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Technology by its nature changes the market. The introduction of efficient solutions spurred by technology to meet consumer demand creates new positive effects across an economy. Plenty of industries — entertainment, transportation, the press and retail, for example — have experienced changes in business models, delivery methods and competitors, due to the development and deployment of new technologies.
Of course, technology also creates entirely new markets. The modern payments industry was shaped by critical innovations that made credit and debit cards as we know them today possible.
After all, we live in an age where virtually everyone carries a connected device more powerful than the computers that sent Neil Armstrong and Buzz Aldrin to the moon. Our smartphones connect us to a massive, near limitless network of social media, retailers, websites, financial service providers and entertainment platforms. This access has totally overturned expectations of the analog era, replacing them with the promise of faster, better, more convenient and more secure experiences at every juncture.
Imagine 25 years ago, in the nascent days after the commercial use restriction on the Internet was lifted. If someone told you that you would be able to buy something in a matter of clicks and expect it to arrive in days — or even hours — it might have been met with some skepticism. Or imagine that someone said you would be paying your babysitter, or taxi driver, or your favorite vendor at the farmers’ market, without ever pulling out your wallet.
Now imagine leaving your wallet at home altogether and using your phone to pay — or forgoing the use of cash and brick-and-mortar experiences completely. E-commerce accounted for around US$27 billion in retail sales in the U.S. in 2000, but it accounted for around $504 billion in 2018 — nearly 10 percent of total retail sales. It is projected to grow to $735 billion by 2023.
These changes have created transformational new ways for consumers and merchants to interact with each other, thereby changing the products, services and consumer experiences that payments technology companies provide to merchants.
Expansion of Merchant Touchpoints
In past decades, the forms and factors of making and receiving payments were simple. A consumer would rely on checks, magnetic stripe cards, cash and coins; a merchant on ledgers, registers, carbon copy slips and simple processing terminals. Put simply, the product that payments companies and financial institutions provided to merchants was a singular one: acceptance of a magnetic stripe card at a point-of-sale terminal.
The role of a payments technology company has become more complex as merchants pursue business models that blend e-commerce with brick-and-mortar, pursue new sales channels, and aim to offer consumers frictionless payments experiences.
Take the recent boom in mobile order-ahead for restaurants as an example. That payments innovation — allowing the digital acceptance of payment information via a mobile platform in a card-not-present environment — turns a transaction that otherwise would be limited to an offline, in-person affair into an expanded online touchpoint.
With six in 10 American consumers between 25 and 34 years old reporting use of restaurant or coffee shop mobile order-ahead, and two in three Americans reporting that they’ve been patrons at restaurants specifically because of order-ahead payment options, this new opportunity has driven payments companies to integrate mobile order-ahead functionality into their platforms. This capability increases the sophistication of the products that payments companies provide, and creates an e-commerce experience for a merchant segment mostly limited to brick-and-mortar.
Payments acceptance has been changing with the growing use of smart devices like smartphones and tablets as point-of-sale devices on merchant countertops. In 2017, the value of transactions on such devices grew 55.3 percent as the number of merchants using them approached 800 million.
Their popularity makes sense. The devices, often…