Evolution: From Barter to Bitcoin

Humans have come a long way in paying for things from barter system several centuries ago then cash, check, debit cards, credit cards, PayPal, Stripe, and now Bitcoin.

This centennial evolution was slow, yet steady.

So why are payments important?

Payment systems or Point-of-Sale’s are the real proof of the transactions taking place in our societies i.e. to enable a monetary transfer between buyers and sellers. As long there will be buyers, there will be sellers. Payment providers are evidentiary and powerful mediums through which goods and services transfers are enabled.

Imagine a world without payments? How would we trade anything?

As the population grew, the world needed more people to buy and sell things, and people soon realized that the manual solutions like barter and cash were not scaleable.

Below is the screenshot of a recent TechCrunch article going back to where digital payments, originally started couple decades ago.

Mobile Payments

Before 1983, cash registers were the only known ways of collecting payments. And widely used forms of payment was cash, credit card, gift cards, debit card and traveler’s checks. Traditional ‘Cash and Carry’ model was followed by several retailers, mom and pop stores. Until 1983, there was not the concept of digital cash.

Fast forward 2017, you have billions of dollars of transactions happening online.

VisaNet powers 2 billion cards in 200 countries and is capable to handle 24,000 transactions per second.

The first recorded online transaction was in 1994 when a customer ordered a pepperoni pizza topped with mushrooms and extra cheese from Pizza Hut. By 2015, we had a non-cash transaction volume of 389 billion stated in a World Payments Report, a joint venture between Capgemini and Royal Bank of Scotland. This excludes the 40 billion transactions of them have not tracked accurately because of various financial instruments used (Digital Cash, Digital Wallets, Mobile Money, Virtual Currency etc.). Nonetheless, the growth narrative holds true of digital payments in the future.

Digitalization in the payments space presents a large opportunity worldwide. The usual suspects hitherto were the banking institutions who normally offered payments solutions. But of late, we are seeing new players enter the market.

Apple Pay, Chase Pay, Citi Pay, Walmart Pay, CVS Pay are examples of retailers and financial institutions coming up with their own touch-enabled digital payment offerings.

Per Prosper Insights & Analytics 2016 survey, 38% of millennials, 32% of Generation Xers and 18% of baby boomers are comfortable using mobile payments for their store checkout process. Devices like Square and payments apps like Venmo have fundamentally changed the digital movement enabling small merchants and individuals to carry out transactions.

FinTech space is going through massive growth. eMarketer predicts mobile payments to touch $314billion by 2020. The number of startups in the FinTech space grew 7x past 10 years, per BCG and Google.

India, the land of 1.25 billion people and second largest nation mobile phone users, authenticates payments using Aadhar card, a national identity instrument for every Indian citizen has the potential to scale up transactions across the country.  Paytm, the mobile payments company offering mobile wallets and digital cash products currently process 60 million orders per month.

Kenya has another success story from M-Pesa, the mobile payments company started by Vodafone. “Paying for a taxi ride using your mobile phone is easier in Nairobi than it is in New York” headlined the article from the economist. Started in 2007, currently, they have about 25 million active customers, benefitting from the network effect. M-Pesa allows users to transfer, deposit and withdraw money to pay for goods and services all on the mobile device.

Further reading on top payment providers.

(Featured photo by Roman Kraft on Unsplash)