E-payment: which is your best choice

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A growing amount of economic activity is taking place on the Internet (Weiner, 1). As a result, electronic payment displays a boom although paper based payment methods dominate the payment systems in the U.S. economy. So what is Electronic Payment? Electronic Payment refers to financial transactions that are made without the use of paper documents such as cheques or notes (A consumer's guide of electronic payments, 001).

Recently, there are many different e-payment methods emerging on the web. Facing a wide variety of options, consumers are confused about which one is the best. I believe that the best e-payment must have a stable and secure environment offering protection to the consumer. After comparing three e-payment systems, I have discovered every system has advantages and disadvantages. But, in general, I think credit/debit card online payment is the best system in E-Business currently.

In this essay, I will introduce three categories of e-payments and their working processes, and also analyse the advantages and disadvantages of each systems. First of all is the credit/debit card on-line payment. The second one is personal on-line payment and the last one is E-money. This essay can help to illustrate why I believe the credit/debit card is the best system in E-Business. This research is based on the America E-Business environment because of its most popular use of the Internet.

First of all, I would like to introduce the first type of e-payment instrument-Credit/Debit card online payment. Their boom has contributed to the huge point of sales (POS) and automatic teller machine (ATM) networks (Feiler, 1.p.4). Because of the nature of electronic information transaction, credit/debit card became the preliminary e-payment tools when web-business emerged on the Internet. In fact, an estimated, 15 billion transactions (8% of volume) worth $1,5 billion (87% of value) were operated on the web in the U.S. in 000 (Sienkiewicz and Bochicchio, 00, p.6). Now let us look how the credit/debit card works on the web.

Normally each web merchant has his own credit/debit clearing service agency whose computers connect with every card issued by banks and financial companies. When purchasers place an order, they must offer information of their card such as card number, expiry date and name of cardholder. After formatting the transaction detail appropriately, the agency sends this information to the issuing bank to request transaction authorization. Finally, the issuing bank approves the transfer of money to acquiring bank who in turn, credits the merchants account (How It Works - Credit Card Processing, 00).

The advantages of credit/debit card are obvious. The primary point is that 75.1% American people own a credit card and .8% have a debit card (Stavins, 001, p.). Moreover, the credit/debit card works on a large and stable electronic network which links cardholders, merchants, issuing banks, merchant banks and credit card companies. This network permits payers and payees to deal with the money transfer directly even they have different bank accounts. Also, the usage of a credit card is protected by the Business Law of America. For example, if a credit card holder orders a commodity and the commodity is not delivered, the credit card-issuing bank is required to treat the matter as a billing error and resolve it such as getting the card holder reimbursed or the merchandise/services delivered (Spiotto, 001).

However, credit/debit card online payment is not a financial instrument without any drawbacks. Security is one of the problems. In my experience, I will pay my bill on the POS by credit/debit card without any hesitation but before I place an order and submit my credit card information on the Internet, I will consider carefully. People are afraid of hackers stealing their credit information. Another big problem is higher charges. In the food retailer market, the cost of credit transaction is five times higher than that of cash (Stavins, 001, p.1). Expensive transaction fees also obstruct the growth of small businesses on the web which are experiencing E-Business boom currently. The third problem is the long clearing time which means the payees need to wait several days to confirm the money reception. E-retailers need quick currency cycle in order to sustain a good business operation (Morton, 001, p.1). For this reason, e-retailers do not like to use credit/debit card online payment system.

The second category of e-payment system is Personal online payment, which is an online payment systems that are Internet-based systems for making small retail payments and have recently emerged as an alternative to cash, cheques, and credit cards. All these systems use the web to convey payment information, but they differ in the type of accounts they access. Proprietary Account System (PAS) and Bank Account-Based System (BABS) are two main examples (Kuttner and McAndrews, 001).

In PAS, funds are transferred between special purpose accounts maintained by a non-bank provider. When payers and payees open accounts and save some money in those accounts on a same service provider, payers just need to key in the data about the fund transfer following payment delivery instruction and then the notification and confirmation can be completed by email. The service provider's computer will transfer the money between the two users' accounts immediately.

Using PAS has many benefits. One of the benefits is quick and simple processing. PAS uses the email as a tool. This is easy to be operated and delivered immediately. Moreover, on-line payments are inexpensive compared with credit and debit cards. That is why the PAS is quickly replacing the credit card, paper cheque and cash after it was built on the web for on-line auctions in 1 (Kuttner and McAndrews, 001). Nevertheless, the drawback is if you prefer to do e-business on several websites, you must open several accounts by different non-bank providers and save some money in each account. The money does not transfer between the real accounts directly.

In Bank Account-Based System (BABS), funds are transferred between demand deposit accounts at banks. BABS is operated by Automate Clearing House (ACH) which is a secure, private electronic payment transfer system that connects all U.S. financial institutions and is monitored by the America Federal Reserve Bank. How does it work? A company sends an electronic file to its bank and ACH operator, usually the Federal Reserve Bank. After checking, the ACH then sends a file back to the bank that contains all of the deposits which were made to its clients' accounts. Finally, the bank credits the funds to the receivers (Trombly, 001).

According to Gartner research, 17% of business-to-business payments are now made electronically and ACH occupies % (Trombly, 001). BABS is less expensive than most alternatives. For example the cost of using a credit card is 15-0 cents per transaction compared with a fee of just .5 to 5 cents per ACH transaction. Unlike PAS, the money is transferred to sellers' account directly by ACH. However, ACH faces a big hidden problem in there is a gap in the law which does not provide effective protection to those who use ACH to do business on the web (Spiotto, 001). For instance, consumers may not get their money back if the sellers do not deliver the ordered goods to them once the deal is operated by ACH. Although consumers can claim in the courts, it is a costly process.

The third category of e-payment is called E-money. Most e-moneys are designed for the special purpose of business on the web and it includes digital cash, digital wallet, virtual points, and virtual credit card.

The digital cash and digital wallet work similarly as following Retailers download the software that accepts the currency, and customers download software that offers this currency (Angwin, 000). The advantage is they limit fraud, because they can only be used on appointed websites for a fixed amount of purchases. A big obstacle for them is a chicken-and-egg problem. Retailers dont want to install new software unless they see a lot of customers using them. Customers dont want to download software unless they see a lot of retailers accepting them.

Users earn virtual currency for viewing ads or filling out marketing surveys, that is virtual points. They can spend the currency at retailers that have agreed to accept it (Angwin, 000). Virtual points help retailers lock in customers to their products. The value for customers is that they can get free money if they are willing to part with some personal information. Unfortunately, it meets the same bar as digital cash and wallet.

The last one is virtual credit card. A bank asks its credit-card customers to download some software onto their computers. Whenever they shop, that software generates a one-time credit card number for the purchase (Angwin, 000).You do not need to submit actual card information online so it is very safe. But the possible problem is the finite number of credit-card numbers that can be generated and the difficulty of recycling disposable numbers.

In this essay, I have stated three main categories of e-payment systems including advantages and disadvantages. The most popular e-payment is credit/debit card online payment. Then, personal online payment system is a fast growing e-payment instrument. Lastly, E-money is a newly emerging system in the E-Business world.

In conclusion, I believe that credit/debit card online payment is the best system currently. First of all, any payment tools must link to a bank or financial companies and at the same time most banks or these financial companies are card issuing institutions. Furthermore, credit/debit card payment has a huge community of users, which is unlikely to be exceeded in the short term. Last reason is the most important that America business law offers complete protection on using credit card. Whatever consumers choose, there are three important criteria that must be kept in mind. They are security, convenience and charges (Morton, 001, p.1).

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