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 developed? e-money,? enabling consumers to purchase low-cost items online from a website supported by the e-money provider. However , there was the potential for fraud on the part of the e-money providers, to whom consumers provided their credit-card numbers in exchange with regard to tokens.
Many of these early attempts to make 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 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 a lot different now. New micro-payment services allow customers to set up online accounts associated with their chequing and savings balances, thereby reaching a whole new segment of shoppers without credit cards. Micro-payment also has another future as a replacement for cash to cover goods and services at shops, cafes, pubs, libraries, printers, pharmacies, sports centres, photocopying and laser-printing shops, as well as 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 usually utilizes a stored value system
– The Telco Model which usually leverages the telcos? billing program
– The Financial Model which usually uses a multi-application smart card with an e-purse
The Retail Model – Saved Value Systems
The principal of the saved 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 worth account that accumulates payments and makes authorizations based on increments.
Using a stored value system, the consumers need to register for the services online or even by phone; they have to provide a credit card number and load a balance.
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To ensure that the consumer to be able to make re-loads, the system needs to remember his or her information. Stored value systems are common in the assistance industry, for example as part of the McQuick assistance in Canada.
Telco Model — Micro-Payment Billing
The rapid penetration of GSM handsets has already resulted in a situation in which more individuals carry a telephone than carry the 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 traditional financial institutions. By targeting the right market 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 way to appeal to consumers and to give them worth for their money. More importantly, separating articles fees from transport fees allows carriers to keep all transport revenues 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 dining places, movie chains, convenience stores, vending machines, payphones, and on mass transport 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 customized 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 as they are in shops which use this product. The internet merchant uses a terminal which 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, 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 by 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 access via a cheque or magnetic candy striped card is no longer the way to attract or even retain ever-more-discerning consumers. Escalating card fraud and new delivery stations have changed the business landscape forever.
Micro-payments tied to a chip credit card could be a winner. The trends show that the most feasible solution? and the one increasingly embraced worldwide? appears to be the smart card, a plastic card which usually stores all personal data in the embedded microchip and which can be useful for many functions, thereby doing away with the need to stuff wallets with many other single-function plastic cards. Another factor could be the migration of credit and free e cards from magnetic strip to EMV, which allows these cards to be used seamlessly for micro-payments.
The users have already been knowledgeable. They know how to use plastic credit cards, and using smart cards would be the exact same, but common standards are important. The added advantage with a chip credit card is that a loyalty feature could 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 must 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 methods.
With the stored value system, the thing is user acceptance. Users have to control their own accounts, and if there are many different providers the user has many accounts to manage. To ensure that a real stored value system to operate, 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 even content providers who adopt the operators? billing systems. In order to attract customers, merchants are offering phone-customization features such as ring tones, games, screen savers, and music. It is a good market, but the real adoption may happen only when merchants can accept obligations.