100 Innovations

From Cows To Mobile – The Ideas That Changed Payments

While the Code of Hammurabi is best known for the “eye for an eye” proclamation, it also deserves credit for being the first recorded instance in history where money was formally recognized as a tool of civil society. While less eye-catching than the retributive justice part, the code also limits interest rates on debt and creates a system of fines for civil infractions.

Hammurabi’s code was written around 1790 BC, but the concept of trade moderated by a means of exchange is significantly older, though impossible to pin precisely. Money (as we would recognize it today), the original payments innovation, was developed independently in China, India and the Aegean in phases over a 6,000 year period.

But most scholars agree that the payments and commerce road-show kicked off around 9000 BCE, when human beings domesticated cows and then realized that they weren’t just good for milk, steak and plowing fields – they were also good for trading.

In some sense, that makes them the original payments method, though that may seem like a silly statement given that there are probably no POS terminals on Earth that accept bovine payments. Then again, there are parts of the world where cows may, in fact, still be a valid payments method. And, it could in fact be the case that cows are the only payment method with 11,000 years of continuous use behind them.

Luckily, as an intelligent species, we realized early on that there had to be a less cumbersome way of exchanging value and immediately set about building a payments and commerce system not predicated on having to haul around an 1,800-pound animal.

And that leads us to the modern day, where ways to pay now abound. There are hundreds of flavors of cash to choose from – minted by almost every nation on the planet. There are credit cards, debit cards, ACH payments, crypto coin, mobile wallets – the ways to pay are myriad and seem to be growing every day. How to make exchanges faster, easier to access, cheaper to conduct and simpler to use have been what’s motivated innovators over the decades to evolve how we pay for things.

The path from cows to mobile payments is so long it took over 10,000 years to walk. But, luckily we don’t need to start quite so far back to understand the playing field we find ourselves on today.

Over the last six decades, the payments industry has not just evolved and changed –  in many ways it has defined and transformed the way commerce is happening around the world. With so much change happening so fast, we thought it fitting to launch a series that takes a look at the 100 innovations that have changed the payments industry.

Over the next week ,you will see the release of our first 10 entrants to the Top 100 list.

 

Who made the first cut? We’ll give you a peek at the “M’s.”

Magnetic Stripe

These days, the magnetic stripe doesn’t get much love. It is widely regarded as a technology on the way out – replaced by the newest and shiniest thing – EMV.

Well, OK, EMV is 20 years old, so maybe it’s not quite the newest or shiniest thing out there – but it is hipper and more European than the humble magnetic stripe developed by IBM engineer Arthur Hahn in the 1950s.

Almost exactly a year ago, Hahn was inducted into the PYMNTS Innovation Hall of Fame for his immeasurably valuable contribution to payments. He even brought the original prototype with him. Hahn did not work alone – IBM’s Jerome Svigals developed the magnetic stripe technology and IBM engineer Forrest Parry was the first person to affix magnetic media to a plastic card for data storage in the early 1960s.

Without that thin strip of magnetic coding, using a card in a retail store was a slightly more arduous version of writing a check. Cashiers had to check a book (or three, depending on card) to make sure that it hadn’t been reported as stolen. Those books were updated once a week, and if the charge was too big – the bank had to be called for authorization.

Without the mag stripe, it is safe to say this was probably not a system bound for mass adoption. And pay cards weren’t the only thing mag stripes unlocked –  more than unlocking the card for retail transactions, the magnetic strip also paved the way for such modern staples as the ATM, card-based keys and transportation cards.

By all accounts, the mag stripe is now due to enter its dotage in the retirement home of outdated innovations. Or by most accounts anyway – Samsung notably seems to beg to differ.

A few weeks ago, the electronics giant announced its acquisition of LoopPay, a mobile commerce platform that uses its Magnetic Secure Transmission (MST) patented technology to turn existing mag stripe readers into mobile contactless receivers.

“This acquisition accelerates our vision to drive and lead innovation in the world of mobile commerce. Our goal has always been to build the smartest, most secure, user-friendly mobile wallet experience, and we are delighted to welcome LoopPay to take us closer to this goal,” JK Shin, president and head of IT and mobile division at Samsung, said in a company news release.

EMV may be the wave of the future, but Samsung is betting on the needs of now – when 90 percent of merchants can work with Loop’s mag stripe emulator. That is particularly important since Samsung rival Apple’s payment platform only works at about 220K merchant locations.

If Samsung can leverage Loop and mag stripe into something that ignites fast – it might not be quite time to count out Arthur Hahn’s invention after all.

mPOS

Here at PYMNTS, we like to say we were into mPOS before it was cool, which usually causes the uninitiated to question whether or not we have a firm grasp on what “cool” means.

But we feel this says more about their ignorance of payments than our lack of hipness – since it is undeniable that by allowing countless small businesses to open up to card payments, they have unleashed countless cool products upon the world. Which is unsurprising since the company that created the space, Square, is born out of the collaboration between tech visionary and a frustrated artist.

And we mean a literary artist that was literally frustrated – not by his lack of artistic success, but by his inability to monetize it. Square co-founder Jim McKelvey was a glass blower who was tired of turning away customers who didn’t have cash on hand. McKelvey hooked up with Twitter co-founder Jack Dorsey, and their smartphone credit card reader, the Square, was born. In its first instantiation, it was a small box that plugged into the phone’s audio jack.

Square has come a long way from its beginning as turning every iPhone and iPad into a working cash register for their clients. There are never any shortage of headlines about Square – and the company offers a host of small business services beyond payments processing. It’s also flirted on and off with a consumer facing business model – though that seems to be sidelined for the time being.

And Square’s aggressive and diverse expansion makes sense because Square is far from alone in the mPOS market that it essentially created. iZettle is growling globally and some think that the U.S. conversion to EMV offers it an opportunity to jump into the market.

And as mPOS goes forward, it faces developing challenges. Nearly a third of merchants who participated in a Bluefin survey indicated that mPOS is riskier than standard eCommerce offerings. The question now is not just if mPOS providers can make the payments easy to offer on the go, but can they also enable it in a way that is truly secure?

M-Pesa

Coming out of SXSW, Mobile World Congress and Innovation Project 2015 – it is easy to be impressed with the amazing wonders that technology has made available. The world of cars that don’t need gasoline, drive themselves and pay for their own gas is apparently here. And that is, in fact a legitimately amazing thing.

But if someone were to give you a gasless, self-driving, commerce enabled car – would it change the direction of your life? Probably not. Barring some of the more alarming recent predictions of the cars and other smart machines gaining sentience and trying to kill us – which would certainly be life changing – the amazing car of the future would doubtlessly make life for its owner more convenient, but not fundamentally different.

M-Pesa, on the other hand, has literally changed the lives of tens of millions of people in Africa – as has the micro-finance boom it has set off in the region.

“Mobile payments has ignited. Kiss cash and plastic goodbye,” MPD Chairman Dr. David Evans wrote in a recent commentary. “But not if you live in the United States or most other developed countries.”

Launched in 2007, and named for the Swahili word for money, M-Pesa allows for easy fund transfers via SMS text messaging. Today, 20 million Kenyans can do almost everything from routine grocery shopping to settling their utility bills to paying their doctors via text message – not to mention the millions of others spread across Africa and the world. And by text message, we mean the old-school SMS text on a feature phone, as smartphones are not big.

“When we started out, we didn’t know it would be so successful. We thought we should have maybe 200,000 or 300,000 customers,” the father of M-Pesa Michael Joseph told MPD CEO Karen Webster in an interview earlier this year. “Where the success came was really in the execution. I set the target and the bar very high and said ‘we need a million customers by the end of the year.’ My team didn’t think they could do it, but I said ‘we’re going to have to do it.’ And that was the magic number that made it go viral.”

They recruited those customers by building a big network that allowed customers to both easily load money at grocery stores and similar familiar locations, and also for consumers to cash-out easily and instantly – which is particularly important, Joseph noted, especially in the early days of working with largely unbanked, cash-reliant customers.

“Particularly at the bottom of the pyramid, people want to have the ability to do a cash out. They might not want to actually do a cash out, but they want to have the ability — they want to know with comfort that if they want to, they could. In our early days, the money went in, transferred and cashed out. Today, the money stays in sometimes weeks now, because the people are using it as digital currency,” Joseph explained.

And that changing willingness to use to digital currency is changing what people can do in Africa.

Rokoine Tipanoi, in late 2014, used her mobile phone to place a small down payment on a solar panel that provides her family home access to electricity for the first time, and for a lower cost than what it once cost to fill her kerosene lantern.

The original deposit for the panel was $30, and she will be paying that off for roughly a year through a series of daily micropayments. Daily fees will add up to about 40 Kenyan shillings, or a little under 50 cents. This is made possible because Tipanoi could both make the initial payment and the daily micropayments using M-Pesa.

“The mobile phone made the bottom of the pyramid viable as a business opportunity,” said Aly Khan Satchu, who runs a Kenyan investment firm. “If you’re taking a dollar off a million people, that’s a reasonable revenue stream, but it wasn’t possible to do that without the mobile phone.”

And even beyond what M-Pesa has accomplished, which is notable, the firm also is notable for what it has inspired. Recently, Karen Webster also caught up with Joyce Kim, the executive director of Stellar, a non-profit looking to use its consensus protocol to create accessible rails for the underbanked worldwide.

“I’m from an immigrant family and grew up in New York,” Kim explained. “So everyone I knew growing up, including my family, had trouble sending money around. It’s really great to build tools to change how money works and to do it using phones. I think those innovations are remarkable. We’ve seen how M-Pesa can move an entire country.”

If moving an entire country, and possibly a continent, doesn’t qualify something for the 100 Greatest Innovations in Payments, then nothing does.

And that’s just the M’s. Check out the rest of the site to see PYMNTS take on other initial entrants, including NFC, ATM, Daily Deal, Bill Payment, Debit Cards and Network Tokenization.

The 100 innovations does more than just tell you the basics about what the biggest ideas in payments are and who came up with them. Instead, we’re taking a deep dive on the biggest and best ideas that changed the way people pay and buy by looking at the innovators who shaped the big ideas, the vital stats, what the business is doing today and – maybe most interestingly – what the future could have in store.

It’s almost impossible to know everything you need to know about payments – since the history of the vertical is currently being written in real time. Remember Woot.com?

Probably not – but if you check out our Daily Deals spotlight, you will learn all about how it is the frontrunner to sites like Groupon.

And with these 10, we’re just getting started. Over the next several week we’ll be rolling out our latest updates to the 100 Innovations in payments – with more of the same in-depth look at what made the great ideas really stand out.

Worried that we might miss something?

So are we.

And that’s why we also want your help. What do you think the greatest innovations in payments are? Tell us on Twitter (@PYMNTS) or email us at info@pymnts.com.

There are thousands of innovations necessary to advance an ecosystem as big and interconnected as payments. We want to build a list of the biggest, the boldest and the best. Care to help us do it?

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