Electronic payment systems, including web based solutions, hardly can be perceived as novelties nowadays. Despite the fact that little more than a decade has passed since the explosive start of e-commerce applications and web payments, such systems became indispensable. According to Greco and Greco (2009), “cashless payment based upon direct credit clearing among buyers and sellers is a revolutionary innovation in reciprocal exchange that might be compared in importance to the invention of the printing press” (p. 169). One of the pioneering systems, CyberCash, was founded by Dan Lynch and Bill Melton in 1994. The company was focused exclusively on payment technologies for Web based commerce (Meer and Meer 2005, p. 139). Since then, numerous projects exploring the same niche were launched, either by powerful financial institutions or high-tech start-ups. Their achievements to date are impressive: “PayPal, the large online payments subsidiary of eBay, saw its transaction volume surge past $60 billion in 2008, and is growing at about 30 percent annually” (Litan and Bailey 2009, p. 32). Naturally, there also were failures in a new payment industry, but mostly due to the non-technological reasons. Pay By Touch and Beenz were the most remarkable companies that gone off business. “Both offered unique concepts, but had unsustainable business models” (Litan and Bailey 2009, p. 32). CyberCash did not survive the “Year 2000” global test. For the most part, however, the industry is highly prosperous as “…Web-enabled financial services, electronic marketplaces remove barriers [of] transactions” (Horcher 2011).
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Traditional banking and payment practices comprise three distinct types of financial transactions: instant payment, pre-paid, and post-paid operations. According to Bhasker (2009), “On the electronic payment front too, payment systems that have evolved can be placed in the above three categories” (p. 266). Essentially, all electronic payments operate with so called electronic cash, which is an analogue of cash represented in electronic form. While being a virtual value, “electronic cash systems attempt to replicate many of the properties of cash for online transactions: convenience, low (or nonexistent) transaction costs, anonymity, and so on” (Meer and Meer 2005, p. 140). Payments in electronic cash for the business-to-business (B2B) transactions, business-to-consumer (B2C) transactions, and consumer-to-consumer (C2C) transactions are highly convenient when processed through the web-based systems. Some electronic cash systems may require smart cards in a form of plastic cards with memory and processor. The majority of operations, however, can be performed entirely in software (Meer and Meer 2005, p. 141).
Internet-banking is one of the numerous e-payment applications that benefit both the customers and banks. This solution is usually built upon the traditional use of a debit card, imitating the way in which card transactions are processed. Moreover, Internet banking most often is related to cards’ operations, clearing transactions with card payment systems online. Card systems can be easily integrated with Internet banking applications, adding value of an existing customer base. Traditional debit card, as well as its associated record within the card management system, contains the data related to the cardholder in connection with his/her account in a bank (Radu 2003, p. 10). This information is usually sufficient in order to migrate the client’s record into the Internet banking application and start using it.
Not only banks benefit from processing card payments online. Merchants often integrate acquiring functionality into their web shops to facilitate the customer’s operations. However, there are number of limitations associated with online card processing. According to Radu (2003), “the issuer has no freedom to customize the card application to its specific business needs, […] the acquirer has no freedom in customizing the terminal application specified by the payment system operator” (p. 70). Some online merchants, especially market leaders, choose to build their own web- acquiring/processing environments. However, such technological solutions are so complex that “…it seems easier to integrate a Web system with a third-party payment security system than to create a proprietary system” (Langer 2007, p. 298).
Among all the aspects of web based payments most important are security considerations. The use of a Secure Socket Layer (SSL) protocol is widely accepted as a best practice in protecting transactions. According to Tan (2004), this protocol “…is used by major e-commerce sites, to encrypt all communications, including credit card details during transmission over the Internet” (p. 59). There are no small details in protecting the online payment system. The website can be open to fraudsters’ attacks just because of a single plain-text HTML button. Williams (2007) makes an example of PayPal, probably the most secure online payment system: ”Using PayPal’s Encrypted Website Payments (EWP) feature, you can encrypt the variables in your button code so that they are protected from attack by a malicious third party” (p. 85). One of the most painful security problems is related to users’ anonymity. Obviously, customers are unwilling to reveal their identities while paying online; the reasons range from increased inconvenience of system’s usage to fear of privacy violation. However, there is a solid possibility that fully anonymous web based payment system would permit the “perfect crime”, meaning that a criminal will use someone else’s electronic money to make a payment. No traces will be left in this case due to the anonymous nature of the transaction. “For this reason, revocable anonymity is a suggested solution: a user is fully anonymous until they commit some crime, at which point authorisation is given for their identity to be revealed” (Muralidharan 2009, p. 311). The compromise is usually found in a form of a digital certificate, which is used to ensure the customer’s authenticity, while the anonymity depends upon the bank’s (or electronic cash issuer’s) decision. As Williams (2007) explains, “a digital certificate is a file that contains a public key and information about the key, such as the name of the company that owns that public key, a certificate expiration date, and the name of a third-party company that has validated the authenticity of the certificate” (p. 56). With the progress and increased inexpensiveness of biometrics solutions, a new level of online payment security is possible. According to Coats (2007), “…the requirement of a fingerprint scan would act as a deterrent to potential identity thieves, who would not want records of their fingerprints to be created and later given to law enforcement officials” (p. 153).
The customers’ perspective is essential in the success of online payment system. The very design of a payment webpage may influence client’s decision to use the system: “a messy, clumsy interface will result in low usability and performance” (Abrazhevich 2004, p. 168). Additionally, there is an objective trust notion, which is crucial in customer relationships. As Kappel et.al (2006) emphasize, “If personal information is exchanged during Web transactions, clients have to build up trust relationships with the respective service providers” (p. 279). Thus, customers’ education is an indispensable part of the successful online payment business. Clients should be informed about the fraud prevention by recognizing the malicious tactics such as password/PIN phishing or Web spoofing. The phishing term here refers to the e-mail messages that appear to be sent by bank, asking for the confidential information. Another tactics is Web spoofing, which “denotes techniques for mocking the Web presences of trusted corporations with the intention to trick customers” (Kappel et.al 2006, p. 282). On top of the usability and security, payment system must stand a competition in customer’s eyes: “The system should create its added value to justify the risk taking, and it should be clearly communicated and evident to users” (Abrazhevich 2004, p. 165).
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There are number of legal issues associated with online payments. Since the business is still quite recent, “…so far there has been no international payment standard for web … payment” (Meier and Stormer 2009, p. 138). Every country deals with legal aspects of web based systems by means of different regulations. Tan (2004) admits that “from a regulatory perspective, e-payment transactions are usually subject to complex laws and regulations covering banks, payment systems and particular types of financial instruments” (p. 146). Despite the fact that security level of online payments exceeds that of cash operations, online payments are still treated with extreme caution by majority of clients. It may be the reason, in Qin’s (2009) opinion, that “legal problems in e-commerce contracts are involved in the expression of true intention of parties concerned” (p. 58).
There are numerous ways of online payments industry’s further development. With mobile devices’ increased functionality, they seem to be natural successors of PCs as payment terminals. The specific M-commerce term was introduced to refer “…to the e-commerce with the combination of Internet and mobile communication equipments, such as a laptop, cellular phone and PDA” (Qin 2009, p. 65). The tendency will affect banks as well as online merchants. Muralidharan (2009) suggests that “as the trend is shifting to m-banking, there is a challenge for CIOs and CTOs off … banks to decide on how to leverage their investment in Internet banking and offer m-banking, in the shortest possible time” (p. 320). Banks should pay particular attention to Web-based treasury products as well, as they can be an alternative to server-based treasury and cash management software (Horcher 2011). Finally, the payments security is also expected to rise. According to Coats (2007), “The next advancement in the electronic payment evolution appear to be biometrics-based payments and contactless smart cards”.
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