The evolution of payments: A 25-year retrospective

In a conversation with Elena Mesropyan, Visa Innovation Centers, North America, Tolan Steele, Senior Vice President, US Consumer Payments and Digital Wallets, Visa, shares his observations on the evolution of payment experiences over the course of his 25-year-long career, as well as his expectations for the future of payments.

Elena Mesropyan: Tolan, you’ve worked at Visa for 25 years. A quarter of a century! – You’ve observed the evolution of payments technologies, payments and commerce experiences, business models, consumer behaviors, competitive landscape, and more. Let’s start with the big picture. What are the biggest ways in which payments have evolved over the past 25 years?

Tolan Steele: When I joined Visa in 1999, the primary way consumers interacted with our credentials was through a plastic card with a PAN printed or embossed in plastic, sitting in their wallet alongside other cards. Consumers always had to carry their wallets with them, and they would need to reach into the wallet and pull out one card or another to make a payment. The card choices were not dynamic, they were static.

Fast forward 25 years – all of this has become digital. Card-not-present (CNP) transactions are now more than half of our volume, whereas when I began at Visa, the vast majority of transactions were in-person at the Point-of-Sale (PoS). Today, even if I'm picking up the goods in person or the service is being delivered to my house, I'm probably in an app or on a website, passing that payment information, which is now tokenized, to the merchant in a very different way. 

Another big thing that happened in payments is mobile. I grew up using rotary phones, which weren’t fully digital or mobile. Over half of the global population now owns a smartphone.

Over the course of my career, the trends of digital and mobile have come together and made technology portable. 

Finally, payment credentials have become a lot more secure and easy to use. Payments today are much more embedded in merchant operations. This is good news because consumers don't really want to think about how to move their money around. Consumers just want to make their transaction and get on with their lives. Successful merchants focus on making payments as seamless as possible.

Overall, the fact that our payments are now more digital and more mobile, and the fact that credentials are sitting inside our phones, in a wallet or a bank app, is really positive. It makes it easier to meet consumers where they are and helps merchants make those sales. At the end of the day, that’s what Visa is all about.

Elena Mesropyan: How has the fact that it has become a lot easier and safer to pay and be paid affect consumer relationships with banks and merchants and how can they capture more spend today?

Tolan Steele: Banks that get really good at delivering a fully digital experience are best positioned to win the majority of consumer spending because they can offer different kinds of credentials, for example, debit, credit, prepaid, that works across channels – physical PoS, app, ecommerce.

Consumer and commercial small businesses are also getting really good at making best-in-class technology available for all types of credentials and stitching them together into a single view for the consumer. There are several banks in the US that do a very good job of letting you see a complete picture of your monthly spending with them, even if some of your spending is on credit and some is on debit. So, from a bank’s perspective, winning loyalty is having best-in-class payment technologies and network partners like Visa to help them deliver to consumers and merchants.

As for merchants, they have a couple different options. It used to be that if you really wanted to have a loyalty product, you had to get into the co-brand game. Now, the emergence of Card on File (CoF), which is the storing of payment credentials, allows a merchant to conduct commerce without having to get into the issuing business. It allows merchants to securely store credentials, making them easily available and ready for spend. Merchants can also link their own loyalty programs to spur extra spending. They know where their most loyal customers are and can integrate the payment credential into the rest of their loyalty and marketing operations, which is very powerful.

I’ll give you an example. It's no surprise that Amazon is one of the largest merchants globally. Not only because they make it so easy to use the same credential, but also to earn points and then apply those discounts across a wide variety of verticals. And remember, they got their start as a bookstore, and that was the only category they were in. But very early on, Jeff Bezos laid out a vision for becoming the biggest global retailer, and they were able to realize that ambition. A part of their success is due to how easily you can access the credentials and that you can move the loyalty and discounts that Amazon makes available to you easily between categories. And if you end up returning a good, that becomes a credit that you can then apply to another purchase in a different category.

On the flip side, it has gotten easier to store multiple credentials on mobile devices. In some ways, loyalty has never been more fleeting. So, the cost of a bank or a merchant not investing in these digital technologies is a big business risk because it has never been easier for a consumer to switch one credential for another. Or, if a credential is hacked or compromised, they've already got another three or four credentials in their digital wallet, ready to be used, and that previous credential may lose the top of wallet status. While the digital technology is powerful and can amplify loyalty, the flip side is that if you're not doing all you can to continuously re-earn that loyalty position, you're at risk of falling off and moving to the bottom of the stack.

Elena Mesropyan: I have definitely come to expect easy access to all my financial information, to my credentials, and the ability to move money with a few clicks. And with APIs, my entire financial life can come into a single dashboard. What does this mean for the competitive landscape and the nature of competition?

Tolan Steele: This has happened because of consolidation in the financial services industry over the last two decades, and because banks understand that different kinds of accounts have different levels of profitability. There are fewer banks today, and each bank provides a wider array of services. More people are doing their banking with just a few entities now. As a result, banks are able to see more of our activities and have really good visibility into our financial lives, enabling them to win more business with us. Ultimately, they want to capture more of a relationship with each customer, going beyond cards, for example, mortgages, car loans, educational loans, and more.

And the best way to acquire new customers, particularly younger customers, is to meet them where they are in terms of digital demands. This played out with Revolut, Chime, as well as with BNPL players like Affirm and Klarna. In the past few years, all of them looked to expand beyond the business they started in. If they were in debit, or retail banking, they want to extend credit; if they were in credit, they want to be the place that the paychecks and other deposits are made, so that they have more capital on hand. A lot of this is about diversifying risk and lines of revenue. These startups are leveraging the same digital capabilities they started with since their inception, but now expanding into new business lines. And this is great because it increases market competition, leading to more innovation, and ultimately, benefiting consumers.

And it’s not just the small, scrappy fintech startups that do this. It’s also the biggest technology providers who, as they expand their ecosystems, get into payments. Technology companies grow to become electronic retailers selling digital goods. Over time, it gives them a real perspective on payments. The hardware and the software paved the way for them to become payments companies. Technology companies have launched their own wallets, and even started offering different types of accounts, albeit with varying success. But all in all, these extremely digitally savvy players have been disrupting other value chains – they saw an opportunity in payments and leveraged their key capability – delivering an outstanding UX. Technology companies then tried expanding into new business lines, like credit and BNPL.

Elena Mesropyan: Given the increasing competition and evolving consumer expectations for payment experiences, where in the payments value chain are the biggest opportunities for innovation right now?

Tolan Steele: There will always be an opportunity for those that deliver best-in-class authentication and authorization experiences. While this sounds like an area of risk, it's really about managing the customer interaction in a way that gives customers safe access to their money. Banks in the US have done this for a long time through Zero Liability, but they’ve gotten really good at using AI. This used to be called ‘neural nets’, which protect the ecosystem and make sure that money usage is monitored. This makes sure banks are authenticating or authorizing the correct transactions, but also preventing the bad ones. I think there will always be a business case for that because consumers really do want to access their money, and they get frustrated when the bank declines a transaction. So, you have to be able to do that, particularly as consumers become more and more dynamic in where they're trying to access their money, like when they are traveling internationally and shopping at a wider variety of merchants than they traditionally have. That's where AI can play a big role in authentication.

Another important area is how you see your money, think about your money, and are aware of your money. For example, Visa provides a host of alert tools that help banks maintain more interactivity with customers over text. When I started working in this industry, texting was not really an option, it would have had to be calls from the bank. Now there are so many ways in which the phone, either over e-mail or text, allows the bank to interact with the consumer. For example, just this week, I've set up an alert for my bank to let me know when my balance falls below a certain level. I’ve made sure that I never get drawn into overdraft. And because I will always know if my bank account falls below a particular level, I can then log on right there and transfer more money into that account so that I'm back above where I need to be from my cash flow perspective. That alert is really helpful for busy consumers. With this service, Visa has enabled interactivity between the banks and the consumers. Part of that is protecting the consumer, and part of that is just maintaining really good interactive communication.

In general, the banks that are doing the best right now are the ones that are helping you maintain very easy access through online banking, or the app, or other means to check your balance. These services ensure you are aware of all services available to you, should you need a car loan or mortgage. This allows banks to grow with you as a financial consumer.

Elena Mesropyan: I’ve set up the same alert and it’s been very helpful. Capabilities like Visa Transaction Controls (VTC) and Visa Travel Notification Service (VTNS) just take away the worries of everyday spending. It seems like a small thing, but it spares you the immense discomfort of declined transactions and overdrafts, especially if you are traveling.

Tolan Steele: I was a financial consumer way before I came to Visa. There was a time when banks communicated with consumers via letters. Think about the failure it would have been if we were still communicating only via letters – by the time you got a letter notifying you that your balance has fallen below a certain level, you would have already gone into overdraft, missed payments, and had to pay a fee. 

After letters, we progressed to emails. And while email was a vast improvement, it still required me to monitor my inbox to catch the notification on time, and then go into another platform, whether that be online banking or an app, to act. 

Today, I get a text with a link. I click on it, and it takes me to the app. 

This is to demonstrate that one of the most important areas of innovation is really the mobility of it all. Because now, if I'm traveling, or away from my home or desktop, I can still do what I need to do to make sure that my money's being cared for in the right way, that I'm paying in a secure way. This is very powerful. And banks that can do this really well and make this experience a part of their identity are going to win customers and grow. 

Same goes for merchants – merchants have to get really good at interacting with consumers who might be on their website one moment, but then walking into their store the next. Merchants have to find ways to earn their business.

Elena Mesropyan: You brought up something very interesting – the ability to act in the moment when you get the information. Social commerce is a good example because social commerce collapses the gap between the moment and place of discovery or notification, and the ability to do something about it. 

Tolan Steele: That's true. And what's really important to highlight here is privacy and respecting consumers’ boundaries. One of the things I've really begun to detect, which I think is going to become increasingly important over time, is that the technology is now so good that consumers will not pay close attention to the permissions that they are giving in how their information is being used. We’ve all had these experiences where you look something up once and then it follows you around across platforms. 

Now, when I am looking for something, of course I want to find it quickly. But that’s different from following me around. That's me as a consumer being empowered, and that's the merchant meeting me where I am and responding accordingly. Respecting consumers’ boundaries in meeting them where they are and ensuring you have the right permissions when it comes to how their information is being used can be the difference between winning incremental business and potentially losing it.

Elena Mesropyan: Are consumer expectations, including expectations for seamless experiences and privacy, consistent across generations? What are your observations about the next generation of consumers – Gen Z, Gen Alpha?

Tolan Steele: As we skew towards younger generations, there's a better appreciation of what's happening because they've only lived with a phone. And not only a phone, but a smartphone with tremendous capability and apps. It is their primary way of interacting with the world. They carry it everywhere. It’s the conduit to their friends, their social circle, it’s the way they get information, and pretty much do anything and everything. This is why it’s important to understand individual permissions. Governments and regulators have an important role to play here to ensure people are not being taken advantage of, and that their personal information is managed in a secure way. I think consumer expectations are going to move even further in the direction of privacy and security, with the expectation that their personal information is treated as they want it to be treated. 

Another thing I have observed and noted, is that loyalty is not as long lasting as it once was. The life span of popularity is much shorter. The speed with which younger consumers move from platform to platform has increased. And while the spikes of popularity might get bigger, they are getting more and more narrow.

With that said, I am proud of my experience at Visa over the past 25 years. I've seen us not only maintain our relevance, but adapt and strengthen our operations, our brand, our people, and all parts of the company to be able to work with the next generation and generations to come.

Elena Mesropyan: To close this conversation, let’s look into the future. You’ve had the privilege to observe 25 years of payments evolution. What are your expectations for the future of payments? What trends will accelerate? 

Tolan Steele: Reflecting on my 25-year-long career and looking ahead, a simple term for a trend I expect to see accelerate is ‘embedded commerce’. In the early days of my Visa career, this could have been something as simple as storing my payment credential with the merchant so they could complete the sale, without having to stop the transaction and make me re-enter my payment information.

I think we are moving towards a place where an app is a measure of unit for embedded commerce. I have EV charging and my credential is stored in the same app that I use to turn on the charger. And because the app already has my credential, they can go ahead and focus on what they do best, which is charge my car, and not worry about getting paid.

I think that trend is going to continue to accelerate to whatever interaction the merchant is having with me as a consumer, whether it's in store, on a website, or in an app, they're going to want to have the payment credential. 

How will this happen? At one point, we thought payment credentials would be stored in devices, like smart appliances, the refrigerator that knows when I am out of something and goes on to make that order for me. The credential is stored in the device. I don't think that's going to happen. 

I think what's going to happen is I'm going to have an app where I store the credential, and it would send me a notification whenever I am low on something, say, soap for my dishwasher, ask me if I want to restock, I click yes, the order would be placed, and I would get it in a few days. This notion of embedded commerce is here to stay and will accelerate over time. 

I have also observed a real trend away from purchases of goods and more things becoming services. Merchants are trying to have recurring relationships with consumers. They don’t want to sell one thing at a time, and then have to capture another customer in the future. Merchants want to keep customers coming back – to the store, to the website, the app, and so on. Merchants want to turn a transaction into a relationship. For example, consider streaming services. Rather than going to the movies or paying for movies, I pay for a service that for a certain amount per month, I get all you can consume – movies, entertainment, music and so forth. I think we're going to see a wider adoption of models like that going forward. It's the ease with which the payment credential can be embedded into the payment experience that allows the merchant to evolve in that way.

Elena Mesropyan: GenAI has generated a lot of excitement and speculation about the possibilities in which customer experiences and engagement would evolve. One of the often-discussed scenarios is the potential for personal AI agents to act on our behalf. And perhaps they could also store your payment credentials and pay merchants with a credential that is most appropriate for each specific merchant. What do you think about this scenario? 

Tolan Steele: This scenario has certainly become more real in the last two years than it was in the previous 20. This is a great example of acceleration in digital experiences, where the components of that technology have been there for a while. It's only now that we can store enormous quantities of data – we have access to massive amounts of computing power, along with an amazing software overlay. This is the brain of AI, which has done enough pattern recognition to be helpful. There are shopping bots or similar services that could improve interactions with the broader ecosystem. But again, the ones that endure are going to be phenomenal at recognizing the personal preferences and concerns of the individuals they are serving. It would also have to be walled off to secure personal data. If a combination of all these things comes together, it could be a very powerful and positive experience.

Elena Mesropyan: What role does brand and marketing play in winning business in this scenario, where you aren’t necessarily interacting directly with the consumer, but your engagement is theoretically mediated by an AI agent?

Tolan Steele: AI is a generic technology – just like it can be used by the consumer, it can be used by the merchant. Really savvy merchants will use AI to figure out who their most profitable customers are, where can they find more customers like that, and how are they can make themselves known to those customers. You have the smart AI bots shopping on behalf of consumers, along with the merchant’s version of that same AI, out there providing offers or trying to entice that connection to make the first sale. But at the end of the day, consumers are the ones making decisions – they define what they like and what they want to be associated with. This is where the power of brands comes in. It is no accident that Visa is what it is because of the strength of our brand. It sounds abstract but it is not. While brand strength is not a technology point, it comes from the way we invest in technology. Brand strength is shaped by people’s perceptions of the brand’s worth.

Branding is really important. And Visa’s brand is not only a consistently top-ranked financial service company but is one of the most recognizable brands globally. That gives us all something to not only be proud of, but to keep improving on because it is a key factor in keeping us relevant for banks, for merchants, and ultimately, for consumers as well.

Our brand is also an incredible enabler for us to get into new business lines and will always be a major contributor of growth in card-based payments. Even calling it card-based payments doesn't entirely capture what we do, as shown through the numerous examples we’ve discussed on how we're fueling payments beyond card.

Our mission is to be the best way to pay and be paid. We’re a trusted network and world leader in digital payments, working to remove barriers and connect more people to the global economy. Our brand is an incredible enabler of that mission.

Elena Mesropyan: Tolan, thank you for this enlightening conversation. I’d encourage our clients and partners to connect with you and visit our brand new San Francisco Innovation Center at Visa’s new global headquarters to learn more about Visa capabilities, and how Visa enables succession a fast-evolving and increasingly competitive marketplace.