How Payments Went Digital

The exchange of value is one of the oldest markers of civilization as we know it. In fact, many of the earliest forms of written communication were developed in order to enable tracking of trades, purchases, and taxes.

We’ve come a long way from the days of trading and bartering with goods and services. While beads and shells were used as crude forms of currency in some ancient civilizations, the introduction of precious metal coins offered a more stable and secure means of storing and transferring wealth. Eventually, paper bills of exchange were developed and adopted as a means to reduce the weight and storage costs coins necessitated.

With these early forms of money, the basic functionality of paying remained simple: you handed over units of currency, and the value ascribed to them was now literally in the other person’s hands. Bills of exchange were essentially precursors to modern checks -- a legal document which bound one party to pay another a prescribed amount.

From Cash to e-Payments

Standardization and portability were the chief drivers of adoption for coins and bills, but in today’s fast-paced, hyperconnected, always-on world, it’s all about speed, security, and convenience. Cash and checks may have once dominated the payment landscape, but in many ways they’ve been supplanted by more efficient and less costly forms of payment.

It may come as a surprise, but using cash can actually be pretty costly. One study from Tufts University found that using cash costs businesses about $55 billion a year, and the average family about $1,739 a year. These costs are felt in a number of ways - from ATM and check cashing fees to time, theft, and theft mitigation costs.?

Development of new technologies has delivered more convenient and accessible payment options free of those cash-related costs, including electronic wire transfers, debit and credit cards, and mobile payment apps. The widespread adoption of third party payment providers like PayPal, Zelle, and Venmo, has brought even more convenience and mobility to individual payers and businesses and has helped accelerate the digitization of the payments industry.

The COVID-19 pandemic also greatly impacted general payment habits, pushing faster adoption of digital and touchless options. According to a McKinsey study, 82 percent of Americans used some form of digital payment in 2021, up from 78 percent in 2020 and just 75 percent 5 years ago. A survey from Visa found that 78 percent of global consumers adjusted the way they pay out of concern for their safety, adopting touchless and digital payment options.

Still, when considering the entire payment process, from the transaction to the funds being fully accessible in the payee’s account, none of these digital options transfer ownership of the funds with the same immediacy as cash. Transactions through any of these tools need to be processed, cleared, and approved, all of which takes time.

However, recent developments in real-time payments are beginning to change that and deliver a payments option that combines the speed of cash with the convenience of electronic payments. The number of real-time payments processed globally in 2020 surpassed 70 billion - jumping by 41 percent year-over-year. While most real-time payment options are still largely focused on peer-to-peer use cases, adoption in commercial transactions may open a world of new payment possibilities.

The Future of Payments - Real-time, Automatic, and Invisible

The future of payments technology will be driven largely by the same forces that drove the previous payment revolutions: cost and convenience. The relative cost of supplying and processing cash and checks is accelerating as digital alternatives take hold. Similarly, the cost of card payments will become less bearable compared to the low cost of real-time payments -- typically a fraction of a cent.

The rise in popularity of digital payments means more data, which will drive innovation and convenience - kicking off a virtuous cycle that boosts adoption and ubiquity while also continuing to improve user experience. Solutions such as Request to Pay will link transaction data with payment data, which will improve automation and analytics, speed up reconciliation, and even help with spending decisions.

Improved data analytics and lines of instant communication will reduce both the cost and time needed to settle payment disputes, process chargebacks and settlements, and onboard customers. Providers of Order to Cash and Procure to Pay applications, like Exela, can also improve treasury services by using artificial intelligence (AI) and machine learning (ML) to offer intelligent receivables and reconciliation, by making it easier to apply incoming payments to outstanding invoices, and by providing better cash forecasting services.

Further advancement in digital payment options will bring new convenience to individual payers as well. Wearable technology like smart watches, enabled with mobile payment apps, will be able to automatically interface with local beacons to offer seamless (and checkout-line-free) shopping experiences, and may even automatically settle parking and toll fees. Plus, wearables may also be able to enhance payment security and fraud detection by linking biometric and financial data streams.

The rapid development of real-time payment options and the adoption of exciting new payment technology like the invisible, checkout-free shopping at some Amazon Go stores is making it more important than ever to leverage AI and ML in authenticating payments, detecting fraud, and protecting customers and merchants from cyber breaches. While speed and convenience drive adoption of new payment technologies, security often acts as the brakes. New solutions often come with their own threats, and until those dangers can be identified and mitigated, widespread adoption is typically slow. Early in a payment solution’s product lifecycle, providers can secure a competitive advantage by developing reliable security measures.

The exchange of value is one of the most basic building blocks of the modern world and society as we know it. As global trade has increased and the world has become more interconnected than ever before, new payments technologies that add value to both ends of the transaction - convenience for the payer, instantaneous posting of funds for the payee - help reduce friction and promote a healthy and active global economy.

Learn more about how new technology is changing the way we pay.

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