Evolution of Payments & Declines

Evolution of Payments & Declines

Remember the good ol’ days of bartering? Probably not, since it hasn’t been a proper form of payment in over 5,000 years. Society shifted from bartering to using barley, then coins, and later banknotes and checks to represent value. With modern advancements in technology came plastic cards, eWallets, and other new payment methods. 

While this transition made transactions easier for consumers, it complicated the way in which payments get processed, putting a strain on the merchants and banks that have to keep up. With increasingly complex payment flows to manage, fraud became a growing risk factor, hampering merchants’ reputations with their banks and resulting in payment declines of good customers. To better understand how we got to this point, here’s an overview of the evolution of payments and the inefficiencies that created the current decline problem. 

A Brief History of Payments

Payment structures have always been consumer-focused in terms of accessibility and ease of use. When coins were first minted all the way back in 700 BC, assigning value to metals became a tricky process that required the advent of banks. While at first they acted as a place to store and exchange money, over the centuries banks became lending institutions, and by the 17th century began using banknotes as a means of monitoring payments. 

Evolution of Payments

6000 B.C.: Bartering
3000 B.C.: Barley (token money)
700 B.C.: Coins
17th Century: Bank notes
1659: Checks
1871: Wire Transfer (Western Union)
1958: Credit Card (BankAmericard)
1979: Credit Card Terminal (Visa)
1999: Electronic Payment (PayPal)
2009: Cryptocurrency (Bitcoin)
2011: Mobile Wallet (Google)

As global trade grew and communications technology advanced, Western Union became the first institution to offer international money transfer services in 1871. At the time, people could pay by cash, check or wire. By 1958, payment options expanded to include the first modern credit card, the BankAmericard, and within 20 years Visa introduced the credit card terminal, forever changing the way consumers make payments. 

Once commerce opened up online, payments needed to enable internet-based businesses to process card-not-present transactions. This led to the advent of payment gateways, such as PayPal, Stripe Square and Braintree, which were intended to simplify payment authorization, but also created an entirely new challenge for banks to manage: payment integrations. 

Managing Payment Integrations

After the establishment of payment gateways, online businesses began to connect individually to several acquirers or alternative payment methods (APM). At the time, this covered their basic payment needs since payment options were limited. Once new payment methods were introduced and online shopping increased, managing integrations with multiple networks became overwhelming. Online merchants turned to payment service providers (PSP) to take the burden of managing payments off of them and provide them with tools that made the relationship with payment partners easier. 

However, due to the localization of PSPs, connecting to one would limit a merchant’s ability to expand globally. Over time, businesses began to connect to multiple PSPs. This meant merchants were managing an even greater number of payment partners than before, wasting time and resources. 

To solve this problem today, merchants leverage payment orchestration platforms (POP) and smart routing solutions. These route payments to the most efficient gateway or processor for each individual transaction, which could mean segmenting by card type, geography or time of day. This reduces approval times, cuts costs and produces fewer false-positive declines. It also facilitates international commerce since the POP will route payments to a local PSP based on the order’s country of origin.  

However, for payment orchestration to work properly, POPs integrate into a PSP’s legacy system with outdated payment authorization logic. As a result, the system is increasingly difficult to manage and more inefficient, especially as digital payments become more widespread, data security gets more complex and merchants transition to cloud computing. Also, since smart routing decisions are based on historical authorization performance, declines can still happen. Even though these measures aim to prevent payment failures, they offer no remedy once an order is actually declined. 

Navigating Inefficiencies

The payments landscape is complex and heavily regulated. Merchants are victims of a broken system that declines upwards of $600B in global transactions annually. While merchants have typically been at the mercy of payment gateways and issuing banks when it comes to payment authorizations, Deco is shifting the balance of power. 

Deco is a real-time recovery tool for revenue lost to payment authorization failures. Legitimate shoppers are identified and offered the option to continue checking out with Deco immediately following a payment decline. It is the only recourse that merchants have to overturn decline decisions and prevent payment failures from occurring in this convoluted structure. Get in touch with our team to learn how Deco can immediately convert 10-20% of declines into revenue.