Online payment systems—the options
Banner ads encourage
visitors to leave your site and visit those of your
competitors
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One of the major challenges web content providers have
had to face over the past few years has been that of devising an economic model
that allows them to make money from their investment in the Internet. A variety
of models have been developed, but none so far are entirely satisfactory, and
some are fundamentally flawed. Banner ads, for example, if they are well
targeted, encourage visitors to leave your site and visit those of your
competitors—precisely the opposite of the desired behavior. And the subscription
approach tends to put off all but the most committed of users. Because
subscriptions require a significant up-front payment, people must be convinced
they will get value for money before they are willing to part with their cash.
Micropayments
What is currently lacking is a simple, universally accepted method of
exchanging small sums of money on the Web. Such a system would enable content
providers to levy small charges of just a single cent or even less—known as
"micropayments" within the web community—on users accessing their non-free
content. This should in turn see the quality of web content generally improve,
and the amount of advertising decline.
Credit cards are
completely unsuitable for informal transactions
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Clearly, conventional credit card transactions—the
normal method of purchasing on the Internet—are entirely unsuited to handling
such payments. Aside from the form filling and the perceived security hazards
that would put off potential customers, small transactions of this kind would
cost merchants far more to process than they would earn. Also, credit cards are
completely unsuitable for informal transactions such as paying back a friend the
money you owe them, or buying a second-hand camera at an eBay? auction.
A number of companies and organizations are taking steps toward implementing
a solution. The World Wide Web Consortium (W3C) has released a working draft of
its Common Markup for
micropayment per-fee-links specification. This sets out the methods for
embedding into web pages the information required to initialize micropayments.
One of the goals of the W3C's specification is to allow multiple "electronic
wallets" to coexist interoperably.
Electronic wallets
Like finding yourself
in Peru with a pocket full of Greek drachmas
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Electronic wallets are one of the industry's key
approaches to implementing micropayments at the user level. Companies such as
Qpass are seeking to overcome the limitations
of credit card transactions by amalgamating the online purchases of registered
users into a single sum, which is then debited from their credit cards on a
monthly basis in the usual way. This enables much smaller sums to be billed to
credit cards than would otherwise be possible. While such initiatives are to be
commended, the main problem with them is that users of the service can only
benefit when they spend money on sites that have also signed up for the
particular service. On nonmember sites it is useless, like finding yourself in
Peru with a pocket full of Greek drachmas when all the banks are shut.
Compaq's MilliCent? is one
such system which has so far gone live only in Japan. MilliCent has several
advantages over its competitors which could see it leading the way in the
immediate future. The main one is obviously the powerful leverage wielded by the
Compaq name, which makes it far more likely that vendors will sign up with
MilliCent than with a similar service operated by a company they've never heard
of. In addition, Compaq claims that its service is easy for vendors to set up
and operate. The software takes account of scenarios such as refunds, failed
purchases, and hands-free operation, and Compaq estimates that it will take an
average merchant just four hours to become a working MilliCent vendor.
Real-currency models
PayPal could become
the biggest person-to-person payment system on the entire
Web
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An alternative online financial model is provided by
PayPal. The major differences between their
service and the electronic wallet systems are that PayPal is based on real
currency, and that it allows money to be transferred securely to anyone in the
world, as long as they have an e-mail address. There are no fees for signing up
or for using the basic services. In fact, PayPal will give you $5 simply to
join, and another $5 for every friend you convince to do the same. A range of
business and premier facilities is also on offer, such as instant online auction
payments and low-rate credit card receipts. This is probably the cheapest and
easiest way for a trader without a merchant credit card account to accept credit
card payments. PayPal has also taken account of the ever-expanding mobile market
by enabling its pages for WAP devices and Palm hand-helds. The company already
claims a customer base of over 2 million people, and is growing rapidly.
Certainly the industry has taken notice. Investors in the venture include
heavyweights Goldman Sachs, Nokia, and the Deutsche Bank. If, as promised,
PayPal can deliver a full range of services internationally, they could become
the biggest person-to-person payment system on the entire Web.
Another of the most exciting online payment initiatives has been devised by
eCash, which is seeking to
provide a wide range of financial services including bill payments,
micropayments and electronic checks, all backed by its own proprietary
technology. Among the claimed benefits are low transaction costs, no penalties
for low-value transactions, and improved security over other similar systems.
They even go so far as to claim that eCash eliminates fraud from online
transactions. The power of the system is that it works in conjunction with
existing financial institutions in order to provide the services. This in turn
gives vendors confidence that payments will be honored, and customers the
security of having a local or known institution handle their transactions. The
system can also handle wireless payments with ease and, like PayPal, is built on
the real-cash economy which gives it far greater credibility than its electronic
wallet competitors.
Which, if any, of these services will eventually come to dominate the market
is impossible to foresee. There may be room for several of them at the top
table, or some other visionary development may supplant them all. But the
pressing need for a widely acceptable solution to the problem of how to make
everyday, low-value payments on the web guarantees that whoever comes up with
such a service will find themselves becoming very wealthy indeed.
