A brief history of payments and loyalty

From communications to cryptocurrency, board meetings to biology tutorials, technology has changed our lives in ways which could not possibly have been envisaged a mere fifty years ago. Nowhere has this transformation been more keenly felt than in the realm of payments and transactions.

Back in the 1970s, the humble cheque book was the only alternative to paying in hard currency. Nowadays, digital wallets are commonplace, and the sight of cash is a rarity. With innovation happening at a digital split-second, it’s worth taking the time to pause and reflect on the changes that have taken place ever since mankind ventured beyond the bartering of Iron Age arrowheads.  

The earliest coins are believed to have been minted in Ancient Greece around 600BC. As civilisations around the world consolidated and strengthened, so too did their economic systems. From Venice to China, scattered along trading routes and around seaports, relics of these transactional methods are to be found in the form of long-forgotten coins of ancient realms. As trade increased, the Venetians introduced a ‘bill of exchange’ as a forerunner to the cheque book, negating the need to carry gold and silver on long journeys. 

By the 1600s, with transatlantic trade flourishing, bills of exchange were widely used. Alongside this was the need for a more easily transportable form of currency, which saw paper notes begin to be used together with coins – the first bank in Europe to issue permanent bank notes being the Bank of England. But even this method had its drawbacks – cash withdrawals were not always possible and by the early 1800s, paper cheques came into use. As the 19th century came to a close, cheques had become the primary method of payment in America for large transactions.

By 1871, Western Union had implemented the first money transfer service through its telegraph network, and over the course of the next one hundred years, the company established its reputation for sending money worldwide by means of electronic transfer. In 1891, American Express introduced the world’s first traveller’s cheques to its freight forwarding operation. In 1914, these would become essential in helping over a hundred thousand Americans, stranded in Europe at the outbreak of World War One, return home.

1946 saw the launch of Charg-It, the world’s first bank-issued charge card. Although its use was limited to a small number of local, New York businesses, this represented a turning point in the history of payment transactions. Soon, more companies followed suit and introduced their own forms of the buy now/pay later concept. The year 1950 saw the advent of Diner’s Club, and by 1958, the first modern-day credit card was launched by Bank of America – the BankAmericard. This was the first charge card that could be used at a wide variety of businesses. In the same year, American Express followed suit with a charge card that operated in both the United States as well as Canada.

During the late 1960s, debit cards were issued as a means for bank customers to withdraw money from Automated Teller Machines or ATMS. The technology that underpinned these bank cards set the stage for the rapid adoption of the card the whole  world would come to know – Visa. In 1983 came the launch of the Visa ATM network, providing “anytime, anywhere” cash around the world. By 1986, Visa had developed multi-currency clearing and settlement for no fewer than 21 currencies.

Back to the 1960s, and as the success of the BankAmericard became increasingly apparent, several local US banks joined forces to form regional bankcard associations. This allowed them to add a credit card to their offering of financial products, whilst also aggregating their customer bases and merchant networks – thus achieving economies of scale. One of the first of these became known as the Interbank Card Association (ICA). A decade later, ICA had expanded to become a global operation, the name was changed to MasterCard, and the rest of course, is banking history.

By the mid-1990s, debit card transactions had, not surprisingly, overtaken cheques as a preferred method of payment. Then came the real game-changer in the form of PayPal. First launched in 1998, Paypal opened the world of payments to new possibilities and signalled the move away from plastic cards. By 2007, Amazon had launched its own online payments processing service – Amazon Pay, which allowed its clients the option to use their Amazon accounts to make payments to external merchants’ websites. Then in 2013, Apple Inc. followed suit, partnering with American Express, Visa and Mastercard to launch Apple Pay, a mobile payment and digital wallet service.

Over the ages, the methods we’ve used to pay for good and services has changed dramatically. How does this compare to the way loyalty has developed? Here’s a brief comparison.

But what of our actual wallets, and the relative progress made by the entities that take pride of place alongside our (albeit increasingly outdated) bank cards – namely our loyalty programmes? What strides have been made in the loyalty space with regard to keeping pace with the payment evolution?  

The earliest forms of loyalty date back to the late 1700s, when American retailers began giving customers copper tokens with their purchases, which could later be redeemed against future purchases. This practice continued for the better part of one hundred years, until the prohibitive cost of producing copper tokens led to the adoption of paper stamps in the late 19th century, whereby physical stamps could be collected and pasted into a collecting book. Later modifications included the box top coupon pioneered by Betty Crocker in the 1920s.

Here in the UK, a similar token system was devised in the mid-1800s. Known as Co-Op Dividend tokens, these were small discs made of tin or zinc, which could be saved until ‘divi-day’ – either every quarter or twice year – and be redeemed for cash.  It wasn’t until 1958 that stamps became commonly used, with Tesco introducing its Green Shield coupons.

 These early forms of loyalty schemes helped to inform the modern-day loyalty model and were the precursors to many of the programmes with which we are now familiar, such as frequent flier miles. The most famous of these was launched by American Airlines in 1981. Most other major airlines followed suit, and over time, the model of collecting air miles formed the genesis of the points system so well known today.

In 2002, Sainbury’s, BP, Debenhams and Barclaycard merged their loyalty schemes under the banner of Nectar, which would grow to become the UK’s biggest loyalty scheme, comprising 400 online retailers. Customers were offered the opportunity to redeem their points in-store, or ‘save’ them for more expensive purchases, such as holidays or larger ticket item purchases, thereby allowing for more diversification.  

In the last decade alone, loyalty programmes have begun to adopt a digitally driven approach – and with it, opportunities for greater customisation and experience-based loyalty. Apps are replacing plastic and stamp cards. Retailers can now segment their customer base, according to their needs and wants, and tailor their offering as never before. Technology is increasingly providing the level of data crucial to building personalisation – described recently by Forbes as being “the holy grail of loyalty”. It’s estimated that the average British consumer is exposed to well in excess of 5000 sponsored ad messages, every day. With such ferocious competition for their attention, personalisation has now become indispensable to customer engagement.  

For loyalty, the future is just beginning to unfold.
And when one considers just how much the payments landscape has changed, isn’t it about time?