Payments Systems

Traditional debt transfer systems are credit cards and bank transfer. And in B2C e-commerce, credit cards have become the prevalent form of on-line payment. This is probably due to circumstances in the US, where e-commerce first took off. There, credit cards are commonplace, but there exists no widespread system of direct bank transfer. Moreover, Americans still settle many payments with paper cheques – a means clearly not suited to electronic transactions.

However, owing to consumer security concerns about the digital transfer of credit card details across the Internet, companies with an interest in promoting electronic transactions have developed various secure payment systems involving different strengths of encryption.

Comment

Although it is consumers who are most concerned about giving credit card information on line (curiously, people who will gladly hand over their credit card to anyone looking like a waiter in a restaurant, will be very reluctant to provide credit card information over a highly secure system on the Internet), it is retailers who are at the greatest risk. Credit card companies are quick to do a chargeback (i.e. demand the payment back from the retailer) whenever a consumer has a complaint about an on-line sale. Unfortunately, a number of dishonest individuals have taken advantage of this policy, making substantial purchases and then doing a chargeback. Be sure to discuss this issue with your bank when establishing a merchant account to accept credit card payment over the Internet. Also ensure that your payment system is secure – not only the software, but staff collecting payment, printed documents with credit card data, etc.

Addressing consumer fears over submitting credit card details on-line, several companies have developed systems that allow more secure transactions to take place. These systems range from the use of encryption to protect credit card details to the development of new methods of payment such as electronic cash systems which involve the exchange of digital payment tokens directly between the parties.

To create trust and confidence, the payment system should be chosen carefully and an encryption system and details about data security during data transfer should be provided. However, vendors should be developing such systems as much for their own security as their customers’. In cases of misuse of sensitive data, especially credit card numbers and bank details, the burden of proof is with the supplier.

The digital transmission of products and services has prompted calls for the development of payment technology that will allow consumers to transfer value digitally in order to pay for these products and services.

Rapid developments in on-line commerce mean that payment systems are needed not only for the sale of products and services, but also for new methods of advertising and information retrieval. Both the digital transfer of products for value and new advertising methods, such as paying consumers to view web sites or fill out questionnaires, have prompted the creation of systems which can immediately transfer value and are suitable for low value transactions. New and specially developed payment systems include smart cards (Visacash, Proton, Mondex), e-cash, cybercash (software stored on the computer), micropayment systems and loyalty schemes.

The advantages of digital cash are peer-to-peer transfers, anonymous purchasing, certainty of payment for the retailer, and suitability for low value purchases.

The Electronic Money Directives provide that electronic money institutions (i.e. undertakings other than banks and credit institutions) can issue electronic money throughout the European Union based on a single licence obtained in one Member State. These institutions also fall under a single supervisory regime.

In the different Member States, issuers may find themselves subject to differing regulations. While the issuance of electronic money is still restricted to credit institutions in some countries, in others commercial organisations are free to provide this service. The differences arise from the Member States’ divergent interpretations of the activities of electronic money issuers.

9. Payment Systems