But credit cards have their limitations. They are not ideal for purchases of digital content charging less than a few dollars per transaction (micro-payments). The card system is not cost efficient for processing small payment amounts, and in many cases the minimum transaction quantity is around US$10.
To sell digital content material, a different payment method is required. In the early days of the internet, developers developed? e-money,? enabling consumers to purchase cheap items online from a website backed by the e-money provider. However , there was the potential for fraud on the part of the e-money providers, to whom consumers provided their credit-card numbers in exchange intended for tokens.
Many of these early attempts to create 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 instances, the failures often occurred because the merchants had to implement additional hardware/software requirements, and the customers had to pre-pay. It was simply too difficult to implement, and not worth the (then) small income streams from the internet.
But the situation is much different now. New micro-payment providers allow customers to set up online accounts tied to their chequing and savings balances, thereby reaching a whole new segment of customers without credit cards. Micro-payment also has one more future as a replacement for cash to pay for goods and services at shops, cafes, bars, libraries, printers, pharmacies, sports centres, photocopying and laser-printing shops, as well as bus and taxi fares, or even for any purchase in which coins are used.
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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 usually leverages the telcos? billing program
– The Financial Model which usually uses a multi-application smart card with an e-purse
The Retail Model – Saved 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 needs to load credits in order to make a buys, or connected to a stored worth account that accumulates payments plus makes authorizations based on increments.
Using a stored value system, the consumers need to register for the services online or even by phone; they have to provide a bank 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. Saved value systems are common in the support industry, for example as part of the McQuick services in Canada.
Telco Model : Micro-Payment Billing
The rapid transmission of GSM handsets has already resulted in a situation in which more individuals carry a telephone than carry a bankcard. Additionally , people tend to have a single mobile telephone from a single operator, 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 demographic 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 method 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 stream for content providers.
The Economic Model – Smart Card with E-Purse
The smart card uses chip card technology and is designed for secure payments over the internet and mobile phones, and for micro-payments such as those made in fast-food restaurants, movie chains, convenience stores, snack machines, payphones, and on mass transportation and toll highways. A smart card payment scheme can manage low-value and high-value payments. The low-value payment scheme is known as e-purse, that is a cash-like, prepaid scheme, where the user has the choice of making either personalized or anonymous payments.
Purchases can be made on the internet by a smart card reader that connects to a PC. Safe internet payments may be made just as they are in shops which use this device. The internet merchant uses a terminal that is similar to a normal shop merchant? ersus, and payment and collection are created in the same way.
An example of an intra-regional standard for cash is the NETS Singapore CashCard under the Visa Cash brand, which has been implemented in Singapore, Philippines, and Korea, and recently in Thailand.
Standards are required to develop nation-wide smart card? based electronic purses that will operate on a regional basis. Along with the possibility of location-based services driven with the mobile telephone network, the mobile telephone operator is well situated to market goods and services to consumers on an one-to-one basis.
There are a number of challenges facing the retail banking sector today. The tradition associated with providing a customer with account access via a cheque or magnetic striped card is no longer the way to attract or even retain ever-more-discerning consumers. Escalating cards fraud and new delivery channels have changed the business landscape forever.
Micro-payments tied to a chip card could be a winner. The trends indicate that the most feasible solution? as well as the one increasingly embraced worldwide? seems to be the smart card, a plastic card which usually stores all personal data in the embedded microchip and which can be employed for many functions, thereby doing away with the need to stuff wallets with many other single-function plastic cards. Another factor may be the migration of credit and debit cards from magnetic strip to EMV, which allows these cards to be used seamlessly for micro-payments.
The users have already been knowledgeable. They know how to use plastic cards, and using smart cards would be the same, but common standards are important. The added advantage with a chip card is that a loyalty feature could be added to the chip, a natural extension which none of the other micro-payment strategies can handle well.
There are some issues associated with a smart card schema. For example , security needs to be foolproof: once a card has been breached, the cost of replacement is high. Protection costs money, and so smart cards tend to be more expensive than other methods.
With the stored value system, the thing is user acceptance. Users have to manage their own accounts, and if there are many different providers the user has many accounts to manage. To ensure that a real stored value system to operate, the banks have to get behind this and adopt a standard which merchants can sign up for.
The success of the cellular operators will depend on the number of merchants or even content providers who adopt the operators? billing systems. In order to appeal to customers, merchants are offering phone-customization features such as ring tones, games, display screen savers, and music. It is a good market, but the real adoption will happen only when merchants can accept payments.