What Will Replace Cash for Small Payments?

Yet credit cards have their limitations. They are not ideal for purchases of digital content costing less than a few dollars per transaction (micro-payments). The card system is not cheap for processing small payment quantities, and in many cases the minimum transaction amount is around US$10.

To sell digital content material, a different payment method is required. Within the early days of the internet, developers created? e-money,? enabling consumers to purchase cheap 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 for 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 cases, the failures often occurred because the merchants had to implement additional hardware/software requirements, and the customers had to prepay. It was simply too difficult to implement, rather than worth the (then) small revenue streams from the internet.

But the situation is much different now. New micro-payment providers 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 one more 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 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 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 saved 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 value 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 even by phone; they have to provide a credit card number and load a balance. In order for the consumer to be able to make re-loads, the device needs to remember his or her information. Stored 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 the bankcard. Additionally , people tend to have a single 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 traditional financial institutions. By targeting the right market 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 articles fees from transport fees enables carriers to keep all transport income while enabling a revenue stream for content providers.

The Economic Model – Smart Card with E-Purse

The smart card uses chip cards 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, vending 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 consumer has the choice of making either personalized or anonymous payments.

Purchases could be made on the internet by a smart card viewer 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 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 in 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 mobile telephone operator is well situated to market goods and services to consumers on an one-to-one basis.

Conclusion

There are a number associated with challenges facing the retail banking sector today. The tradition associated with providing a customer with account accessibility via a cheque or magnetic candy striped card is no longer the way to attract or even retain ever-more-discerning consumers. Escalating credit card fraud and new delivery stations have changed the business landscape forever.

Micro-payments tied to a chip cards could be a winner. The trends suggest that the most feasible solution? and the one increasingly embraced worldwide? seems to be the smart card, a plastic card which stores all personal data in its 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 will be the migration of credit and free e cards from magnetic strip to EMV, which allows these cards to be used effortlessly for micro-payments.

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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 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 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 cards tend to be more expensive than other methods.

With the stored value system, the problem is user acceptance. Users have to control 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 work, the banks have to get behind this and adopt a standard which merchants can sign up for.

The success of the cellular operators will depend on the number of merchants or content providers who adopt the particular operators? billing systems. In order to catch the attention of customers, merchants are offering phone-customization functions such as ring tones, games, display screen savers, and music. It is a good market, but the real adoption may happen only when merchants can accept obligations.