Page 386 - Introduction to Electronic Commerce and Social Commerce

Summary 373

Closed-loop stored-value cards are issued for a single wallet like Apple Pay or a cloud-based wallet like
purpose by a specific merchant (e.g., a Starbucks gift Walmart Pay that is built on the cloud-based mobile
card). In contrast, open-loop stored- value cards are more platform called CurrentC: (2) Merchant mobile POS,
like standard credit or debit cards and can be used for such as Square’s Magstripe Reader, that is used by mer-
multiple purposes (e.g., a payroll card). chants to take customer card payments instead of relying
5. EC micropayments. In the online world, most pur- on stationary POS, and (3) Person-to-Person (P2P) sys-
chases are made with credit and debit cards. When the tems, like Kenya’s M-Pesa (see closing case), used for
value of a purchase is under $10, it is called a micropay- exchanging money between people both within and
ment. The problem is that the fees associated with card across country boundaries, and (4) Institutional used for
purchases make these low value transactions cost pro- managing and paying bills from an institution like a util-
hibitive. As an alternative, most merchants rely on one ity company (e.g. Finovera).
of five methods such as aggregation, direct payment, 8. Digital and virtual currencies. Digital currency refers
stored-value card, subscription, and à la carte to avoid to the digital representation of money or currency.
the individual transaction costs. Aggregation adds the Electronic money is the digital representation of a
value of a number of purchases before submitting the national (fiat) currency. Virtual currency functions as a
transaction to the card companies; direct payments digital medium of exchange but has no legal status as a
aggregates payments by adding them to an existing bill fiat currency. Virtual currencies are either convertible or
(e.g., mobile phone bill), a stored-value card enables up- nonconvertible meaning that either it can be converted
front payments to a debit account from which purchases thru exchange into a fiat currency (like Bitcoin) or it can-
are deducted as they are made; a subscription is a single not be converted and only has value in a particular vir-
payment that covers access to content for a defined tual world (like World of Warcraft Gold). Among the
period of time; and with à la carte payments are made as multitude of virtual convertible currencies, Bitcoin has
they occur with reduced fees based on pre-negotiated garnered the most attention for a couple of reasons.
volume discounts. Companies like Amazon and PayPal First, it was the first decentralized virtual currency which
support micropayments and, while their fees are lower, means there is no central authority that issues or admin-
they’re still costly. More recently, Visa and MasterCard isters the currency, and as a consequence there are only
have started lowering their fees on low cost transactions very minimal fees even for international transactions.
primarily for those merchants with high volumes of card Instead, it is administered by a distributed peer-to-peer
sales. network of computers (called bitcoin miners). Second,
6. PayPal and third-party payment gateways. A third- the currency is pseudo-anonymous. This means that
party gateway is a company that provides electronic while all Bitcoin transactions are displayed in a public
connections and transaction services among all the par- digital ledger call the blockchain, the recipients of any
ties involved in electronic payments. Essentially, they exchange are denoted by their encrypted public keys
eliminate the need for a merchant to deal with the intri- generated from their private keys, and the senders are
cacies and complexities of authorization and settlement designated by encrypted digital signatures again gener-
in online payment. Among these gateways, PayPal is ated by their private keys. There is virtually no way to
oldest and most successful worldwide. Recently, other decipher these keys. Finally, through the combination of
gateways have started gaining market share in specific the distributed network along with the public (private)
regions of the world including, for example, Alipay in key cryptography Bitcoin has addressed the “double-
China, Sofort in Germany, Yandex.money in Russia, and spend problem” which prevents any participant from
iDEAL in the Netherlands. In the USA, Amazon has digitally copying their coins and spending them twice.
recently entered the gateway market with their Amazon Because of its success, Bitcoin has spawned a number of
Payments which is modeled after their extremely suc- competitive currencies. None of these has attracted the
cessful “one click” payment system used by Amazon same volume of investment. As a consequence, these
customers. groups have started ignoring the currency side and
7. Mobile payments. The term refers to payment transac- started promoting the use of these distributed, decentral-
tions initiated or confirmed using a person’s mobile ized architectures for other types of transactions (e.g.,
device, usually a smartphone although payments can be legal contracts or international remittances).
made with other mobile devices such as tablets and 9. Order fulfillment process. Once an item has been
wearables. They generally fall into one of four payment ordered and purchased online, the next major phase of
types (distinguished by “who pays whom”) including: the process is order fulfillment. Order fulfillment, encom-
(1) Consumer where a buyer pays a merchant for goods passes all the activities a company undertakes from the
and services, often using either a device-based digital time it receives an order to the time the items in the order