Yet credit cards have their limitations. They are not ideal for purchases of digital content priced at less than a few dollars per transaction (micro-payments). The card system is not cheap for processing small payment amounts, and in many cases the minimum transaction amount is around US$10.
To sell digital content material, a different payment method is required. In the early days of the internet, developers developed? e-money,? enabling consumers to purchase low-cost items online from a website backed by the e-money provider. However , there was clearly the potential for fraud on the part of the e-money providers, to whom consumers supplied their credit-card numbers in exchange regarding tokens.
Many of these early attempts to produce e-money mechanisms for managing micro-payment transactions schemas met with company 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 pre-pay. It was simply too difficult to implement, and not worth the (then) small income streams from the internet.
But the situation is a lot different now. New micro-payment solutions allow customers to set up online accounts associated with their chequing and savings accounts, thereby reaching a whole new segment of shoppers without credit cards. Micro-payment also has one more future as a replacement for cash to fund goods and services at shops, cafes, pubs, libraries, printers, pharmacies, sports centers, photocopying and laser-printing shops, as well as for bus and taxi fares, or even for any purchase in which coins are utilized.
What are evolving from the early tries are three distinct micro-payment schemas:
– The Retail Model which utilizes a stored value system
– The Telco Model which leverages the telcos? billing system
– The Financial Model which usually uses a multi-application smart card with an e-purse
The Retail Model – Kept 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 needs to load credits in order to make a buys, or connected to a stored value account that accumulates payments plus makes authorizations based on increments.
With a stored value system, the consumers need to register for the services online or even by phone; they have to provide a charge card number and load a balance. In order for the consumer to be able to make re-loads, the machine needs to remember his or her information. Saved value systems are common in the support industry, for example as part of the McQuick assistance in Canada.
Telco Model — Micro-Payment Billing
The rapid transmission of GSM handsets has already led to a situation in which more individuals have a telephone than carry a bankcard. Additionally , people tend to have just one mobile telephone from a single operator, whereas they might have multiple bankcards.
This suggests that mobile operators have access to demographic segments not available to traditional 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 value for their money. More importantly, separating content fees from transport fees allows carriers to keep all transport income while enabling a revenue flow for content providers.
The Economic Model – Smart Card with E-Purse
The smart card uses chip credit card technology and is designed for secure payments 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 cards 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 could be made on the internet by a smart card reader that connects to a PC. Secure internet payments may be made just like they are in shops which use this product. The internet merchant uses a terminal that is similar to a normal shop merchant? s i9000, 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 within Thailand.
Standards are required to develop nation-wide smart card? based electronic purses that will operate on a regional basis. Along with the possibility of location-based services driven with the mobile telephone network, the cellular telephone operator is well placed to market goods and services to consumers on the one-to-one basis.
There are a number of challenges facing the retail financial sector today. The tradition associated with providing a customer with account gain access to via a cheque or magnetic striped card is no longer the way to attract or retain ever-more-discerning consumers. Escalating card fraud and new delivery stations have changed the business landscape permanently.
Micro-payments tied to a chip card could be a winner. The trends reveal that the most feasible solution? as well as the one increasingly embraced worldwide? seems to be the smart card, a plastic card which usually stores all personal data in the embedded microchip and which can be used 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 debit cards from magnetic strip to EMV, which allows these cards to be used seamlessly for micro-payments.
The users have already been educated. They know how to use plastic credit cards, and using smart cards would be the same, but common standards are important. The particular added advantage with a chip credit card is that a loyalty feature can be added to the chip, a natural expansion which none of the other micro-payment strategies can handle well.
There are some issues of a smart card schema. For example , security must be foolproof: once a card has been breached, the cost of replacement is high.
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Safety costs money, and so smart credit cards tend to be more expensive than other strategies.
With the stored value system, the problem is user acceptance. Users have to manage their own accounts, and if there are many different service providers the user has many accounts to manage. In order for a real stored value system to operate, the banks have to get behind this and adopt a standard which retailers can sign up for.
The success of the mobile operators will depend on the number of merchants or even content providers who adopt the operators? billing systems. In order to appeal to customers, merchants are offering phone-customization features such as ring tones, games, screen savers, and music. It is a great market, but the real adoption will happen only when merchants can accept obligations.