e-business operations - payment systems
With the advent of eBusiness and shopping on-line, there has been a growth in the need for of dedicated payment systems.
Credit and Debit Cards
Early on-line payment applications were based on existing on-line clearance of payments through the credit card and debit card networks such as Switch in the UK, but the facilities to connect directly to these services have only been available to the largest retailers.
Strictly speaking, most credit card merchant accounts have onerous requirements for ‘cardholder not present’ transactions and in many sectors, the banks and card providers have so been wary of fraud that they have not rushed to offer services to on-line retailers.
Payment Service Providers
Businesses have been able to gain on-line card clearance or integrated merchant services from ‘payment service provider’ businesses such as Cybercash, Datacash and Worldpay that act as retailers of merchant services.
Paypal is the most important peer-to-peer payment system, which is now owned by Ebay. These services have allowed individuals to make and receive payments through their own credit card and/or bank account. Furthermore, an increasing coverage offers a more or less ‘seamless’ way to send and receive payments in many currencies, without having to incur further foreign exchange costs. As of September 2006, Paypal had 123 million accounts and had conducted 440 million transactions in the year to date.
“Founded in 1998, PayPal, an eBay Company, enables any individual or business with an email address to securely, easily and quickly send and receive payments online. PayPal's service builds on the existing financial infrastructure of bank accounts and credit cards and utilizes the world's most advanced proprietary fraud prevention systems to create a safe, global, real-time payment solution.
”PayPal has quickly become a global leader in online payment solutions with 100 million account members worldwide. Available in 103 countries and regions around the world, buyers and sellers on eBay, online retailers, online businesses, as well as traditional offline businesses are transacting with PayPal.”
Other providers such as Nochex are attacking the same market, but seem to have lost out to Paypal, presumably, largely due to its close integration with eBay, which has made it difficult for alternative suppliers to get a share of the market.
Other payment providers
Western Union has a long tradition of transferring money internationally via its network of offices around the world – it has long been used by people travelling and by expatriate workers to send money home to their families. Western Union has been building its presence in eBusiness, especially in areas where the banking system may offer limited facilities, or where international transfers may be difficult or prohibitively expensive for small users.
The banks themselves seem to have been nervous of on-line payment developments. However, there has been an uptake in electronic banking which allows customers to make and receive payments from their cheque account via a secure website and this is growing in acceptance.
Micropayments are payments for small amounts, sometimes as little as a few pence – and in many cases, online business models with very low marginal costs need to collect these very small amounts. Paypal is quite effective for some retailers and individual users to sell small items on eBay, collect the money automatically and then just withdraw when a suitable amount has been aggregated from many transactions.
Telephone and mobile telephone service providers are also effective at collecting, and billing for, small amounts of money – for this is similar to billing for phone calls and text services. Therefore, business models have arisen for which revenue is derived from calls to telephone or text numbers that share the revenue with the provider.
Author: Steve Whiteley, January 2007
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