What Will Replace Cash for Small Obligations?

But credit cards have their limitations. They are not suitable 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 amounts, and in many cases the minimum transaction amount is around US$10.

To sell digital content, a different payment method is required. Within the early days of the internet, developers created?
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e-money,? enabling consumers to purchase low-cost items online from a website supported by the e-money provider. However , there was clearly the potential for fraud on the part of the e-money providers, to whom consumers provided their credit-card numbers in exchange to get 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 situations, 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 never worth the (then) small revenue streams from the internet.

But the situation is much different now. New micro-payment solutions allow customers to set up online accounts tied to 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 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 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 usually leverages the telcos? billing system

– The Financial Model which uses a multi-application smart card with an e-purse

The Retail Model – Kept 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 buys, or connected to a stored value account that accumulates payments plus makes authorizations based on increments.

Using a stored value system, the consumers need to register for the services online or by phone; they have to provide a charge card number and load a balance. In order for 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 program industry, for example as part of the McQuick service in Canada.

Telco Model – Micro-Payment Billing

The rapid transmission of GSM handsets has already resulted in a situation in which more individuals have 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 market group, mobile operators can use their 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 worth for their money. More importantly, separating articles fees from transport fees allows carriers to keep all transport revenues while enabling a revenue stream for content providers.