The payment processing industry is rapidly evolving and changing in response to marketplace demands from consumers and government regulation. The industry has grown and shifted substantially in the past several decades. More than 20 years ago, credit card processing at virtually all retail stores was all but a brand new concept, and debit cards and prepaid cards had yet to debut in the financial world. In an increasingly technological age, it is the case that almost all standardized business operations are driven by the internet, wireless technology and devices to make commerce faster, easier and "smarter." Payment processors cover a wide range of firms in the financial services sector, from small startups to large, well-established corporations.

The Difference Between Big and Small

Many small business and startup payment processing companies have been created in the heart of a technology-driven economy. A number of them, including firms such as PayPal Holdings Inc. (NASDAQ: PYPL), have pushed to the forefront of the industry by utilizing the latest forms for payment processing. By comparison, many larger corporations, in both the retail and financial sectors, have learned over time and through experience that transitioning payment processing and accepting all types of payment methods is a necessity to bring in the broadest and largest customer base. Indeed, for large corporations, an integrated payment solution is essential to maintaining sales. The story is often different for the majority of small businesses. Mom-and-pop type stores often use a standard point-of-sale (POS) system, such as a cash register, or a very basic credit card terminal, to effectuate payments.

Online Commerce and Security

The buying and selling of goods and services over the internet is one of the primary driving forces in the development of payment processing. The growing popularity of online shopping has led to businesses conducting ever-larger percentages of sales transactions outside of physical stores. Payment processors, specifically in terms of electronic commerce or e-commerce, must maintain transparent and technologically innovative payment systems. In this way, business owners, customers and the payment processing firms are all aware of the total amount of money being moved and where that money is at every stage, from the moment when customers swipe their cards or input them into a company’s website to the point where the money is deposited in the account of the business. Critical to this process is security. As evidenced by major cybersecurity hacks on Target Corporation (NYSE: TGT), The Home Depot Inc. (NYSE: HD) and others, as commerce depends more heavily on technology, it also becomes more reliant on adequate security for that technology.

The Future of Payment Processing

Growth and expansion within the payment processing industry continues to rise. With the introduction of newer and more innovative payment processing methods, such as Apple Pay and Google Wallet, both merchants and consumers are continually adapting to industry changes. It is difficult to keep in mind that less than 30 years ago, credit card payment processing was a novelty for most companies. As of 2016, one of the most trusted and oft-cited sources for information on the payment processing industry, the Nilson Report, released its forecast of purchase volume for credit and debit card purchases growing at a compound annual growth rate (CAGR) of approximately 8% through 2019. Over the same timeframe, paper-based payments, including payment by check and by means of physical cash, are projected to decrease at an approximated 6% CAGR.

One example of major evolution within the payment processing industry is the introduction of digital wallet platforms, with more companies slated to introduce their own payment platforms to compete with Apple Pay. Android Pay and Samsung Pay store preferred payment information for each user. A reader at point-of-sale (POS) terminals allows users to swipe their mobile devices, negating the need for the presentation of a physical card. In a modern age when individuals are increasingly looking for quicker and easier shopping, the digital wallet platforms are quickly transforming the payment processing industry. Further technological advancements in payment forms and methods, combined with innovative efforts to cut down on cyber theft, mean continuing potential for growth and evolution in the payment processing industry.

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