By Nicholas Cucci
Network Merchants Inc.
The credit concept has been around for centuries. Back in the 1800s, general stores allowed customers to purchase products and services without paying for them in full. This enabled sellers to reach a larger base of customers, letting them pay their debts over time. The concept obviously spread like wildfire, even in the 1800s.
The first bankcard - named Charg-It - was introduced in 1946 by John Biggins of the Flatbush National Bank of Brooklyn, N.Y. The program benefited bank customers and local merchants. This advancement was followed in 1950 by the Diners Club Card, which was the next step in credit cards. By 1951, 20,000 Diners Club cards were in circulation.Cards issued by Diners Club and American Express Co. "functioned in what is known as a 'closed-loop' system, made up of the consumer, the merchant and the issuer of the card," Stan Sienkiewicz wrote in a paper for the Philadelphia Federal Reserve entitled Credit Cards and Payment Efficiency. He noted, "In this structure, the issuer both authorizes and handles all aspects of the transaction and settles directly with both the consumer and the merchant."
In 1959, the option of maintaining a revolving balance was introduced, according to MasterCard. This meant cardholders no longer had to pay their bills in full at the end of each billing cycle. While this carried the risk of accumulating finance charges, it gave customers greater flexibility in managing their money. As in centuries past, today we find ourselves torn between maintaining credit balances and paying our debts instantly. We are beginning to see signs of changing consumer behavior when it comes to making payments, especially in the e-commerce world. We have also seen certain new features, such as MasterCard's PayPass contactless card technology, pop up in the retail environment.
According to a recent report by Javelin Strategy & Research, online credit card use "continues to decline, representing a sustained and ongoing change in customer behavior." Javelin reported that total payment volume from credit cards fell to 40 percent in 2010, down from 44 percent in 2009. As the Internet emerged and people started buying more online, the credit card became more versatile. Yet it was obviously not designed with the Internet in mind, which has since created problems. For example, repeatedly entering credit card information every time you make a purchase over the Internet has become an exercise in annoyance.
Today, certain technologies are emerging, such as near field communication (NFC), which allows for simplified transactions, data exchange and wireless connections between two devices - typically smart phones. However, these devices are expected to communicate at a distance of up to only 10 centimeters (four inches).
NFC can be used for a variety of activities:
The Javelin report provides a few more key statistics:
The adoption of alternative payments doesn't spell the end for credit card payments. All payments will continue to evolve in the near future for the following reasons:
Mobile devices could be the wave of the future for payments. These solutions help integrate e-commerce with retail transactions. We are right on the cusp of another emerging technological advance in the payments industry. It remains to be seen what solution will take the lead.
Nicholas Cucci is the Director of Marketing for Network Merchants Inc., a graduate of Benedictine University and a licensed Certified Fraud Examiner. Cucci is also a member of the Advisory Board and Anti-Fraud Technology Committee for the Association of Certified Fraud Examiners. NMI builds e-commerce payment gateways for companies that want to process transactions online in real time anywhere in the world. Contact him at firstname.lastname@example.org.
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