With the development of the Internet in the 1990s there were high expectations for its widespread commercial use and for rapid growth in e-commerce. Early predictions were over-optimistic, and attention shifted to identifying various barriers to the widespread development of e-commerce. Specifically for business-to-consumer (B2C) transactions the development and use of online payment systems were identified as important concerns. Nonetheless B2C e-commerce is currently growing at around 25% per year and growth has been much higher in some segments (e.g. travel). International transactions have become more important, and much of the initially predicted growth has been attained if not surpassed. This report analyses the development of online payments systems from the viewpoint of their contribution to the development of online transactions, and identifies current issues and future challenges.

By far the major international online payment means are credit cards, which are also dominant in many national transaction markets. Some estimates put their use at over 90% of all e-commerce transactions. In some countries debit cards and payments via online banking are widely used alternatives to credit cards. There is also a large diversity of other payment means such as mediating services, mobile payment systems and electronic currency which may be appropriate for different transactions. However, with the exception of the mediating service PayPal, the majority of alternative online payment means have not yet gained the necessary wide user base of both merchants and consumers. For micropayments, which are of increasing importance for digital content industries, one-off payments are not yet widely developed as alternatives and complements to subscription payment models or cumulative systems.

The introduction of new payment systems faces significant barriers given infrastructure market characteristics, with high initial investment costs and positive network externalities favouring established incumbents with a wide user base. These characteristics strengthen the market position of traditional payment system providers - credit card institutions and banks - and associated lock-in to established and/or well-known systems and standards. Earlier perceived transaction security problems using credit cards and online banking have been addressed by providers. Payment mechanisms such as MasterCard SecureCode and Verified by Visa have been developed and implemented and banking systems’ security addressed. Other systems (notably mediating services and mobile telephony systems) have the potential to address specific markets, such as person-to-person transactions and micropayments. 

The development of mobile payments may also allow greater payment convenience. Micropayments are increasingly important with the rapid growth of digital content markets, although total transaction values are low in comparison with the volume of transactions. 

Cost-effective international payment systems for very small payments are still to be developed. A set of emerging issues and barriers to the uptake of online payment systems is briefly listed, covering standards and co-ordination challenges, network and competition issues, and improving statistical information.

 

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CHAPTER TWO

CHAPTER THREE

CHAPTER FOUR

4.0 FUTURES, IMPLICATIONS AND CHALLENGES OF THE SYSTEM 

CHAPTER FIVE