that would become integral for the evolution of credit cards, bank cards, ticketing systems, passports, and the like around the globe. The back of every bank card could now automatically store personal financial data. This discovery was not only revolutionary, but it was also essential. 

IBM was building computer systems and needed a way to increase adoption. Airlines needed to streamline the ticketing and boarding process. Banks wanted their customers to be able to automatically withdraw and deposit money from remote locations.  

The biggest innovation motivator, however, for evolving credit cards was the uptick in fraud in the 1960s. A mechanical imprint and signature to verify someone’s identity may seem questionable today, but consider how far we’ve come. Back then, a merchant had to make a carbon copy of a customer’s credit card, handwrite the cost and tax, physically deposit the slip at the bank, and wait for bank tellers to manually check the signature and account for funds and against known fraud accounts. Only then could they approve or reject the payment. 

The several-day lag time between purchase and account verification opened customers, merchants, and banks up to all kinds of security, NSF, and fraud risks. Unfortunately for paper checks, this archaic security risk is still a present concern. For processing credit cards, the archaic carbon paper machines that manually “charged” credit cards quickly became a thing of the past. 

In the midst of this credit card revolution, in 1977, there were 8.2 million credit cards in circulation. Of course, we know that credit card evolution and innovation didn’t stop there. The 1990s saw the emergence of EMV chip smart card technology and its simple and automatic tap and instant approval system. By 2008, mobile wallets launched to improve Apple sales. Online shopping using credit cards and mobile wallets has taken off. By the end of 2017, the average American held 3.1 credit cards—and the outstanding debt they can hold.

Checks to debit cards to digital payments 

Interestingly, both credit cards and debit cards benefitted from and evolved with innovations like the rise of plastic, magnetic stripes, and EMV chips. Yet the former tends to send its users into crippling debt. In the third quarter of 2019, credit card loans reached $1.08 trillion in the U.S. The rise in credit card use over the decades has seen with it a rise in outstanding consumer debt. 

What if innovation and further adoption in the checking sector could put an end to that? The hassle of having to go to a bank to deposit a check, for example, and wait for days for it to be processed should be a thing of the past. Just like the carbon paper slips for credit cards. 

The same goes for processing and verifying digital payments for checking accounts. Since checking accounts have undergone digital transformation, the banking industry has seen a rise in more secure and efficient technologies thanks to financial technology companies and banks working together. For example, ACH (Automated Clearing House) payments in the U.S. or EFT (electronic funds transfer) in Canada transfers money online between accounts. Examples are direct deposits and online bill payments. These transfers between checking accounts online are becoming faster, more secure, and easier than ever. 

The future of checking accounts and digital payments 

At VoPay, our Intelligent EFT / ACH (iQ11) technology processes and verifies digital payments instantly—without the security risk of sharing credit card information online or mailing a paper check. In fact, with our intelligent EFT and ACH solution and secure partnerships, no financial information is ever shared. The entire system is tokenized (stay tuned for an upcoming blog post on what that means for your safety and security). In short, personal financial data is replaced with an algorithmically generated number. 

This is the future of online banking, payments, and shopping. Customers can work their way out of credit card debt by instead using their debit cards online, anywhere, instantly, and securely.

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