Payments are the backbone of every economy, but how we pay for goods and services has evolved dramatically over the centuries. What started as a barter system has transformed into a sophisticated web of digital transactions, changing the way businesses and consumers interact. This evolution has been largely driven by the rise of technology, with fintechs playing a pivotal role in improving speed, convenience, and accessibility.
In this blog, we’ll take a whistle-stop tour of the evolution of payments, discuss what is contributing to the rise of digital payments, explore modern methods, and consider what the future may hold.
From cash to CBDCs
The evolution of payments has unfolded over millennia, but the most pivotal shifts have occurred in the last two centuries. Cash was the primary method of exchange for centuries, but it wasn’t until the 19th and 20th centuries that payment systems began evolving at a faster pace. Let’s start our whistle-stop tour:
Cash
Cash ruled as the dominant form of payment for most of history, providing anonymity, ease of use, and universal acceptance. However, cash had its limitations, such as the need for physical handling and susceptibility to theft or loss.
Cheques
The use of cheques revolutionised payments in the 17th century. By allowing individuals to instruct their banks to transfer money without exchanging physical cash, cheques improved security and convenience. Despite these benefits, they were slower to process, especially as commerce began to globalise.
Credit cards
The 1950s marked the birth of modern credit cards. This was a turning point in the payments landscape. Credit cards not only increased consumer purchasing power but also enabled businesses to capture larger markets by offering a secure and efficient way to pay. By the 1970s and 1980s, cards were firmly entrenched in global economies.
Debit cards
While credit cards made waves in the 1950s, the introduction of debit cards in the 1970s brought a new level of convenience and security to payments, allowing consumers to pay directly from their bank accounts without relying on credit. Debit cards quickly became a staple, offering a simple way to access funds. For businesses, debit cards increased transaction speed and reduced the burden of cash-handling.
Prepaid cards
Prepaid cards gained popularity later as a flexible payments tool for those without access to traditional banking services or credit. They offered a practical solution for digital payments and budgeting, giving consumers financial independence without the need for credit checks or bank accounts. Prepaid cards have evolved further with the rise of virtual prepaid options, making them more versatile in the digital economy.
Digital payments and mobile
Fast forward to the 2000s, when the rise of the internet and mobile technology shifted payments from plastic to smartphones. Companies like PayPal emerged, offering consumers a digital wallet that linked directly to their bank accounts or cards, making online shopping easier and more secure. Mobile wallets, such as Apple Pay, Google Pay, and Samsung Pay soon followed, allowing consumers to make contactless payments through their phones.
Cryptocurrencies
The introduction of Bitcoin in 2009 ushered in a new era of payments with decentralised digital currencies that promised more security and privacy through blockchain technology. Although adoption remains niche, cryptocurrencies represent a growing segment of the payments landscape.
Open banking
Since its emergence in the mid-2010s, open banking has been recognised as a transformative force in the payments industry, allowing consumers to make payments directly from their bank accounts, without the need for traditional intermediaries. With the secure transmission of data with third-party providers, customers started to gain more control over their financial activities and benefit from faster, more convenient, and cost-effective transactions.
Central Bank Digital Currencies (CBDCs)
Now, in the 2020s, central banks are exploring the potential of digital currencies backed by governments. CBDCs combine the stability of traditional currency with the efficiency of digital payments, representing the next frontier in the payments ecosystem.
The drivers behind the growth of digital payments
As of 2024, the global shift toward digital payments is undeniable, with the industry showing no signs of slowing down. The total transaction value in the digital payments sector is expected to reach $16.59 trillion by 2028. This surge is driven by various factors on both the consumer and market sides – let's explore this in more details:
Consumer demand for convenience and efficiency
Nowadays, consumers expect transactions to be fast, easy, and secure. According to a 2023 report, over half (54%) of the global population now own a smartphone, and mobile payments have become a natural extension of this device usage. Additionally, the COVID-19 pandemic accelerated this shift, with many consumers opting for contactless and online payments to minimise physical contact. As a result, cash use has significantly declined, with only 14% of payments made in cash in 2022 in the UK, compared to 61% a little over a decade ago.
Tech adoption and market infrastructure
From a market perspective, increasing mobile adoption, faster internet penetration, and investment in fintech infrastructure have been critical enablers of digital payments. Collaborations between traditional financial institutions and fintechs have driven innovation, making digital payments faster and more accessible.
Exploring modern digital payments
Shifts in the market and consumers’ demand have made digital payments more popular than ever. From contactless payments to mobile wallets, each new digital payment method is addressing specific needs, offering a glimpse into the future of a (possibly) fully digitised economy.
Let’s take a look at the key trends shaping the digital payments landscape today:
E-commerce and online payments
The rise of e-commerce has fundamentally altered how consumers shop. Platforms like Amazon and Shopify have integrated secure online payment systems that allow consumers to purchase products instantly without needing cash or even physical cards. Secure payment gateways like Stripe and PayPal have been pivotal in fostering trust between businesses and customers, helping boost the adoption of online shopping coupled with efficient and secure payments.
Contactless payments
Contactless payments have surged in popularity, with tap-to-pay transactions becoming the norm, particularly after the pandemic. The benefits are clear: speed and convenience. Whether using NFC-enabled cards or mobile wallets, consumers can complete transactions quickly, eliminating the need for cash or PIN entry.
Peer-to-Peer (P2P) payment platforms
Platforms like Venmo, Cash App, and Zelle have radically transformed how people send money to each other. P2P payments have become especially popular among younger generations, who prefer the immediacy and simplicity of these services. The global P2P payments market size is anticipated to reach over $9720.42 billion by 2030 , driven by increasing smartphone penetration and the rise of digital-first financial habits.
Cryptocurrencies and blockchain
While cryptocurrencies, like Bitcoin and Ethereum, are still in the early stages of mass adoption, they represent a shift toward decentralised financial systems. Blockchain technology allows for more secure, transparent, and efficient transactions, particularly in cross-border payments. However, due to price volatility and regulatory challenges, widespread consumer and business adoption remains gradual.
CBDCs
Central Bank Digital Currencies are the next evolution of digital payments. CBDCs offer the stability of traditional money with the convenience of digital payment systems. As more nations explore this option, the global payment ecosystem could experience another significant shift, with CBDCs potentially reducing the cost of cross-border payments and enhancing financial inclusivity.
What's next for the payment world?
The payments industry is evolving at an unprecedented pace, redefining how we transact and connect financially. To get a closer look at where the future of payments might lead, we spoke to Rehana Mitha, our Managing Director, and Vrush Sumanoharan, our Product Marketing Manager.
With a keen eye on trends and consumer needs, they both share insights into what’s next - from digital currencies to the growing momentum toward a cashless society. Their perspectives shed light on the exciting opportunities and challenges that will shape the payments landscape in the years to come.
Are we truly moving towards a cashless society?
Absolutely, and I’ve experienced this firsthand. Since moving to the UK, I rarely carry cash. Even for the smallest purchases, I can use my card or phone. While we did see a brief rise in cash usage over the past year, the UK remains on a strong path toward greater payment digitalisation.
This is largely due to its robust payment infrastructure, which makes going cashless incredibly convenient. However, the situation varies greatly across different regions. Some European countries aren’t as advanced in this space, and the gap is even wider in developing nations.
Rehana Mitha, Managing Director
Edenred Payment Solutions
What is influencing the future of payments?
As technology vendors and financial service providers collaborate more, we are likely to see further innovation within the payments space. Take for example Apple working with fintechs such as Monzo, and Klarna giving users the ability to spread the cost of their purchase when paying with Apple Pay.
Additionally, as regulations such as PSD2 continue to evolve, this enables more innovation within the open banking space and will unlock further use cases to streamline payments.
Vrush Sumanoharan, Product Marketing
Manager, Edenred Payment Solutions
What payment trends will mark the next decade?
Embedded finance is going to be transformative. It’s not a brand-new concept, but we’re only beginning to tap into its potential. In the years ahead, I expect that nearly all non-financial companies will integrate financial services into their offerings. If they don’t, they risk losing customers to those that do. Additionally, open banking will play a crucial role by fostering increased collaboration within the industry, while unlocking new opportunities for businesses and improved services for consumers.
Finally, the role of generative AI cannot be overstated. It’s often hailed as “the next big thing,” but I’m convinced that it will indeed revolutionise payments - enhancing operational efficiency, improving compliance and fraud detection, and providing hyper-personalised customer experiences.
Rehana Mitha, Managing Director
Edenred Payment Solutions
What payment trends will mark the next decade?
Looking ahead, I think we will see more innovation within the account-to-account space, especially as it overcomes the cost associated with card scheme fees.
It is also likely that we will see Central Bank Digital Currencies (CBDCs) coming to fruition as an alternative to cryptocurrency that caters to the customer expectations of the future.
Vrush Sumanoharan, Product Marketing
Manager, Edenred Payment Solutions
In conclusion
The evolution of payments has been shaped by innovation, changing consumer needs, and technological advancements. From cash and cheques to digital wallets and cryptocurrencies, each new method has brought greater convenience, efficiency, and security to the market. As we move into a future where CBDCs may become the norm and digital payments continue to rise, the payments sector will undoubtedly remain a hub of rapid transformation. With projections suggesting a total transaction value of digital payments reaching $16.59 trillion by 2028, the only constant in the world of payments is change.
