But credit cards have their limitations. They are not suitable for purchases of digital content priced at less than a few dollars per transaction (micro-payments). The card system is not cost efficient for processing small payment quantities, and in many cases the minimum transaction amount is around US$10.
To sell digital articles, a different payment method is required. Within the early days of the internet, developers created? e-money,? enabling consumers to purchase low-cost items online from a website supported by the e-money provider. However , there is 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 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 situations, the failures often occurred because the merchants had to implement additional hardware/software requirements, and the customers had to pre-pay. It was simply too difficult to implement, instead of worth the (then) small income streams from the internet.
But the situation is a lot different now. New micro-payment providers allow customers to set up online accounts tied to their chequing and savings balances, thereby reaching a whole new segment of customers without credit cards. Micro-payment also has one more future as a replacement for cash to purchase goods and services at shops, cafes, pubs, libraries, printers, pharmacies, sports centres, 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 efforts are three distinct micro-payment schemas:
– The Retail Model which usually utilizes a stored value system
– The Telco Model which 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 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 buys, or connected to a stored value account that accumulates payments and makes authorizations based on increments.
Using a stored value system, the customers need to register for the services online or by phone; they have to provide a bank 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 program industry, for example as part of the McQuick program in Canada.
Telco Model : Micro-Payment Billing
The rapid penetration of GSM handsets has already resulted in a situation in which more individuals bring 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 get 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 method to appeal to consumers and to give them value for their money. More importantly, separating content material 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, snack 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, that is a cash-like, prepaid scheme, where the consumer has the choice of making either customized or anonymous payments.
Purchases can be made on the internet by a smart card audience 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? ersus, and payment and collection are made 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 by mobile telephone network, the cellular telephone operator is well placed to market goods and services to consumers on an one-to-one basis.
There are a number associated with challenges facing the retail financial sector today. The tradition of providing a customer with account accessibility via a cheque or magnetic striped card is no longer the way to attract or retain ever-more-discerning consumers. Escalating cards fraud and new delivery channels have changed the business landscape forever.
Micro-payments tied to a chip credit card could be a winner.
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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 its embedded microchip and which can be utilized for many functions, thereby doing away with the need to stuff wallets with many other single-function plastic cards. Another factor may 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 added advantage with a chip credit card is that a loyalty feature can be added to the chip, a natural extension which none of the other micro-payment strategies 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. Safety costs money, and so smart credit cards tend to be more expensive than other strategies.
With the stored value system, the thing is user acceptance. Users have to deal with 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 it and adopt a standard which vendors can sign up for.
The success of the cellular 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 features such as ring tones, games, display savers, and music. It is a good market, but the real adoption may happen only when merchants can accept payments.