NFC and the Mobile Payment Initiative-2

By Craig Conkling

[Part 2]

History of Banking and Financial Transactions

Cash (or coin) was a means used to make transactions for many centuries. Bills evolved as a way to make transactions so large amounts of gold or silver coins had to be carried with the person. And checks, which were simply another form of a bill (of exchange) to make non-cash transactions, have been around since the 9^th century.

The first charge card was created in 1946 (as the story goes) and was used only for local purchases. In February 1950, a charge card for general use was created after a client had forgotten his wallet while dining out, and thought this would be useful to have. This charge card was called Diners Club Card, and by the end of 1951 there were over 20,000 cardholders. It took nearly 20 years from the time the first credit (or charge) card was issued in 1946 until the formation of an “open-loop” credit card system – enabling interbank cooperation and funds transfers.

Electronics payment terminals using a credit card with a magnetic stripe was first introduced in 1979 by Visa. MasterCard also started offering magnetic striped credit cards in the same year. In 1983, VeriFone introduced the ZON terminal. In 1982, Hypercom entered the electronics payment terminals market. Then, in 1994 Lipman Electronic Engineering entered the market with the Nurit line of processing terminals. Today, MasterCard PayPass, ViVOtech and USA Technologies and a list of others also provide electronic payment terminals. The electronic payment terminal business includes: wired and wireless, attended and unattended terminals.

A study on electronic banking conducted by the Federal Reserve in 2004 concluded that in 2000, 41.9 billion (or 57.8% of the total) non-cash transactions were by check, compared with 30.6 billion (or 42.2% of the total) were by electronic payments. By 2003, the number of electronic payment transactions totaled 44.5 billion (or 54.8% of the total), while the number of checks for non-cash payment transactions totaled 36.7 billion (or 45.2% of the total). 2003 was the first year that electronic payment surpassed check payment for paying bills.

In addition, electronic commerce (or e-commerce), fueled in part by Amazon (founded in 1995) and then by PayPal (founded in 1998), further accelerated electronic payment transactions. The decade of 2000 has shown a significant transition regarding how people elected to pay their bills. It was nearly 57 years since “credit cards” were introduced in 1946 and nearly 24 years since “magnetic striped credit cards” were first available in 1979, that electronic transactions overtook check transactions to pay bills.