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Plugged In April 2001 • Vol.12 Issue 4 Page(s) 88-91 in print issue |
Online Payment Systems Parting With Cash Is Never Sweet, But It's Getting Easier | ||
 Now that we've all had a little time to pay down those holiday bills, it might be time to do a little spring shopping. Perhaps you're looking to brighten up your home or maybe upgrade your computer system. Imagine walking into your local department store or electronics store and being told the store no longer accepts cash or checks, just credit cards. Not only that, but in order to complete the transaction you have to fill out a lengthy form with your name, address, phone number, credit card number, and e-mail address. Every time you return to the store, the same lengthy form confronts you. Granted, the above scenario would never happen at your local department store, but anyone who has ever shopped online probably recognizes the story. Credit cards are a popular way to pay for goods and services online, but such a prerequisite excludes buyers without a credit card from online commerce. Even if you have the plastic, placing an order online usually means filling out a lengthy order form. Naturally, online businesses want to make things as easy as possible for online customers. Some businesses have developed their own solutions. Amazon.com's 1-Click shopping, for instance, lets users skip those lengthy forms. Other businesses provide digital wallets that attempt to fill out forms automatically on a variety of Web sites. A number of payment solutions have also sprung up around online auction sites such as eBay. Credit card processing services let sellers accept credit card payments, and some companies not only let buyers pay by credit card, but also provide escrow services to protect both the buyer and seller. Other services forego credit cards completely in favor of other payment systems that don't require a credit card.
 Fewer Forms No one likes filling out forms, but filling out the same form over and over is even worse. Many online sites have taken it upon themselves to reduce the amount of virtual paper work they require from their customers. Amazon.com (http://www.amazon.com), for instance, provides its patented 1-Click shopping service for frequent customers. Amazon's 1-Click shopping service lets you enter a name and shipping address along with payment preferences. Amazon keeps this information on its systems until it's needed. You can even specify multiple names and addresses so you can send a gift to someone you know with just one click. To place an order, simply find the product you want to order and click the name associated with the address where the package should be sent. Barnes & Noble.com (http://www.barnesandnoble.com) provides a similar service with its Express Checkout. When you register for the service, you must provide at least one shipping address and a credit card number. Because Amazon.com holds a patent on its 1-Click shopping service, Barnes & Noble.com's Express Checkout requires two clicks: one to order the product and one to confirm the order. Regardless of how many times you have to click, the idea is the same: less busywork for the customer. Along the same lines of reducing busywork, other companies are producing similar services they call digital wallets (databases that store a users' account information). Unlike shopping services at a particular Web site, digital wallets are designed to work with a variety of sites. Microsoft, for instance, uses its Passport service (http://www.passport.com) to store personal information, including name, credit card, and address. If you shop at one of MSN's partner sites, you can use your Passport information to bypass the long forms. Other digital wallets include Novell's DigitalMe (http://www.digitalme.com) and Yodlee.com (http://www.yodlee.com). All of the above services work in a similar manner. A company keeps your personal information on its server and intercepts online payment forms and sends them to your digital wallet service. The service adds the necessary information for you and lets you submit the form quickly. Although digital wallets are designed to work with a variety of Web sites, many compatibility problems still exist. There are also privacy concerns associated with digital wallets. Companies that provide these services not only have your personal information, but they also may keep track of what you buy online. Many sites have a privacy policy, and in most cases companies say they use your information to provide you with anonymous targeted advertising. This means that although you may see targeted ads on your PC, you're unlikely to get telemarketing calls or junk mail (or at least telemarketing calls and junk mail resulting from your use of a digital wallet to place an order). Of course, privacy policies can change suddenly and without notice.
Credit Where Credit Is Due Nearly every online site accepts credit cards, and in most cases, credit cards are the best way to do business online. Many credit cards offer protection against unauthorized charges, so even if your credit information is compromised, it's unlikely you'll be held responsible for any resulting purchases. In addition, you have the right to dispute items charged to your account. This can be a powerful tool if you order something that never arrives and can't get a refund.
These services don't work in every situation, however. Recurring charges, such as monthly Internet service charges or subscriptions to Web sites will not renew correctly unless you use your actual account number. If you purchase items that you must pick up in person, such as airline tickets, you may be asked to present the card you placed the order on. Once again, you'll have to use your actual account number when placing the order. Online Auctions Although credit card payments work well enough when you're dealing with an established online retailer, online auctions present a few problems. Many sellers who participate in online auctions lack the means to accept credit card payments. Credit card processing services. The ability to accept electronic payments is important in an online auction because it can greatly increase the amount of time needed to close an auction. Instead of waiting for a check to clear, a buyer can send an electronic payment and the seller can ship the product almost immediately. One of the most popular online auction sites, eBay (http://www.ebay.com), has partnered with Billpoint (http://www.billpoint.com) to allow buyers to accept payments via credit card. Other online auction sites, such as Yahoo! Auctions (http://list.auctions.yahoo.com), have similar services. In order to use Billpoint, both the buyer and seller must register with Billpoint. Once registered, the buyer can pay for items won at auction with either a credit card or an electronic check. Billpoint provides two types of seller accounts that depend primarily on sales volume. The Merchant Account provides for slightly lower fees while the Standard Account lets anyone accept credit card transactions, but with increased service fees. For sales that are less than $15, Billpoint charges a minimum fee of 35 cents. For sales of $15 or more, Billpoint charges 1.75% on Merchant Accounts and 2.5% on Standard accounts in addition to the 35-cent base fee. Merchant and Standard accounts limit transactions to $2,000 and $500, respectively. If the buyer pays through Billpoint using an electronic check, there are no transaction fees, but Billpoint imposes a $200 transaction limit on all accounts. The seller must pay all fees and cannot pass fees on to the buyer. Billpoint doesn't just provide services for online auctions, it also lets registered users send invoices and receive electronic payments from anyone. This means you could conceivably use the Billpoint service in conjunction with any online auction site, although it's most tightly integrated with eBay. Yahoo! offers a similar service known as Yahoo! PayDirect. This service lets you transfer funds electronically but requires that you fund a separate account rather than charge items directly to a credit card. There are no fees associated with Yahoo! PayDirect. Online Escrow Services If you've ever sold or bought real estate, you're familiar with escrow services. Online escrow services hold payment while the buyer reviews the merchandise. If the buyer is satisfied with the purchase, they authorize payment, and the transaction is complete. In most cases, the buyer and seller must agree on the following before entering escrow: who will pay for shipping and handling, who will pay the escrow fee, and how many days the buyer has to evaluate the product. Escrow services often accept credit card payments from the buyer. This speeds up the entire process and lets the buyer pay immediately so that the seller can ship the goods quickly after the auction closes. All merchandise must be shipped through an approved carrier. In most cases, this means a carrier, such as UPS or FedEx, that provides a tracking number. The seller gives the tracking number to the escrow service so it can be sure the buyer receives the merchandise. After delivery, the buyer has a predetermined time to review the unit. If the merchandise is not what the buyer expected, he can request a refund. Some escrow services charge escrow fees and shipping and handling to the buyer if he returns an item regardless of previous agreements between the buyer and the seller. This practice helps discourage frivolous returns. The escrow service pays the seller at the end of the review period or when the buyer gives his OK. Like Billpoint, i-Escrow (http://www.iescrow.com) is tightly integrated with eBay auctions. The i-Escrow service lets eBay buyers and sellers quickly and easily register for the service from eBay. You can use an online escrow service with any auction or even with trades that may take place outside of an auction. Charges are usually based on the price of the merchandise. For instance, i-Escrow charges a base fee of $2.50 for all transactions of $100 or less. Transactions between $100 and $25,000 are charged 2% for cash payments and 4% for credit card payments. Although online escrow services act as a third party to oversee Internet transactions, there is no third party to oversee the escrow services. Traditional escrow services must be licensed and are subject to regular audits, but many online escrow services are unlicensed. In January 2000, California started forcing online escrow services doing business in California to be licensed in the same manner as traditional escrow services. As a result, California sent warnings to online escrow services that conduct business in or with residents of California. Rather than obtain a license, many online escrow services have put disclaimers on their sites stating that they could not do business with consumers who live in California. Some online escrow services, however, have either obtained or applied for a license. Escrow.com (http://www.escrow.com) and i-Escrow are licensed with the California Department of Corporations. As of December 2000, California officials had not received one compliant regarding an online escrow service. Still, if you're going to assume the added expense of using an escrow service, you might want to consider using a licensed service. Micropayments Merchants are charged processing fees for all credit card transactions, which make credit cards impractical when paying for low-priced items. Micropayments (usually considered a transaction that could range from 1 cent to $15) avoid the heavy transaction fees associated with credit cards and make it economically feasible to charge fractions of a cent. Although the Internet has long been a free, ad-supported domain, there are people who believe micropayments could provide a viable revenue stream for many content sites such as Yahoo! or ABC News. Art Feierman, founding partner of Presenting Solutions, has followed micropayments for years. Presenting Solutions sells projectors and presentation equipment, but it also provides communication-related articles accessible through micropayments. Feierman says micropayments could be a viable option for content sites that find it increasingly difficult to make a profit from advertising alone. Feierman says the potential revenue stream for content sites could be large. "I believe that you will see over the next year or so, micropayments create a new revenue stream for content sites. Instead of relying on selling banners, they can generate even more money, or as much money, selling the content at incredibly low costs, says Feierman" According to Nielson/NetRatings, Yahoo! had 25,541,786 unique users in December 2000. If Yahoo! had charged every visitor that month 1 cent, it could have generated $255,417.86, or more than a quarter of a million dollars, in revenue. When you consider that this figure doesn't account for repeat visitors, you can see the kind of revenue potential inherent in micropayments. Micropayments may also play a key part in enabling low cost digital music downloads by providing an economical system that allows the content providers (music companies in this case) to sell digital music for a very low price. Micropayments have been slow to make it to market for a variety of reasons. One of the biggest reasons is the lack of common support. Much like digital wallets, micropayment systems are not necessarily compatible with one another. As a result, consumers don't want to open an account with a micropayment service because none of the available services have an overwhelming number of partners that support their service. Likewise, Web sites aren't eager to partner with a service because none of them have a large number of user accounts. Another problem is that the Web is an international medium and currency is not. When Compaq bought Digital Computer, it also bought the rights to Digital's micropayment system, MilliCents. Since the Digital acquisition, Compaq has rolled out MilliCent service in Japan and is planning a North American rollout sometime in the near feature. MilliCent will be able to calculate exchange rates, making it possible for users around the world to use MilliCent's service to buy goods or pay for content. Some critics also point to the fact that a micropayment service is also going to have to provide expensive customer support. Feierman agrees that support is important but says that the number of customer complaints is not likely to be very large when dealing with amounts as small as 1 cent. "Do you think anyone is going to spend the time to call up to say, ‘I don't think this is correct, you need to give me a credit for 2 1/2 cents.' Life is too short."
Other Peer-To-Peer Models Peer-to-peer payment is the fastest growing Internet payment model. Yahoo!'s PayDirect is one example of a peer-to-peer payment model where users fund a separate account and then e-mail payments. One of the most popular sites in this area is PayPal (http://www.paypal.com). PayPal offers a number of services for both businesses and consumers, but at its heart, PayPal lets users send and receive money from other users. Users can sign up for a Premier or a Personal account. Personal accounts are free, and Premier accounts charge a fee of up to 1.9% plus 30 cents on all incoming transactions (there is no charge if you want to send money). Premier accounts have a few extra features, including customer service and special promotions. Premiere account users can also transfer funds to their primary bank account daily. Using PayPal to send or receive payment on an auction is a simple matter of sending payment or a request for payment to the sender and then waiting to receive payment. You can withdraw funds from your PayPal account any time. At press time, PayPal was planning to introduce PayPal Shops, a directory of online retailers that accept PayPal payments. Attractive Options New online payment options are not just making it easier to purchase items online, they are also opening new revenue streams and letting users complete transactions with one another faster and more securely. With digital wallet services, purchasing online can be as easy as swiping your credit card at the local grocery store. Internet escrow services not only provide an easy way to pay for auction purchases but also help protect the buyer and seller. Peer-to-peer payment services, such as PayPal, let customers pay one another quickly and easily. Perhaps in the near future, purchasing items online will be as easy as purchasing items at your local retail outlet. Now, all we need is a faster delivery mechanism.  by Chad Denton |
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