Payment processing has been a vital part of businesses operational configurations for several years. It’s something that’s become so normalized that we don’t even think about it. As important as payment processing to businesses, it’s also important to understand the history of payment processing so you can get a great idea of where the entire industry is headed (PS: it’s looking excellent!).
In this article we’ll walk you through the timeline of major events that led us to the modern payment processing industry.
With that said, let’s dive in!
Oftentimes asked, what was the first credit card ever issued – the answer commonly goes between credit-based punch cards and BankAmericard. The real truth here, is when talking about business and consumer credit cards, that the actual first credit card was BankAmericard.
The Bank of America (BOA) first introduced the BankAmericard in 1958 as a way to compete with other banks and to attract new customers. Initially, the card was only available to residents of California but quickly expanded to other states. BOA sent 60,000 unsolicited credit cards to residents of Fresno, California, in a test marketing move. This move caused a huge number of recipients to use the card, and as a result, BOA found itself swamped with a large number of delinquent accounts.
The BankAmericard was unique at the time because it was the first credit card to be accepted by multiple merchants, rather than just a single store or company. This made it much more versatile and convenient for consumers to use, and it quickly gained widespread popularity. Additionally, BankAmericard also introduced the concept of revolving credit, which allowed consumers to carry a balance from month to month and pay interest on it.
The BankAmericard was a major innovation in the field of credit and payment processing, as it allowed consumers to purchase items without having to immediately pay for them in cash. It also paved the way for the widespread use of credit cards in modern society, as it introduced the concept of revolving credit and the ability to be accepted by multiple merchants.
1967: Barclays’ Debit Card
In 1967, a significant development occurred in the field of payment processing with the introduction of the first debit card by Barclays Bank in the United Kingdom. This marked a major shift in the way people interacted with their bank accounts and made banking more convenient for customers.
The debit card allowed customers to access their bank accounts and make purchases without the need for cash or checks. It also allowed customers to withdraw cash from their accounts at automated teller machines (ATMs) without the need to visit a bank branch.
This new adoption in payment processing technology later led to Barclays partnering with Chemical Bank in the creation of the first ATM.
1968: BOA Opens Licensing to Credit Cards
In 1968, Bank of America (BOA) established the BankAmericard Service Corporation as a licensing system for other banks to offer the BankAmericard under their own names. This allowed other banks to adopt the BankAmericard name and logo and offer the card to their customers. The BankAmericard was thus renamed as the Visa card.
This move was a significant development in the field of credit cards and payment processing, as it allowed more banks to participate in the credit card industry and offer credit cards to their customers. This increased competition and led to the widespread acceptance of credit cards by merchants and consumers.
It also allowed Visa to grow as an independent brand and organization, which is now one of the largest payment processing companies in the world, with more than 6 billion Visa cards in circulation and over 44 million merchants accepting Visa as a form of payment.
Visa operates on a four-party model which includes the cardholder, the merchant, the acquiring bank, and Visa itself as the issuer. Visa makes money by charging merchants a percentage of each transaction made with the card and charges the issuing bank a fee for each transaction.
In 1969, shortly after the launch of the Barclays debit card, Chemical Bank of New York, one of Barclays’ partners, introduced the world’s first ATM. This was a significant development in the field of payment processing, as it allowed customers to easily withdraw cash from their accounts without having to visit a bank branch.
The advent of the ATM, along with the launch of Barclays’ debit card, led to a surge in the popularity of debit cards from various banks around the world. This was a turning point in the banking industry, as it marked the beginning of payment processing becoming a norm across a wide range of banks.
It was also around this time that businesses began to recognize the importance of merchant service providers, which are companies that process credit and debit card transactions for businesses.
The introduction of the ATM was a major innovation in banking, as it allowed customers to access their funds 24/7, regardless of bank branch hours. Prior to the ATM, customers had to visit a bank branch during business hours to withdraw cash or complete other transactions. With the ATM, customers could now easily withdraw cash, check account balances, and even deposit cash and checks at any time. This greatly increased the convenience and accessibility of banking services for customers.
The ATM was not only a convenient solution for customers, but also a cost-effective solution for banks. ATMs reduced the need for tellers and other bank employees, as customers could now complete transactions independently. This helped banks to reduce labor costs and improve efficiency.
As the use of ATM’s spread and more and more banks installed them, the use of debit card and cash withdrawals surged, which in turn made the need for merchant service providers more prevalent. Merchant service providers are companies that process credit and debit card transactions for businesses. They typically provide point-of-sale terminals, online payment gateway, and other services to businesses to help them process card transactions.
In the 1990s, many banks began to produce their own ATMs, which helped to standardize the process of cash withdrawals and deposits. This further increased the convenience and accessibility of banking services for customers and solidified the role of ATMs as a staple of modern banking. Nowadays, ATMs are found in nearly every corner, providing cash withdrawals, check deposits, money transfers, and even bill payments.
2000: Y2K – Huge Hit to Debit & Credit Payment Processing
The Year 2000 (Y2K) was a concern for many people in the late 1990s and early 2000s, as it was believed that the widespread use of digital technology would lead to widespread computer failures. This fear led many people to withdraw cash in order to avoid using digital or electronic methods of payment such as debit cards and credit cards.
However, the widespread panic and withdrawals of cash had a negative impact on many businesses. When people withdraw cash, they tend to spend it slower than they would with a debit or credit card. This resulted in a reduction in overall sales for many businesses, which in turn led to a significant financial impact.
In addition to the reduced sales, many businesses also faced inconvenience due to the increased fees associated with collecting payments via credit and debit cards. This led some businesses to rethink their approach to accepting electronic payments, which further contributed to the negative impact on businesses.
Overall, while Y2K may not have caused the widespread failures and disasters that many feared, it did have a significant impact on the economy and the way that businesses operated. It serves as a reminder of how fear and panic can have unintended consequences and the importance of considering the broader economic impact of our actions.
2006: PCI Compliance
In 2006, a major advancement was made in the field of payment processing security with the introduction of the Payment Card Industry Data Security Standards (PCI-DSS). These standards are a set of guidelines and protocols that all businesses that accept payments must implement in order to protect cardholder information and comply with industry regulations.
The PCI-DSS is an essential component of modern payment processing, as it helps to ensure that sensitive information such as credit card numbers and personal data is protected from unauthorized access or theft.
Businesses that are found to be non-compliant with the PCI-DSS regulations can face significant penalties, including fines and even temporary closure until compliance is achieved. It is important to note that switching to cash payments alone will not make a business compliant with PCI-DSS standards, as the regulations apply to all forms of payment acceptance.
The introduction of the Payment Card Industry Data Security Standards (PCI-DSS) in 2006, was a major step forward in the field of payment processing security. It has become an essential component of modern payment processing, as it helps to ensure that sensitive information such as credit card numbers and personal data is protected from unauthorized access or theft. businesses must implement these standards regardless of how they accept payments.
2011: EMV Chip Cards
The EMV chip, also known as Europay, Mastercard, and Visa chip, is a small integrated circuit that is embedded in credit and debit cards. The chip technology was introduced in 2011 as a means of increasing the security and efficiency of payment processing.
The EMV chip is considered to be more secure than the traditional magnetic strip, which was the standard before 2011. The chip stores and processes data in a secure manner, making it more difficult for fraudsters to access or duplicate the data stored on the card. Additionally, the chip-based transactions are processed faster than magnetic strip-based transactions.
The payment industry is constantly evolving, and EMV has become a widely accepted standard. Many companies no longer accept magnetic strip cards, as they are considered to be less secure and prone to fraud.
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As the history of payment processing has shown, there has been a significant evolution in the field over the years. Today, payment processing is much different than it was even just a few years ago. Advancements in technology have led to faster, more secure, and more convenient ways of processing payments.
One of the major changes in recent years is the rise of digital and mobile payments. With the widespread use of smartphones and the internet, customers are now able to make payments using their mobile devices, without the need for cash or a physical card. This has made payments faster and more convenient for both customers and businesses.
Another major change is the increased use of encryption and other security measures to protect sensitive information during transactions. This has made payment processing more secure and less prone to fraud.
All these advancements have made payment processing a normal part of daily life, and most businesses are now dependent on it. Payment processing providers now offer various services like a free statement analysis, to help businesses to manage and optimize their payment process.
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