The Evolution of the Payments Industry

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In order to understand the payments industry, it’s important to look back on the industry’s forty-year history.

The terms and methods of payments have evolved greatly throughout the past years. Payments were once made with literal gold coins, and now consumers are using digital wallets. At present, there are numerous companies that offer financial services. With the involvement of digitalization, the payment industry has turned into a complicated space.

Inventions of Payment Methods before the Internet

The credit card terminal was introduced in 1979, by Visa. Hardware manufacturers like Ingenico, Hypercom, and Verifone started their rise with electronic payment platforms in the 1980s. Data management platforms and telecommunications were added to construct a network that offered cheap and efficient electronic payment acceptance services globally. This terminal ecosystem continued to develop until the internet appeared in the mid-90s.

The internet’s approach to payments was entirely different than existing methods. A virtual payment terminal for online payments became necessary for internet-based businesses. New companies like Bibit, Authorize.net, and CyberSource stepped forward to fulfill these needs. Instead of competing with big processors, these companies chose to focus on introducing merchant and consumer-facing technologies

These are the companies that we know as Payment gateways, web-based correspondents of the payment terminals that have adapted internet-based transactions, and added them to the payment processors existing before the internet. ACH Payments Gateway Solutions  have also evolved to leverage the ACH networks low cost.

The Change Brought About by Technology

Payment gateways soon started to show impressive results in online transactions with the development of online commerce. Amazon.com began its journey in 1994, followed by eBay in the next year. Instead of building in-house gateways, payment processors went for popular gateways.

However, processors faced serious problems after purchasing these systems because most customers continued with online transactions using their old platforms. Migrating them to new platforms was, and still is difficult. 

Moreover, companies kept specializing in merchant segments, so it was not possible for a single gateway to serve the needs of the entire customer base of a processor. Processors needed to own gateways or partner with multiple ones. Legacy processors combined old and new technologies in some cases.

The integration between software developers and payment gateways started in the 2000s, which routed transactions to several processors.

Apart from this, many other areas of payment processes were innovated, including processing power, local data storage, data encryption, payments integrations into sales software, etc.

Present Day Payment Gateways

Nowadays, companies have numerous options for choosing payment providers, including: 

  • Legacy banks that offer payment processing, sometimes with different technologies developed in the 1980s. 
  • The technology used by gateway-only startups needs to plug into old infrastructures yet because their part in the payments value chain is very little.
  • Standalone fraud solutions are offered by many companies, but it needs a lot more staffs to invest in payments and fraud separately.

Choosing between the payment options and integrating them into businesses is difficult, but there is an easy way. You need to choose a whole payments value chain that manages the complete payment process, starting from checkout up to the final statement. With numerous payment methods, protection against fraud, and direct connection to card schemes, this kind of platform is a payment gateway (as well as a risk management system that you can use for streamlining operations) reduces costs and optimizes results.

12 Payments Terms You MUST Know

  1. Acquirer: Acquirer or the Acquiring bank, is the financial institution or bank of a company that lets it accept payments.
  2. Issuer: The Issuer of the Issuing bank is the bank of the shopper that equips consumers with different types of cards, like credit and debit cards.
  3. Card Networks: The entity responsible for setting the rules and technical infrastructure for payment processing. Some of the largest card networks are Mastercard, Visa, UnionPay, Discover, and American Express. 
  4. Fraud: If a malicious agent attempts a transaction or completes it, then it is considered as a fraud.
  5. Chargeback: In the case of fraud, defecting goods or no deliveries, the shopper may disagree with the charge on the card and can ask for a refund. If the refund is refused, then a chargeback can be raised that points out the liable party according to the evidence presented.
  6. Authorization: Authorization is the verification of a customers’ request to buy anything by a card issuer such as a credit card company or bank. The percentage of authorized transactions is the authorization rate. 
  7. Interchange Fee: For each transaction by card, this fee is paid by the merchant through the acquirer to the issuer. The amount of the fee is depended on merchant category, card type and transaction value.
  8. Local Payment Methods: Payment methods that are not a part of major card networks are local payment methods. These methods include bank transfers, digital wallets, direct debit, car-based services etc.
  9. Payment Gateway: The service helpful for merchants for initiating e-commerce, point of sale and in-app payments using various payment methods. It is a web server connected to the merchant’s website or a payment service provider, but it is not involved with the money flow directly. It connects several payment methods and acquiring banks under one system.
  10. Point of Sale: A combination of software and hardware that lets a customer buy products and acquire services in brick-and-mortar stores.
  11. Payment Service Provider: The company that adds the functions of a payment gateway with the ones of a payment processor and connects to multiple payment networks.
  12. PCI Compliance: the role of Payment Card Industry Data Security Standard is to secure the cardholder data and protect the major card networks by reducing risks or frauds. All establishments involved with payment card processing must be under PCI compliance.


  • Editorial Director of the The Fintech Times

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