What Will Replace Cash for Small Obligations?

But credit cards have their limitations. They are not suitable for purchases of digital content priced at 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 quantity is around US$10.

To sell digital articles, a different payment method is required. Within the early days of the internet, developers made? e-money,? enabling consumers to purchase low-cost items online from a website supported by the e-money provider. However , there was the potential for fraud on the part of the e-money providers, to whom consumers supplied their credit-card numbers in exchange with regard to 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 cases, the failures often occurred since the merchants had to implement additional hardware/software requirements, and the customers had to prepay. It was simply too difficult to implement, instead of worth the (then) small revenue streams from the internet.

But the situation is much different now. New micro-payment services allow customers to set up online accounts associated with their chequing and savings balances, thereby reaching a whole new segment of customers without credit cards. Micro-payment also has an additional future as a replacement for cash to pay for goods and services at shops, cafes, pubs, libraries, printers, pharmacies, sports centers, photocopying and laser-printing shops, as well as for bus and taxi fares, or even for any purchase in which coins are used.

What are evolving from the early attempts are three distinct micro-payment schemas:

– The Retail Model which utilizes a stored value program

– The Telco Model which leverages the telcos?
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billing program

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

The Retail Model – Kept Value Systems

The principal of the stored 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 purchases, or connected to a stored worth account that accumulates payments plus makes authorizations based on increments.

Using a stored value system, the customers need to register for the services online or by phone; they have to provide a credit card number and load a balance. To ensure that the consumer to be able to make re-loads, the machine needs to remember his or her information. Kept value systems are common in the assistance industry, for example as part of the McQuick services in Canada.

Telco Model — Micro-Payment Billing

The rapid penetration of GSM handsets has already resulted in a situation in which more individuals have a telephone than carry a bankcard. Additionally , people tend to have a single mobile telephone from a single owner, whereas they might have multiple bankcards.

This suggests that mobile operators have access to demographic segments not available to conventional financial institutions. By targeting the right market group, mobile operators can use their very own billing systems to register micro-payment transactions. Pricing wireless applications on a per-use or subscription basis is the best way to appeal to consumers and to give them value for their money. More importantly, separating content material fees from transport fees enables carriers to keep all transport revenues while enabling a revenue flow for content providers.

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