What is Digital Payment, origin and history in financial technology?

Payments are made using payment instruments. Check and cash are examples of payment instruments.  However, digital payment is not a single instrument but rather an umbrella term that is applied to many instruments used in various ways. It can be defined as a way of paying for services or goods via an electronic medium without the use of cash or check. It is also known as electronic payment system or e-payment.

The origin of digital payment is associated with the beginning of the internet, which changed the world as nothing before.  If there was no internet, there wouldn’t be e-services and online stores. The internet history began in 1969 with ARPANET, the military network that was meant to be communication network during the Vietnam War period. However, the main turning point occurred in 1989 when Tim Berners-Lee discovered the so-called “pages” or “sites” that made it easier to access and publish information on the internet.

Along with the development of the internet, online payments began to operate in the 1990s. Established in 1994, Stanford Federal Credit Union was the first institution to offer online banking services to all its customers. Initially, online payment systems were not user-friendly and needed specialized knowledge of data transfer protocol.

In the beginning, the major players in the digital payment market were Millicent and Ecash, founded in 1995 and 1996 respectively. Most of the first online services used micropayment systems and their shared characteristic was the attempt to have electronic cash alternatives (like e-money, tokens or digital cash). Moreover, the Amazon (one of the e-commerce pioneers) was founded in 1994.

In 1998, PayPal began as a mobile payment firm with wireless transactions on Palm Pilots. However, it later focused on online payment when it established a strong customer base on eBay, a company that had a powerful auction platform.  PayPal continued to create innovations one after another like sending payments using email addresses, launching the reverse Turing test to reduce fraud and making HTML payment buttons.

When eBay sellers started to enlist in PayPal, eBay felt threatened. It responded by creating Billpoint that mimicked much core functionality of PayPal.  Instead of building innovative features to reduce friction for customers, the company began to cajole users into accepting Billpoint by exercising more control over its platform. Some tactics used by eBay included offering free listing days to Billpoint users,  requiring the use of Billpoint for its Stores sites and cutting fees.

Not only eBay tried to defeat PayPal with monopolistic power and marketing gimmicks but also financial institutions such as banks attempted to pursue legal means against the company to categorize it as an unsecured service or a bank.

Finally, after realizing that its customers preferred PayPal as their payment solution, eBay acquired PayPal. After some years, PayPal realized it was spending a lot of resources to improve the shopping experience on eBay instead of focusing on reducing friction for customers of the payments market.  In September 2014, three weeks after Apple launched Apple Pay, eBay announced PayPal’s separation. Meanwhile, Alipay quietly surpassed PayPal and become the biggest mobile payment solution with approximately $150 billion worth of transactions in 2013.

Due to the wide spread of internet-based shopping and banking, digital payment system grew fast. With technology development, many digital payments companies have been established to increase, improve and offer secure e-payment transactions.

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