But credit cards have their limitations. They are not suitable for purchases of digital content costing less than a few dollars per deal (micro-payments). The card system is not cost efficient for processing small payment amounts, and in many cases the minimum transaction quantity is around US$10.
To sell digital content material, a different payment method is required. Within the early days of the internet, developers made? e-money,? enabling consumers to purchase low-cost items online from a website backed by the e-money provider. However , there was the potential for fraud on the part of the e-money providers, to whom consumers supplied their credit-card numbers in exchange intended for tokens.
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Many of these early attempts to create 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 cases, 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 much 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 an additional future as a replacement for cash to cover goods and services at shops, cafes, pubs, libraries, printers, pharmacies, sports centers, 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 worth account that accumulates payments and makes authorizations based on increments.
Having a stored value system, the consumers need to register for the services online or by phone; they have to provide a bank 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. Kept value systems are common in the program industry, for example as part of the McQuick support in Canada.
Telco Model — Micro-Payment Billing
The rapid transmission of GSM handsets has already led to a situation in which more individuals carry a telephone than carry the 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 conventional financial institutions. By targeting the right demographic group, mobile operators can use their very own billing systems to register micro-payment dealings. Pricing wireless applications on a per-use or subscription basis is the best way 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 profits while enabling a revenue stream for content providers.
The Monetary Model – Smart Card with E-Purse
The smart card uses chip 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 transport 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, that is a cash-like, prepaid scheme, where the consumer has the choice of making either individualized or anonymous payments.
Purchases could be made on the internet by a smart card readers that connects to a PC. Protected 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? t, and payment and collection are created in the same way.
An example of an intra-regional standard 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. Coupled with the possibility of location-based services driven from 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 of providing a customer with account entry via a cheque or magnetic striped card is no longer the way to attract or even retain ever-more-discerning consumers. Escalating credit card fraud and new delivery channels have changed the business landscape permanently.
Micro-payments tied to a chip cards could be a winner. The trends indicate that the most feasible solution? and 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 utilized for many functions, thereby doing away with the necessity to stuff wallets with many other single-function plastic cards. Another factor could be 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 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 needs to be foolproof: once a card has been breached, the cost of replacement is high. Protection costs money, and so smart 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 providers the user has many accounts to manage. In order for a real stored value system to work, the banks have to get behind it and adopt a standard which retailers 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 bring in customers, merchants are offering phone-customization functions such as ring tones, games, screen savers, and music. It is a good market, but the real adoption will happen only when merchants can accept obligations.