MBA Infographics

The Future Way to Pay

The mode of payment for goods and services has been evolving since human beings started trading with each other during the early millennia. Over the last few years and looking ahead into the future, the way in which we exchange money for goods and services has and will see unprecedented growth and innovation due to advances in technology that is now part of our daily lives.

The infographic below, created by the New Jersey Institute of Technology’s Online MBA program, takes a closer look at the past, present and future of payments methods, security and what you can expect.

The Future Way to Pay

A Brief History of Payment Methods

Early forms of payment revolved around barter trade, which is simply the exchange of goods/services for other goods/services. Between 9000 and 6000 BC, people started using livestock such as cows, sheep, camels, and goats to settle transactions. This form of payment stuck for centuries until cowrie shells appeared on the financial payments scene in 1200 BC in China. Since these shells were more portable than livestock, they quickly became widely accepted making it the longest used currency in world history.

In 1000 BC, the Chinese set another milestone in this space by introducing the first metal coins followed by paper currency in 806 AD. During the 12th century, the bill of exchange emerged in Italy making it easier for traders to trade without using coins. In 1792, the US enacted the Coinage Act followed by the introduction of electronic money transfer in 1860. In 1946, John Higgins, a Brooklyn banker, introduced the first bankcard called “ChargIt.”

New York’s Franklin National Bank issued the first credit card in 1951. Starting in 1990, the use of embedded smart cards and electronic checks became commonplace. In 1995, the first banking site appeared online. In 2005, contactless payments had appeared in North America. Satoshi Nakamoto revolutionized the payments industry with introduction of the Bitcoin concept in 2007 preparing the way for the first Bitcoin transaction to take place in 2009. In October 2014, Apple launched a payments system called Apple Pay.

The State of Modern Payment Methods

Modern payments systems are largely tech-based. Apple Pay relies on wireless technology to allow iPhone 6 or iPhone 6 Plus owners to purchase diverse goods and services. This payments system is already in use across 2,500 financial institutions and 700,000 retail outlets. Apple Pay accounted for two out of three dollars spent via contactless payment in January 2015, which is testament to its growing popularity. Unsurprisingly, Apple’s payment system is popular with millennials who tend to be tech savvy. Coca Cola is in the process of rolling out about 100,000 vending machines that accept Apple Pay.

Since its introduction in 2007, the price of Bitcoin has seesawed a lot. For instance, at the start of 2014, Bitcoin’s price stood at $770 and dropped by more than 50% to $350 in December the same year. In spite of these challenges, Bitcoin is still popular with 111 ATMs in the US, 61 in Canada, 20 in Australia, 20 in the UK, and 13 in Finland. Surprisingly, very few females use Bitcoin with 93% of Bitcoin’s users being male. In addition, millennials trump all other demographics in usage of this cryptocurrency. In the US, most Bitcoin users reside in Washington, Nevada, Utah, California, Vermont, New Hampshire, and Oregon.

Besides Apple Pay and Bitcoin, Venmo is another popular payments system. In simple words, Venmo allows payments to one’s social networking site contacts. The New York Times reckons that Venmo is growing at a rate of 30% per month. This is in addition to processing transactions worth $10 million per month. Once again, Venmo’s users are millennials, particularly in the age group 18 to 24.

Future of Payments Industry

In the near future, you can expect to see biometric technology, voice recognition and finger vein scanners to become increasingly popular, especially for payment authentication purposes. Near Field Communication (NFC) is another form of technology that is likely to gain traction in this space. In addition, people could use their social networking site logins to make purchases.

Payments Systems and Cyber Security

Up to 48% of Americans believe virtual currencies could expose them to cyber fraudsters. In addition, 38% express similar misgivings when tapping to pay with mobile phones. A further 37% say using mobile apps to make payments could make them cyber fraud victims. On the security front, Bitcoin uses military grade cryptography. Apple Pay uses a proprietary chip to store users’ transaction details such as proxy account numbers and fingerprint authentication. On its part, Venmo relies on 256-bit encryption for similar purposes.

Despite these security measures, Mt. Gox, an exchange that handled over 70% of Bitcoin transactions, reported it had lost $500 million worth of Bitcoins to hackers in February 2014. Around the same time, hackers reported finding data gathered by Starbucks from iOS users was not encrypted.

Industry Regulations

Regulating virtual currencies such as Bitcoin is difficult because they are virtually untraceable. Even the IRS’s attempts to do so by declaring Bitcoin “property” has not helped much. That notwithstanding, China, Denmark, Thailand, and Russia have banned or strictly limit virtual currency usage.

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