Over the last two years there have been a number of initiatives on the Internet Payment Front. Ever since the dawn of e-commerce, Credit Cards have ruled the roost, primarily because they were already in wide circulation and used extensively by the brick and mortar business. However, credit cards, while great for the day to day purchased in the physical world, came across one big problem in the virtual world.
Credit cards have managed to take care of security through signatures and
photocards. But in the virtual world, how is anyone supposed to check the
signature or the facial features of someone logging in from half a world away?
So as you can expect, the credit card number and PIN numbers were the only proof
of identity. This meant that security became a big concern, so much so that
Credit card companies started to charge higher for Internet enabled merchant
accounts (the account the merchant needs to accept credit card payment on the
Internet). This meant that credit cards became too expensive for smaller
purchases. This in turn brought in a host of new payment systems which have
sprung up focusing on increased security on the net, or facility for
micropayments (up to 10 cents) or both.
As in any new area, the number of new entrants is increasing exponentially with equally large numbers exiting within a year or two. Here are some of the key players to watch out for:
Key Payment Systems
1. Pay pal
PayPal is a money transfer system that was originally launched for C2C (customer-to-customer) transactions, but recently, X.com, the company behind the service, introduced B2C transactions, by offering accounts for businesses. Paypal acts as a neutral intermediary offering low risk to both seller/receiver and buyer/sender of the money
PayPal, uses e-mail to inform the receiver that a payment has been made . It accepts money from the purchaser in one of three ways:
- Charging the purchaser's credit card for any transactions (payments)
- Debiting a checking account for any payments
- The purchaser sending a check to create a positive balance in his account
at PayPal, and having any payments deducted from the account
Payment recipients can use the money in the account for online purchases or payments, can receive the payment from PayPal by check, or can have PayPal directly deposit the money into their checking account.
How It Works
This is truly one of the easiest services for purchasers to use. Setting up an e-mail account at Yahoo takes longer! As a payer, all you have to do is to provide your name, your e-mail address, your credit card information, and your billing address for your credit card.
Newly instituted business and premier accounts permit businesses and consumers who use their accounts frequently to accept payments via PayPal without requiring merchant accounts, and having these amounts moved to their checking accounts daily.
Business and premier accounts get 24/7 customer support by both phone and e-mail. They also have the ability to download Quicken/QuickBooks/Excel-compatible transaction logs.
For regular PayPal account holders, payments must be made at the PayPal site. For business and premier account holders, payments can be accepted directly on their own sites using a Web Accept button. Finally, business and premier account holders can create automated invoices to send to auction winners and others.
There's one additional service available that's worth its weight in gold.
Sites that run affiliate programs, sweepstakes, lotteries, or hold marketing
surveys might need to send small value checks to many, many recipients. PayPal's
business services let these merchants upload a file with e-mail addresses and
amounts, and pay the recipients in bulk. Since checks cost at least $1 each to
process, and often have to be reissued, this service, priced at the lesser of
$.25 or 2% per payment, is an unbeatable deal.
Payment Terms
For transactions between customers, there's no fee associated with using
PayPal, no doubt contributing to its popularity. PayPal makes money on the float
- when your money sits in your account, they're collecting interest on it.
For business accounts, the merchants are charged a 2.2% discount rate + 30
cents on the money, which is better than the rate charged by merchant banks for
accepting credit cards, in most cases.
2. TradEnable (I-escrow)
It's not exactly news to anyone running an auction site that by and large,
online auctions are based on trust. The trust is that a seller will provide the
object that was sold, as promised, and that a seller will pay for the piece.
However, trust is often a rare commodity in the Internet world. This is where an
intermediary such as TradEnable comes in handy.
Tradenable allows buyers and sellers to set terms online. After both parties
agree to the terms, Tradenable emails the buyer, asking him to pay the amount to
Tradenable. The payment can be made via credit card, personal or business check,
money order, cashier's check or wire transfer. All payments must be made in US
dollars.
This is kept in an escrow account, and the seller is informed via e-mail to
log-in to Tradenable's site to get the shipping details. After the goods are
received, inspected and approved by the buyer, the seller is paid by Tradenable
for the goods. If the buyer is dissatisfied and returns the goods, the seller
will also be given time to inspect and accept the goods as returned. In this
case, Tradenable returns the money to the buyer.
Payment Terms
i-Escrow charges on a sliding scale depending on the transaction amount and
payment method.
For credit-card transactions:
- Up to $500, the I-Escrow fee is 6 percent with a minimum fee of $2.95
- Between $500.01 and $2,500, $30 and 5 percent of the transaction amount
over $500 - Between $2,500.01 and $5,000, $130 and 4 percent of the transaction amount
over $2,500. - Credit-card transactions above $5,001 currently aren't accepted.
For cash transactions:
- Up to $500, the I-Escrow fee is 6 percent with a minimum fee of $5.95
- Between $500.01 and $2,500, $30 and 3 percent of the transaction amount
over $500 - Between $2,500.01 and $25,000, $90 and 1 percent of the transaction amount
over $2,500. - Cash transactions above $25,000 currently aren't accepted.
Naturally, this would mean that I-escrow wouldn't really be the preferred
option for small transactions.
3. e-Charge Phone
Another alternative payment solution that is fast becoming popular is eCharge
Phone because it allows customers to bill purchases to their local phone bills.
This makes it convenient for people who do not own a credit card, or who do not
wish to give their card numbers due to security reasons. eCharge Phone can
handle payments ranging from $1 to $300, as well as recurring subscription
charges, such as ISP charges. Their merchant network currently includes such
well-publicized sites as ClassMates.com and McAfee.com.
eCharge Phone uses proprietary security technology similar to Caller ID to
identify your telephone number via a Public Switched Network. Your eCharge Phone
purchase total will show up as a Pay Per Call charge on your telephone bill,
including information on the online merchant provider and the date and time of
the transaction.
You select a digital good or service for purchase and choose eCharge Phone as
your payment method. Your computer automatically connects to a special purchase
number that charges the purchase amount to your telephone bill. You receive the
goods or services immediately after completing your transaction.
In order for customers to use eCharge Phone, they have to be connected to the
Internet via a dial-up line. eCharge will be adding the capability to handle
payments of those connected via DSL, ISDN, and cable in the near future, but
dial-up is still the king with 93% of home Internet users. (TR's Online
Census, published by Telecommunications Reports International).
Since eCharge Phone tracks the phone number from where the call came, no
other personal information need be entered.
eCharge is currently live in the US, Canada, England, and Sweden, with plans
to go into many other countries.
About 100 merchants are currently using this solution, but since the customer
doesn't need an account to use it, its success doesn't depend on size of network
of merchants.
Payment Terms
The cost to merchants to offer the eCharge Phone option is a one-time $50
setup fee, plus an 8.25% per transaction fee. The customer also gets hit with a
consumer fee ranging between $.50 and $2.00, on a sliding scale depending on the
size of the order. Merchants can pick up the consumer fee, if they choose.
eCharge Phone is a good way for merchants to get around the Visa and
MasterCard restrictions on immediate fulfillment merchants. It's also an
excellent way to get at the 32% of customers that don't own credit cards.
Customers have to be willing to experiment with what is basically a new
technology for most of them.
4. Mondex
Mondex electronic cash works in the same way as cash which means merchants
can transact using digital channels like the Internet, mobile phones and digital
television with less risk of fraud.
Mondex operates on a smart card and is accessible to everyone, including the
youth market and those without bank accounts.
The microchip contains a 'purse' in which Mondex value is held
electronically. The purse is divided into five separate pockets, allowing up to
five different currencies to be held on the card at any one time. The microchip
also contains Mondex security programs that protect transactions between one
Mondex card and another.
Compelling benefits to consumers and merchants transacting via the Internet,
mobile phones and digital television can be seen in the following areas:
- MONDEX is a SmartCard-based electronic cash application, built for MULTOS
card operating system chip cards. The MONDEX e-purse can be used in everyday
cash transactions.
- Because it's electronic, MONDEX is also useful over a standard phone line,
digital TV, mobile phone or via the Internet The chip maintains the last 10
transactions and locks the application with a user-selected code. Private
payments between individuals are also possible (provided the infrastructure is
present), helping to eliminate the need to carry around any sums of cash.
- Mondex provides a direct electronic equivalent of cash, bringing
compelling benefits to consumers and merchants transacting via the Internet,
mobile phones and digital television. It is simple to use, replicating exactly
the workings of physical cash online and is accessible to everyone, including
the youth market and those without bank accounts. The e-cash facility enables
instant transfer of value between merchants and customers (or between
consumers) and doesn't require bank authorization. It also allows users to
make secure online purchases without giving any personal details.
- The Mondex card can be brought from franchisees and can be recharged
through a phoneline. Once charged, the customer can use them to make purchases
on the Internet E-cash is particularly suited to micro payments for which
credit cards are too expensive. Mondex does not require central clearing or
authorization. which enables a secure and confidential transfer of "money" to
occur instantly - exactly like paying with cash.
- Mondex enables merchants to target e-commerce markets that are not
adequately serviced by traditional payment methods e.g. the youth market,
small payment market (such as selling articles or songs individually), those
concerned about credit card security etc.
Since Mondex allows the card to be recharged, there is no need to keep large
amounts in the card, thus reducing risk. In addition, the buyer retains his
anonymity, something that no credit card can assure.
5. InternetCash
If you are a merchant whose customers are people who have traditionally been
paying cash, then Internet Cash would really be of interest. It's ideal for
teens and children - and for gifts. It's also perfect for people who don't have
credit cards (~31% of the US population and most of the rest of the world), or
who would rather not pay with credit cards on the Web.
Customers purchase InternetCashâ„¢ cards at one of hundreds of physical stores
around like prepaid phone cards, they'll also be available from vending machines
and ATM machines. Customers pay the retailers for the cards using whatever
payment methods the retailers typically accept, including cash. Cards are sold
in denominations of $10, $20, $50 and $100.
Customers then go to the InternetCashâ„¢ site, and activate their cards by
entering a 20-digit code from the back of the card and creating a personal
identification number.
When the customer is ready to check out with the merchant, he selects the
payment method of InternetCashâ„¢. A secure window that's hosted by InternetCashâ„¢
appears asking him to enter the card number (if he opted not to take the
cookie), and to enter his pin. Purchases are automatically deducted from the
value of the card, and a customer can pay with up to 30 cards. Within the next
month, customers will be able to transfer value from one card to another so that
they can consolidate the value of cards when they're validating them, rather
than paying with multiple cards. At that time, C2C commerce will be enabled
because customers will be able to transfer their balances to other customers'
cards.
Once the merchant receives verification from InternetCashâ„¢ that the payment
was made successfully, which takes place behind the scenes with an API that runs
on the merchant's server, the merchant gives the customer an order confirmation
number and the sale is concluded. The merchant stores only an encrypted digital
signature from the customer and a payment authorization number from InternetCashâ„¢.
Consequently, there's nothing in the merchant's database that's of value to
hackers or that presents a risk for customers.
If the customer is purchasing digital goods, he doesn't even need to provide
a name or address, just the payment information. In certain immediate
fulfillment industries, the ones that have been targeted as high risk by Visa
and Mastercard, this can really expedite the checkout process and insure
anonymity on the part of the shopper.
Payment terms
As an online merchant, the discount rate is negotiated as a percentage not as
a per-transaction fee, so it lends itself well to micropayments.
Customers do not pay a premium to use InternetCashâ„¢, but when C2C commerce is
enabled, the payer will pay a small fee to transfer money to the recipient.
InternetCashâ„¢ is one of the few payment solutions that genuinely acts as an
alternative currency on the Web. Anyone can get InternetCashâ„¢ because no credit
card is required to make the purchase. The customer's money sits on a server, so
it's not tied to the machine at which the customer is sitting when he activates
his card, yet the pin resolves the repudiation issue that concerns merchants.