Introduction to Payment Systems

			E-Commerce Research

Many recent studies promise an explosive growth in the volume and value of products and services sold through the Internet.

The basis for these expectations is that this new method of shopping offers important advantages over traditional shopping to both vendors and customers, e.g.:

• vendors can create a world-wide 24h/day presence at low cost,
• customers can e-shop world-wide, greatly increasing their choice of products

An ever-increasing number of small and large businesses use the Internet to sell products. The total volume of goods sold through the medium is nonetheless still tiny when compared to traditional sales channels.

Various factors contribute to limited sales figures: e-shopping is new, and not every potential customer is familiar with the concept or has access to the Internet. Moreover, at this time the selection of goods offered by many on-line shops is sometimes still limited or out of stock. The Internet is gaining in sophistication and popularity; these will no doubt prove transient issues.

A more fundamental obstacle is the problematic nature of payments over the Internet.
Traditional methods of payments do not fit e-shopping very well, since:

• sending cash is slow and not an option due to security and currency conversion costs
• sending cheques is equally slow and limited to national purchases in a similar manner,
• bank wires are an option that is cumbersome and too expensive

Various companies recognised the need for a new payment system for the e-shopping era. Each developed a slightly different form of what is known as an Electronic Payment System (EPS). In spite of several years of development and substantial promotion of these systems their use is still far from widespread. Complexity and marginal user and vendor acceptance are some of the issues. Additionally, many of these systems are mutually incompatible and/or are associated with competing commercial banks, limiting their availability.

In short, as of today none of the EPS companies has been able to provide vendors or customers with a universal payment system.

Given all this it is not surprising that the most common way of payment in Internet transactions today is by credit card, using either traditional telephone-operator based mail-order techniques or using a security technology known as SSL, which is built into popular web browsers.

Not every potential Internet buyer owns a credit card. Worse, in spite of current security measures, payments made over the Internet by credit card continue to be at least perceived as highly insecure. Studies (Nipo, 1998) show that many people are convinced that using their card for Internet transactions will automatically lead to fraud!

It is clear that e-commerce is still waiting for a payment system that inspires confidence, is easy to use and is secure. It is here that PayPerNet comes in, because we believe that PayPerNet provides exactly such a method and will thus remove the critical obstacles that currently limit e-payments.