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