Payments retrospective

From gold to bitcoin

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Payments retrospective
Money makes the world go round.

Since the beginning of time, humans have been engaging in the exchange of goods and services, searching for the most efficient way to fulfill individual and community needs. Money, as we know it today, became the most sought-after form of property, being recognized as the most liquid, tradable or exchangeable asset in the world.

Throughout history, people used various forms of money, but the ones that passed the test of time possessed five essential properties: divisibility, durability, recognizability, portability, and scarcity. It has been proven time after time that only when all five properties are present, an asset can become a globally accepted means of payment.

Bartering, coins, banknotes, cards, and bitcoin

Before the invention of money, people engaged in bartering, which completely relied on the coincidence of wants. This approach was far from ideal, which is why people started to search for a medium of exchange that would facilitate transactions in an economy. The first type of money used in human history was likely made of objects that had intrinsic value, e.g. shells, stones, glass beads, and precious metals.

Metal coins were first introduced in ancient China and Greece and soon achieved wide popularity as an exchange medium. The choice of metal was determined by availability. After the introduction of coins, trading became simpler, faster, and more efficient. As commercial activity and the size of individual transactions increased, transporting large amounts of coins became difficult and dangerous due to the threat of robbery and theft.

Before traveling merchants started depositing their coins with a trusted person who gave them a slip of paper that recorded how much money was deposited. When the merchants returned, they presented the receipt to the trusted person and got their coins back. These were one of the first steps toward paper money and banking services that we know today.

The early banks eventually started issuing paper banknotes for customers to carry around instead of metal coins. These notes could be brought to the bank and exchanged for their face value in metal coins, usually silver or gold. This paper money could be used as a form of payment for goods and services, similar to how currency works today. However, unlike modern currency, this paper money was issued by banks and private institutions, not the government.

The first general purpose payment card that allowed customers to pay for goods and services across multiple business stores was issued by Diners Club in the 1950s. Visa and Mastercard followed suit, setting up rules and policies around issuing, usage, payments, etc. on cards of different banks worldwide. The two companies have facilitated merchants to accept instant payments across the globe, monopolizing payments to the degree where MasterCard has an approx. 39% and Visa an approx. 60% share of the payments market in Europe (Statista). Since then, technology has evolved significantly — from magnetic stripe and PIN codes to EMV chips and contactless payment cards, mobile wallets, and other digital payment methods to pay for goods and services.

Internet, eCommerce and Covid

It is without a doubt that the Internet and eCommerce had one of the most significant impacts on the payment industry in the history of money, releasing an unprecedented number of emerging payment trends. The rise of online shopping created a need for secure and convenient payment methods which gave rise to digital wallets, allowing consumers to store multiple payment methods in one place making purchases using their smartphones.

First came Google Wallet and Android Pay allowing contactless payments to be made via smartphones rather than cards. Apple Pay followed three years later. These innovations were then extended to wearable devices offering even more convenient contactless payment technology. As more tech companies continue to roll out their own payment platforms, wearable technology is the next frontier. You can already make purchases with wearables such as smart watches, wristbands, and even jackets.

Since the outbreak of Covid-19, the use of digital payments has seen a significant increase. The Federal Reserve published some eye-opening statistics about digital payments between the years 2019 and 2020: compared to 2019, the year 2020 saw a 41% increase in the number of monthly digital payments; the value of digital payments increased by 67%; the number of people using mobile payments tripled; the use of contactless payments increased by over 50%. The majority of these trends have been accelerated by the pandemic and the implemented restrictions where many people turned to digital payments for convenience and safety.

Trends that have emerged in the payment industry

Numerous new trends emerged over the last few years, upending the payment business and paving the way for where we are today. All of this was heavily influenced by newly emerging technologies and users looking for simpler methods to complete tasks.

  1. Mobile Payments: With the emergence of mobile wallets and payment apps like Apple Pay, Google Pay, and PayPal, the use of mobile payments has quickly increased. Retailers are adjusting to this trend by providing mobile payment choices as consumers use their smartphones to make payments in greater numbers.
  2. Cryptocurrency: The payments sector has been affected by the rise of cryptocurrencies. The use of cryptocurrencies like Bitcoin and Ethereum has grown in popularity in recent years, though they still make up a comparatively small portion of all payments; more merchants now take them.
  3. Contactless Payments: The growth of contactless payments, which let customers pay for products and services without actually making contact with the payment terminal, is another trend. This is particularly important in light of the COVID-19 pandemic, as more sanitary and safe payment methods are sought after.
  4. Instant Payments: Instant payment systems like Zelle and Venmo are becoming more popular as a result of consumer demands for quicker payment choices. These systems make it simpler to split bills or make online purchases by enabling almost instantaneous money transfers between users.
  5. Digital Wallets: With businesses like PayPal, Google, and Apple providing their own versions, the use of digital wallets is growing. These wallets enable users to quickly make purchases across various platforms and devices and securely store payment information.
  6. Biometric Authentication: In order to confirm payments and improve security, biometric authentication techniques like face recognition and fingerprint scanning are becoming more popular. When combined with mobile payments and digital wallets, these techniques can offer a more seamless and safe payment experience.

This is just a brief summary of recent events and how the industry has developed from a paper note for depositing your coins with a reliable person to a completely automated process accessible on your smartphone.

GoCrypto’s retrospective

Our business has spent a lot of resources in recent years creating a new payment ecosystem so that retailers can begin taking new payment types, such as digital and cryptocurrency payments in addition to traditional card payments. The biggest trend we see is merchants wishing to have one device capable of handling multiple payment options. Apart from that businesses are on a constant lookout for lower transaction costs, which in core makes crypto payments so alluring to retailers. There is also BNPL and contactless payments that are gaining more and more spotlight.

A lot of effort has been put into tarnishing the reputation of the new cryptocurrency payment method. Institutions that have been trying to battle the new technology are now slowly realizing that it is not going away. We can now witness governmental and financial institutions searching for a way to get on board with the new payment technology to ensure their survival in the future.

Despite the fact that crypto payments are still years behind mainstream adoption, our team has been making waves with our holistic payment solution, introducing crypto payments on the same level as card payments.

We also prepared some insights from our team members on how they see the state of the payments industry in the last few years.

Žiga Toni, the Deputy CEO at GoCrypto

“In the last few years, payments have been shifting and there were some payment companies that were really growing at a fast speed (Stripe, Adyen,...). These companies had a big VC backing and had the goal to grow their market share exponentially. They were doing so by simplifying certain aspects of onboarding and implementation. Additionally, some movement has been made on the segment of open banking payments, effectively lowering the fee cost for merchants, but has no real value for the consumer. On the other hand, alternative payment methods which are focusing on giving users added value (cashback, loyalty, other benefits) are slowly taking a very small % of the market. Those payment methods are in general local and therefore have limited capabilities both in resources and in reach.

At this point, I would also like to touch on the crypto payments segment, which is also showing small results on a global scale. They hold the edge over other alternative payment methods as crypto is globally accessible to consumers. The adoption is still very early, mainly because of the difference amongst each market regulation on it. We have seen big movements in some parts of the world (El Salvador, Lugano, Caribbean islands) and do expect to see more such progress in other markets as well.”

Luka Paragi, Chief Product Officer at GoCrypto

Covid as a catalyst pushed forward the evolution and trends in the payment industry.

In the developed world we witnessed a strong shift away from cash payments and a growth of eCommerce and with it a strong incline of card, digital and crypto payments.

And we also saw a strong demand for BNPL payment options giving people a higher buying power for products and services that they otherwise couldn't afford or would need to consider getting a loan from the bank.

In high inflation markets cryptocurrencies have finally started showing their true utility and potential. Alongside giving the unbanked the option to self custody, it also presents an important option to accept payments that are not connected to their local currency. Here Bitcoin on the Lightning network and stable coins like Tether are proving themselves as the dominant assets.

The GoCrypto payment infrastructure has been pushing forward the crypto payments adoption for the last five years. Our core value is giving the merchant options and freedom to accept all types of payments. In high inflation markets crypto is becoming a strong trendsetter for the future thus slowly but surely bringing crypto to the mainstream.”

Ajet Redžepi, Chief Sales Officer at GoCrypto

“Blockchain payments offer multiple benefits to merchants and consumers alike. One of the most important ones is the accessibility aspect. The use of blockchain is permissionless, which means the user has full custody over his funds. There is no authority that needs to approve or supervise your transactions as in the world of traditional banking.

The accessibility factor also applies when talking about the working hours. While open banking is tackling the issue with working hours to some extent, blockchain is still the only technology offering 24/7 services where users can access, transfer, buy or sell their funds instantly at any given moment.

The third benefit is connected to the cost of a transaction, especially international transactions. Traditional payment methods still entail a number of currencies, conversions, middlemen and so on which drives the transaction cost upwards. As soon as you introduce a decentralized currency like bitcoin, the cost decreases.

With the flood of emerging payment methods, consumers and merchants can sometimes feel confused and lost, there are simply too many devices, systems, platforms on the market today. The awareness about new payment methods is not high enough the end user rarely knows which payment methods are the least expensive and the most secure which is why our team is focusing on creating a holistic payment solution, combining card, digital and crypto payments on one device - with 100% secure workflow and 100% transparent fees.”

Stuart Currie, Business Development Manager at GoCrypto

“Payment innovations have been developing quickly in recent years led by the increase in open banking solutions and the onset of mobile wallets such as Apple Pay and Google Pay which allow the tokenization of a user’s card enabling payment through the user’s mobile device.

Alternative payments such as Apple Pay gathered more users and transactions following the onset of the corona pandemic which led individuals following a push for contactless payments to make more online purchases, and reduce their use of cash for payments in-store with a move to cards and mobile wallets.

This was evident in western developed markets while many Asian markets were already leading the way with digital wallets such as Alipay and WeChat Pay.

The general trend therefore has been to simplify payments from a user perspective, remove inefficiencies and intermediaries and offer more choice and flexibility.

Aside from this general trend to open up payment mechanisms to technology providers and simplify the experience, new technology solutions such as payment by QR codes through mobile wallets, P2P payments through banking or 3rd party applications are gaining increasing market share.

Crypto payments have also been a growing trend over the last few years as users seek to utilize crypto for purchasing goods and services. The use of crypto as a payment method enjoys a lot of the benefits exhibited by other alternative payment methods in that unnecessary intermediaries are removed, payment can be completed through QR codes or pay by link and the cost of transaction is often reduced compared to traditional card payments.”

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Payments retrospective
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