The Past, Present and Future of Payments - The Past 20 Years

These developments experienced over the past two decades are reflected in a three-interview series on the Past, Present and Future of Payments.

It is widely believed that the ancient Greeks invented money, as we know it. In fact, the first coins to ever appear came from a coastal kingdom on the Aegean Sea in ancient Turkey, about 2,700 years ago. The amount that each coin was worth was embossed on gold or silver flat coins, and they were used to trade with visiting merchants from overseas. That’s a far cry from the international payments scene today. However, it would be fair to say that for thousands of years, not much really changed with ‘money’. Cash used to be king. Even though credit cards payments took off during the 1980s, they were initially mostly for domestic use.

It is in the last 20 years that we have seen serious technological advances, which have opened up global markets to those with secure international payment facilities.

The last 20 years have seen incredible change in the payments space. What were the main drivers of this change?

The key drivers have been the technology advancements fuelled by a desire for convenience. The two go hand in hand. A desire for convenience would have made little difference if there hadn’t been such a shift in our technology capabilities. For instance, walking to an ATM to take out cash is inconvenient. Then again, how do I carry and protect the cash? Avoiding the effort and cost involved with handling cash has been driving the global success of credit and debit cards ever since the first Diners Club cards were issued in 1950.

Plastic cards, however, do not provide the convenience desired within the digital age. Who likes to type in a 16-digit card number, validation date and validation code on a keyboard – let alone on a smartphone? Founded in 1998, PayPal became popular throughout the early noughties and has grown from strength to strength, requiring only an email address and a password once verification was initially made. Again, convenience was the driver leading to PayPal’s global success (which has been followed by dozens of alternative payment methods in Europe and China), and also the driver behind the rise of what we know to be digital wallets today.

Can you give a picture of what did ‘international payments’ look like 20 years ago?

Twenty years ago, PayPal was not founded yet. Neither was Alipay in China. Popular bank transfers like iDEAL in the Netherlands or SOFORT in Germany did not exist. Direct debit payments in Germany seemed unsafe for most merchants. However, credit cards did not provide any guarantee either. For merchants, selling over the internet was a risky business. The fraud level was lower than today due to a lack of consumer adoption of the internet, however, the merchant’s vulnerability was much higher.

What have been the key challenges with payment options over the past 20 years?

Security and trust, without a doubt. Visa and Mastercard made an effort to bridge the lack of trust and security by introducing a security standard called Secure Electronic Transaction (SET), which was based on digital certificates identifying merchants and consumers. SET provided a payment guarantee to merchants. However, SET required consumers to not only install local software, but also to add a certificate provided by their issuing bank. SET was secure but far too complicated for all parties involved. Banks failed to provide SET certificates and consumers did not install the software – let alone adding SET certificates to that.

Software-as-a-service was not an established concept, yet. Merchants were supposed to install payment software on their own shop servers but, again, SET was too complicated to handle.

Computop started building its reputation by providing reliable SET payments - a rare service at the time. Also, we provided Computop Paygate and SET as a service which was a new concept. We tamed the SET technology and provided payment processing as an affordable service. Merchants did not have to invest in hardware and software licenses anymore. Just 18 months later large banks and acquirers started to buy and resell Computop Paygate services. And when IBM backed out of its payment adventures around 2001, Computop stepped in to provide reliable payment processing software to one of Europe’s leading acquiring processors: GZS.

Which payment innovations have made the most significant contributions to the development of payments as we know them today?

The most significant innovations in online payments so far are wallets like PayPal and online bank transfers iDEAL and SOFORT. Wallets and online bank transfers created a convenient alternative to cards, offering consumer and seller protection in order to avoid payment defaults.

For bricks-and-mortar businesses, the chip-based EMV standard has contributed significantly to both the security and flexibility of payments. Introduced in Europe in the 90s, the chip not only protects card details, it can also be used for additional services like ticketing or other applications. Together with EMV NFC, they both have a positive impact on the convenience of in-store payments.

Which historical payment milestone most stands out for you from the last 20 years?

For brick-and-mortar retail, the biggest milestone in payments is NFC, a global standard allowing payments to be processed through mobile devices like smartphones or smartwatches, even if they are not connected to the Internet.

Given the security challenges that ecommerce has faced, the most significant milestone for online businesses has been tokenization. Replacing plain credit card numbers has vastly improved security for consumers and has allowed merchants to provide convenience through one-click-payments. Given the dominance of card payments globally, so far tokenization has been a huge improvement for hundreds of thousands of merchants and billions of payment transactions. Today, Apple Pay still relies on the concept of tokenization.

Simply put, the biggest milestone for consumers has also been the rise of digital wallets which have paved the way to a convenient digital shopping experience in an omnichannel retail world. Wallets can be used on any device and in any sales channel like POS, online, mobile, and virtual reality.

The next instalment in this three part series, Payments Today, will be published on September 18th in the Voice of the Industry section. In part II of this series, Computop will take a look at the payment industry today, who are the real innovators of today’s payment scene, what are challenges the payments industry currently faces, and many more.

About Ralf Gladis

Ralf Gladis is the co-founder and CEO of Computop. In his early years, he worked as a software architect in the successful development of the Computop Paygate platform. Gladis had gained the necessary understanding of technology as a student of Business Information Systems at the University of Bamberg. Today, as founding director, he is responsible for international expansion and for Computops strategic direction.

About Computop

Computop is a leading global payment service provider (PSP) that provides compliant and secure solutions in the fields of ecommerce, POS, m-commerce and Mail Order and Telephone Order (MOTO). The company, founded in 1997, is headquartered in Bamberg, Germany, with additional independent offices in China, the UK and the US. Computop processes transactions totalling USD 24 billion per year for its client network of over 14,000 large international merchants and global marketplace partners in industries such as retail, travel and gaming. Global customers include C&A, Fossil, Metro Cash & Carry, Rakuten, Samsung and Swarovski. Following the recent asset deal with the Otto Group, Computop is now processing payments for merchants that previously used EOS Payment, including all 100 Otto retail brands.