From Clink to Click: The Evolution of B2B payments
How would you like to pay for that? Debit, or credit? ACH, or echeck? PayPal, Venmo, Zelle, or how about Bitcoin? Businesses have never had so many options for paying or getting paid.
With the variety of digital payments available today, it’s mind-blowing that many of these electronic payment options didn’t exist 15 years ago. In fact, B2B payments innovation moved quite slowly for centuries, only picking up steam in the mid- to late 20th century. Here are three payment innovations that vastly transformed the evolution of business payments.
1. Credit cards
It’s 1933. You stroll into Brooklyn’s Abraham & Straus department store, looking for a new pair of shoes. When it’s time to pay, you say, “Put it on my Charga-Plate.” The clerk pulls your paper and plastic card from their files, imprints the information on a sales slip, and hands you the bag.
These store-specific precursors to credit cards reigned until the 1960s. The idea was simple – you charge what you like, but you pay the bill in full each month. Their decline coincides with the rise of mainstream credit cards, like the Diner’s Club introduced in 1950 and similar offerings later that decade from Amex and Bank of America.
In the early 1970s, technology caught up with credit card transactions as payment terminals popped up around the globe. These electronic payment systems processed charges after a card swipe. This was a vast improvement over the previous system, which consisted of calling the credit card company, waiting on hold, verbally sharing information, waiting for confirmation, and then getting the go-ahead.
It’s no surprise that companies quickly caught on to the convenience of credit cards for B2B transactions. They could pay immediately, but not have to pay cash until the credit card bill arrived next month. Plus, they got nifty bonus features like miles or points towards travel or office supplies. The downside: The convenience costs. Interest charges can quickly transform a manageable amount into a goliath challenge if the balance isn’t paid off. And then there’s the whole fraud thing too, should someone steal the credit card or an authorized user makes unauthorized purchases.
And FYI: While the first proper (aka revolving) credit cards didn’t take off until the 1950s, credit scoring wasn’t born until 1989. That’s 39 years of not sweating the difference between 300 and 814.
2. Automated teller machines (ATMs) and online banking
In 1965, a Scottish man didn’t get to the bank in time. Miffed that he couldn’t get cash for the weekend, he invented a machine that dispensed money much like a vending machine spits out chocolate bars. His ATM debuted at a Barclays Bank in London. By the 1980s, ATMs lived on every corner and your cash was only a PIN away. This was particularly valuable for business owners, who often needed to deposit checks or take out cash for business transactions.
Why did it take 15+ years to catch on? Infrastructure. Banks struggled with the technology needed to reconcile remote debits. Fortunately, with computers, the internet, and fiber optic cable, ATMs have now evolved into multi-purpose financial kiosks. Deposit a check. Check your balance. Withdraw cash. Convert cash to bitcoins. Take your pick.
ATM evolution is closely linked to another substitute for bank tellers – online banking. First introduced in the 1980s, these systems became business-banking hubs. Instead of visiting or calling a bank, companies login to check balances, see if checks cleared, and confirm deposits. Companies also use these systems for online payment processing – yet another nail in the coffin for paper checks. Now powerhouse banks have grown online banking into sophisticated platforms that allow clients to deliver a simpler way to send and receive invoices and payments.
3. ACH payments
ACH payments (automated clearing house) sprang into the world in the 1970s. Several ACH organizations got together and set up a network in 1978 that let financial organizations in the U.S. exchange payments. Businesses rejoiced! Now, paychecks could be deposited directly into employees’ bank accounts. No more printing and mailing or handing out paper paychecks. Bills could be paid within days, circumventing the insane juggling needed to estimate when checks will arrive, get cashed and clear. Hefty fees credit card fees are avoided.
Today, $43 trillion and 25 billion electronic financial transactions run through the ACH each year. And the number continues to increase.
Digital payment choices for companies today are limitless, efficient, and convenient. They beat options that existed for centuries such as paper checks and precious metals. The payments space will continue to evolve and innovate.
Intrigued by digital payments for businesses? Here’s how you can start paying digitally now.