Page 351 - Introduction to Electronic Commerce and Social Commerce

338 11 Electronic Commerce Payment Systems and Order Fulfillment

A case in point is the well-publicized virtual currency
Bitcoin (bitcoin.org). Bitcoin is a peer-to-peer, encrypted • Ease of use. Credit cards are used for B2C and B2B
digital currency powered by open source software (discussed e-payments because of their ease of use. E- payments
in detail in Section 11.7). It has a sizeable number of users must complement the trading methods.
and supporters. It has a rocky history. At this point in time, • Transaction fees. Outside of cash, virtually any pay-
some pundits are forecasting its demise as a currency. ment system costs someone money. When a credit
However, they are also forecasting that there’s a good chance card is used, the merchant pays processing fees. When
that its underlying technical foundation may be repurposed a card is used to withdraw money, the cardholder usu-
for other financial applications. ally pays. If the aggregate fees prove too costly for
As Evans and Schmalensee (2005) pointed out back in one of the parties, the system is likely to fail.
2005, it takes years for any payment system to gain wide- • International support. EC is a worldwide phe-
spread acceptance. For example, credit cards were intro- nomenon. An e-payment method must be easily
duced in the 1950s but did not reach widespread use until adapted to fit buying needs and local legal require-
the 1980s. A crucial element in the success of any e-pay- ments before it can be widely adopted. The major
ment method is the “chicken-and-egg” problem: How do exceptions are systems that are mandated by law.
you get sellers to adopt a payment method when there are • Regulations. A number of international, federal,
few buyers using it? Further, how do you get buyers to adopt and state regulations govern all payment methods.
a method when there are few sellers using it? In physics Any changes or new methods need approval of the
terms, how do the payment systems reach critical mass. regulators. PayPal, for instance, faced several law-
Critical mass depends on a number of key factors such as suits brought against them by several U.S. states for
those listed below: alleged violations of banking regulations.

• Independence. Most forms of e-payment require SECTION 11.1 REVIEW QUESTIONS
the buyer to adopt some new technology in order to
initiate a payment and the merchant to install spe- 1. What is omni-channel retail? “Showrooming?” “Web-
cialized software and hardware to accept, authorize, rooming?”
and process a payment. If the new system can 2. Why is it difficult to track the global use of cash?
piggy-back on existing technologies and practices, 3. What are the different types of noncash EC payment used
it has an easier road to success. in different regions of the world?
• Interoperability and portability. An e-payment 4. Describe the relative use smartphones, tablets, and PC for
method must be integrated with existing informa- EC purchases?
tion systems before it can be adopted. 5. What are main types of “hidden payments?”
• Security. How safe is the payment transaction? 6. What is the “chicken-egg” problem in EC payment
What if the transfer is compromised? Only safe sys- adoption?
tems will succeed. 7. What factors are key to the successful adoption of an EC
• Anonymity. Some buyers want their identities and payment method?
purchase records to be anonymous. This can be
done only when cash is used. To succeed, special
payment methods, such as virtual currencies, have 11.2 USING PAYMENT CARDS ONLINE
to maintain anonymity.
• Divisibility. It is difficult for most payments sys- Payment cards are electronic cards that contain payment-
tems to efficiently scale across a range of purchase related data. They come in three forms:
prices. For example, on one end try using a credit
card to buy a candy bar. On the other, try using a
credit card to purchase a plane. Any method that 1. Credit cards. A credit card enables its holder to
can service one or the other of the extremes or can charge items (and pay later), or obtain cash up to
cover a wide range in the middle has a chance of the cardholder’s authorized limit. With each pur-
succeeding. chase, the credit card holder receives a loan from