But credit cards have their limitations. They are not ideal for purchases of digital content costing less than a few dollars per transaction (micro-payments). The card system is not cost efficient for processing small payment quantities, and in many cases the minimum transaction amount is around US$10.
To sell digital content material, a different payment method is required. Within the early days of the internet, developers created? e-money,? enabling consumers to purchase low-cost items online from a website backed by the e-money provider. However , there is the potential for fraud on the part of the e-money providers, to whom consumers provided their credit-card numbers in exchange regarding tokens.
Many of these early attempts to make e-money mechanisms for managing micro-payment transactions schemas met with business failure (e. g., early micro-payment vendors such as Flooz, Benz, Digicash). Even for feasible business situations, the failures often occurred since the merchants had to implement additional hardware/software requirements, and the customers had to prepay. It was simply too difficult to implement, and never worth the (then) small revenue streams from the internet.
But the situation is a lot different now. New micro-payment solutions allow customers to set up online accounts tied to their chequing and savings balances, thereby reaching a whole new segment of shoppers without credit cards. Micro-payment also has one more future as a replacement for cash to purchase goods and services at shops, cafes, bars, libraries, printers, pharmacies, sports centres, photocopying and laser-printing shops, as well as bus and taxi fares, or for any purchase in which coins are used.
What are evolving from the early efforts are three distinct micro-payment schemas:
– The Retail Model which usually utilizes a stored value program
– The Telco Model which leverages the telcos? billing program
– The Financial Model which uses a multi-application smart card with an e-purse
The Retail Model – Saved Value Systems
The principal of the stored value systems is based on the micro-payments schema: store value accounts are usually connected to a credit card in which a consumer has to load credits in order to make a purchases, or connected to a stored value account that accumulates payments plus makes authorizations based on increments.
Using a stored value system, the consumers need to register for the services online or by phone; they have to provide a credit card number and load a balance. To ensure that the consumer to be able to make re-loads, the device needs to remember his or her information. Saved value systems are common in the service industry, for example as part of the McQuick service in Canada.
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Telco Model : Micro-Payment Billing
The rapid penetration of GSM handsets has already led to a situation in which more individuals carry a telephone than carry a bankcard. Additionally , people tend to have a single mobile telephone from a single owner, whereas they might have multiple bankcards.
This suggests that mobile operators get access to demographic segments not available to conventional financial institutions. By targeting the right demographic group, mobile operators can use their own billing systems to register micro-payment transactions. Pricing wireless applications on a per-use or subscription basis is the best method to appeal to consumers and to give them worth for their money. More importantly, separating content fees from transport fees enables carriers to keep all transport revenues while enabling a revenue stream for content providers.
The Monetary Model – Smart Card with E-Purse
The smart card uses chip credit card technology and is designed for secure obligations over the internet and mobile phones, and for micro-payments such as those made in fast-food restaurants, movie chains, convenience stores, snack machines, payphones, and on mass transportation and toll highways. A smart card payment scheme can manage low-value and high-value payments. The low-value payment scheme is known as e-purse, which is a cash-like, prepaid scheme, where the user has the choice of making either personalized or anonymous payments.
Purchases can be made on the internet by a smart card reader that connects to a PC. Safe internet payments may be made just as they are in shops which use this product. The internet merchant uses a terminal that is similar to a normal shop merchant? ersus, and payment and collection are created in the same way.
An example of an intra-regional regular for cash is the NETS Singapore CashCard under the Visa Cash brand name, which has been implemented in Singapore, Philippines, and Korea, and recently in Thailand.
Standards are required to develop nation-wide smart card? based electronic purses that operate on a regional basis. Along with the possibility of location-based services driven from the mobile telephone network, the mobile telephone operator is well situated to market goods and services to consumers on an one-to-one basis.
There are a number associated with challenges facing the retail financial sector today. The tradition associated with providing a customer with account accessibility via a cheque or magnetic candy striped card is no longer the way to attract or even retain ever-more-discerning consumers. Escalating credit card fraud and new delivery stations have changed the business landscape forever.
Micro-payments tied to a chip cards could be a winner. The trends show that the most feasible solution? as well as the one increasingly embraced worldwide? appears to be the smart card, a plastic card which stores all personal data in the embedded microchip and which can be employed for many functions, thereby doing away with the need to stuff wallets with many other single-function plastic cards. Another factor is the migration of credit and free e cards from magnetic strip to EMV, which allows these cards to be used effortlessly for micro-payments.
The users have already been informed. They know how to use plastic credit cards, and using smart cards would be the exact same, but common standards are important. The particular added advantage with a chip cards is that a loyalty feature can be added to the chip, a natural expansion which none of the other micro-payment methods can handle well.
There are some issues associated with a smart card schema. For example , security needs to be foolproof: once a card has been breached, the cost of replacement is high. Safety costs money, and so smart cards tend to be more expensive than other methods.
With the stored value system, the problem is user acceptance. Users have to control their own accounts, and if there are many different service providers the user has many accounts to manage. To ensure that a real stored value system to work, the banks have to get behind this and adopt a standard which vendors can sign up for.
The success of the mobile operators will depend on the number of merchants or content providers who adopt the operators? billing systems. In order to appeal to customers, merchants are offering phone-customization functions such as ring tones, games, display savers, and music. It is a great market, but the real adoption will happen only when merchants can accept obligations.