The Evolution of Payments

The next generation is here, and it’s machine-initiated.

Modern payment card technology is often traced to 1950, when Diners Club began offering the first charge card. This was quickly followed by others and payment cards emerged as a convenient way to access funds and credit. Initially, the main focus was on the travel and entertainment sectors, where the average payment size was high and the convenience factor was a major motivator for both the merchant and cardholder. As adoption grew and familiarity and comfort with electronic payments took hold, the approach quickly spread to nearly all other forms of consumer merchant payment. 

The plastic card was the initial technology of choice for payers to access their payment accounts at merchants. These cards evolved numerous security innovations over time that often still persist today including physical elements (embossing, hologram stickers), data storage elements (CVV, mag stripe data), and sophisticated processes for issuance and dispute management. 

Despite the popularity of cards, non card-based payments also had a place, almost from the start. These payments, dubbed mail order/telephone order (MOTO) payments, occupied a very small niche though, due to their limited adoption and riskiness. In the late 90s, the rise of the internet and eCommerce would change that dramatically, and new models for secure remote electronic payment emerged to support MOTO. These models relied on new authentication factors and sophisticated data mining techniques to facilitate risk management. 

In the 2000s, the advent and ensuing ubiquity of the mobile phone introduced a new and often user-preferred transaction channel  for many cardholders. The smart phone brought new hardware features (including secure elements), as well as data enhancements (such as geolocation) that enabled new experiences and approaches to payment security. 

Machine Payments

Today over 8 billion devices, including 100 million vehicles, are connected to a public or private network and operate with some form of autonomy. The proliferation of these smart connected machines over the last couple of decades or so has led to a natural new payment channel: machine payments. These machines are capable of detecting their own needs and acting on them, and autonomy and a reduced need for human intervention is a major driver of convenience. These factors motivate the need for machines to be able to initiate payment transactions directly with merchants. Further, the machine is often the consumer of the goods and services procured, and in many cases, is able to verify receipt and consumption of what it buys. 

Machine payments bring exciting new opportunities for reimagining the payment experience. Machine payments remove the need for physical cards and their associated and costly issuance and replacement processes. Connected machines also bring a wealth of data to payment transactions: in addition to being self-aware of their current state and immediate needs, there is also usually a record of their historical behavior, and predictive analytics can inform their future needs as well. Having such a comprehensive view of context is unique and unmatched in any other payment channel. 

Vehicles are leading the deployment of machine-initiated payments. These machines are already widely connected and generating an enormous amount of contextual data (a modern vehicle generates around 1TB of data per hour). Vehicles are also large consumers of goods and services , with an average vehicle in the US consuming around $8,000 annually (fuel, repairs, parking, tolls, insurance, etc.). Further, certain consumer purchases are ideally suited as vehicle transactions such as purchases of certain meals and refreshments. 

This exciting new channel is carving out unique value in user experiences and operational efficiencies, and also enabling the future of smart cities, shared asset use, and autonomous vehicles.