| But credit cards have their limitations. | | | | internet and mobile phones, and for |
| They are not suitable for purchases of | | | | micro-payments such as those made in |
| digital content costing less than a few | | | | fast-food restaurants, movie chains, |
| dollars per transaction (micro-payments). The | | | | convenience stores, vending machines, |
| card system is not cost efficient for | | | | payphones, and on mass transportation and |
| processing small payment amounts, and in many | | | | toll highways. A smart card payment scheme |
| cases the minimum transaction amount is | | | | can manage low-value and high-value payments. |
| around US$10.To sell digital content, a | | | | The low-value payment scheme is known as |
| different payment method is required. In the | | | | e-purse, which is a cash-like, prepaid |
| early days of the internet, developers | | | | scheme, where the user has the choice of |
| created ?e-money,? enabling consumers to | | | | making either personalized or anonymous |
| purchase low-cost items online from a website | | | | payments. Purchases can be made on the |
| supported by the e-money provider. However, | | | | internet by a smart card reader that connects |
| there was the potential for fraud on the part | | | | to a PC. Secure internet payments may be made |
| of the e-money providers, to whom consumers | | | | just as they are in shops which use this |
| supplied their credit-card numbers in | | | | device. The internet merchant uses a terminal |
| exchange for tokens.Many of these early | | | | which is similar to a normal shop merchant?s, |
| attempts to create e-money mechanisms for | | | | and payment and collection are made in the |
| managing micro-payment transactions schemas | | | | same way.An example of an intra-regional |
| met with business failure (e.g., early | | | | standard for cash is the NETS Singapore |
| micro-payment vendors such as Flooz, Benz, | | | | CashCard under the Visa Cash brand, which has |
| Digicash). Even for feasible business cases, | | | | been implemented in Singapore, Philippines, |
| the failures often occurred because the | | | | and Korea, and recently in Thailand.Standards |
| merchants had to implement additional | | | | are required to develop nation-wide smart |
| hardware/software requirements, and the | | | | card?based electronic purses that operate on |
| customers had to prepay. It was simply too | | | | a regional basis. Coupled with the |
| difficult to implement, and not worth the | | | | possibility of location-based services driven |
| (then) small revenue streams from the | | | | by the mobile telephone network, the mobile |
| internet. But the situation is much different | | | | telephone operator is well positioned to |
| now. New micro-payment services allow | | | | market goods and services to consumers on a |
| customers to set up online accounts tied to | | | | one-to-one basis.ConclusionThere are a number |
| their chequing and savings accounts, thereby | | | | of challenges facing the retail banking |
| reaching a whole new segment of customers | | | | sector today. The tradition of providing a |
| without credit cards. Micro-payment also has | | | | customer with account access via a cheque or |
| another future as a replacement for cash to | | | | magnetic striped card is no longer the way to |
| pay for goods and services at shops, cafes, | | | | attract or retain ever-more-discerning |
| bars, libraries, printers, pharmacies, sports | | | | consumers. Escalating card fraud and new |
| centres, photocopying and laser-printing | | | | delivery channels have changed the business |
| shops, as well as for bus and taxi fares, or | | | | landscape forever.Micro-payments tied to a |
| for any purchase in which coins are used.What | | | | chip card could be a winner. The trends |
| are evolving from the early attempts are | | | | indicate that the most feasible solution?and |
| three distinct micro-payment schemas:- The | | | | the one increasingly embraced worldwide?seems |
| Retail Model which utilizes a stored value | | | | to be the smart card, a plastic card which |
| system | | | | stores all personal data in its embedded |
| | | | microchip and which can be used for many |
| - The Telco Model which leverages the | | | | functions, thereby doing away with the need |
| telcos? billing system | | | | to stuff wallets with many other |
| | | | single-function plastic cards. Another factor |
| - The Financial Model which uses a | | | | is the migration of credit and debit cards |
| multi-application smart card with an | | | | from magnetic strip to EMV, which allows |
| e-purseThe Retail Model - Stored Value | | | | these cards to be used seamlessly for |
| SystemsThe principal of the stored value | | | | micro-payments. The users have already been |
| systems is based on the micro-payments | | | | educated. They know how to use plastic cards, |
| schema: store value accounts are connected to | | | | and using smart cards would be the same, but |
| a credit card in which a consumer has to load | | | | common standards are important. The added |
| credits in order to make a purchases, or | | | | advantage with a chip card is that a loyalty |
| connected to a stored value account that | | | | feature can be added to the chip, a natural |
| accumulates payments and makes authorizations | | | | extension which none of the other |
| based on increments.With a stored value | | | | micro-payment methods can handle well.There |
| system, the consumers need to register for | | | | are some issues associated with a smart card |
| the services online or by phone; they have to | | | | schema. For example, security needs to be |
| provide a credit card number and load a | | | | foolproof: once a card has been breached, the |
| balance. In order for the consumer to be able | | | | cost of replacement is high. Security costs |
| to make re-loads, the system needs to | | | | money, and so smart cards tend to be more |
| remember his or her information. Stored value | | | | expensive than other methods.With the stored |
| systems are common in the service industry, | | | | value system, the problem is user acceptance. |
| for example as part of the McQuick service in | | | | Users have to manage their own accounts, and |
| Canada.Telco Model - Micro-Payment BillingThe | | | | if there are many different service providers |
| rapid penetration of GSM handsets has already | | | | the user has many accounts to manage. In |
| led to a situation in which more individuals | | | | order for a real stored value system to work, |
| carry a telephone than carry a bankcard. | | | | the banks have to get behind it and adopt a |
| Additionally, people tend to have a single | | | | standard which merchants can sign up for.The |
| mobile telephone from a single operator, | | | | success of the mobile operators will depend |
| whereas they might have multiple bankcards. | | | | on the number of merchants or content |
| This suggests that mobile operators have | | | | providers who adopt the operators? billing |
| access to demographic segments not available | | | | systems. In order to attract customers, |
| to traditional financial institutions. By | | | | merchants are offering phone-customization |
| targeting the right demographic group, mobile | | | | features such as ring tones, games, screen |
| operators can use their own billing systems | | | | savers, and music. It is a good market, but |
| to register micro-payment transactions. | | | | the real adoption will happen only when |
| Pricing wireless applications on a per-use or | | | | merchants can accept payments.The retail |
| subscription basis is the best way to appeal | | | | model will see minimum success. Large |
| to consumers and to give them value for their | | | | retailers might develop loyal customers who |
| money. More importantly, separating content | | | | would use smart cards or a stored value |
| fees from transport fees allows carriers to | | | | system offered by a financial services |
| keep all transport revenues while enabling a | | | | organization.Over the next few years it will |
| revenue stream for content providers. The | | | | be interesting to see which technology will |
| Financial Model - Smart Card with E-PurseThe | | | | demonstrate staying power and be adopted by |
| smart card uses chip card technology and is | | | | consumers. |
| designed for secure payments over the | | | | |