e-payments: Modern complement to traditional payment systems

This article starts by looking at e-payments as modern complements to traditional payments. However, on a short-term horizon, it argues that micro-payments offer good opportunities for innovative payment schemes. And in the medium term, it predicts that mobile payment systems will be an even more valuable channel for e-business than internet-based systems.

E-payments: Modern complement to traditional payment systems

In electronic commerce, the challenges of payment transactions were initially underestimated. Business via the internet and mobile telephony has so far been dominated by the methods of payment customary in traditional business. However, in light of advances in e-commerce, traditional business models are increasingly coming up against their limits.

Secure, user-friendly and low-priced innovative payment solutions are urgently required to boost internationally oriented e-commerce. Value-creating market players – from payment system providers, service providers, network operators and producers of terminals to financial institutions – pin great hopes on rapid progress with new payment systems.

Security is a key criterion for electronic payment systems. Critical issues are authorisation, authentication, privacy, integrity, theft and data corruption. The possibility of unauthorised access by third parties, misuse and manipulation must be excluded. It has to be ensured that information on the volume, execution date and purpose of a transaction is consistent.

Sellers are reluctant to invest in the infrastructure of payment systems which are so far used by only a small number of buyers. Only a few buyers choose solutions used by just a small number of sellers. Only a system which far exceeds the critical mass and spreads rapidly in the short run has a chance of succeeding in the market in the long term.

On a short-term horizon, micro-payments offer good opportunities for innovative payment schemes. Mobile payment systems can be regarded as the most promising solutions; starting virtually from scratch, their market share will probably rise to 5% in Western Europe in the next five years. In view of the expansion of already established applications, however, the new schemes will decline in importance over the long term. Fewer than three of today’s more than 100 business models are likely to survive.

Electronic payment systems are becoming more attractive for large financial institutions. The systems already used in traditional offline business and which have been adapted to meet the new demands of e-business (credit cards, debit cards (especially in Germany) and smart-card-based electronic wallets) have very good prospects of convincing online customers.

In the medium term mobile payment systems will be an even more valuable channel for e-business than internet-based systems. Nevertheless, the innovative systems are likely to be pushed aside by upgraded traditional solutions in the longer term.

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