Micropayments: challengesand trends - Essay Example

Micropayments: Challenges and Trends Abstract The evolution of ecommerce and the emergence of the virtual shopping have necessitated the virtual payment for the access to the contents available online. Not only this but many news papers and websites are now charging for the content that is hosted on their sites. Most of these transactions are of small amount and necessitates the payment of fees through micropayment based system. The paper below discusses the advantages and disadvantages of micropayment based system. Although the micropayment based system has several advantages there are also certain disadvantages that are associated like technical, social and economic issues which are making the implementation of these system difficult. Introduction The world around us is experiencing change at break neck speed. It is evidenced by continuous technological challenges that are shaping the world that we live in. Changes are taking place at such pace that it is getting increasing difficult to stop, step back and understand the full implications of these challenges before being able to implement it. Business as an entity has also experienced rapid changes. The technological changes have also meant changes that have occurred in the way businesses occur these days. From the days of brick and mortar stores now a day the emphasis is on virtual stores. The emergence of virtual stores has meant that the payments are now to be made online. Hence with the emergence and growth of virtual stores the concept and need of micropayments has also grown. Micropayments as the name suggests are micro amounts that are settled through the internet. Micropayments are typically used to make such payments which are so small in amount that it is infeasible to make those payments through other forms such as credit card. The amount to which micropayment transaction is done is typically up to about 10$. Initially micropayments were set up for transactions of amounts that were of the order of few cents. However, while going in for practical implication it was found that the micropayments involving such small amount was hardly feasible and a viable business model. One of the simple issues those hiders the success of micropayment transactions of such low value is the incide4nce of transaction fee. The major problem in the implementation of micropayments is this transaction fee. Since micropayments involve such small amount, so transaction fees, even if of the order of few cents has a very negative impact. Different companies define micropayments differently. Pay Pal for example states that transactions less that 10$ classify as micropayments where as Visa says that transactions less that 12 Australian $ classify as micropayment. Background studies Micro payments were envisaged to be small payments that are used for selling online content to its consumers. The business model used in micro payments is used for replacing the traditional model. The main idea is that the users of this model have easily access the services and the articles that are required by the users. The income that is derived from the micropayment mainly supplements the income from the advertisement. The micro payment system is likely to be considered for providing the right solution in earning the money online. Media companies do not progress in the world where the micro payment system is not able to make money. In order to make necessary payments to the people the publishers are required to increase and develop the relevance and the value of their products (Bruck, Buchholz, Karssen and Zerfass, 2006). Figure 1: Real micro payment system Micro payments can be used for the ventures that are used for charging for the proxy services that is provided gambling and the database outlooks. The main reason that the micro payments were not used widely is that the micro payments are not financially feasible or visible unless the system or the business model is developed in order to handle the micro payments system. The brokers which includes the provider of the VISA credit card is concerned with making money and the cost that is incurred in handling all types of payments in the micro payment system. The normal business model of the micro payment system deals with taking a small amount of percentage that is involved in each transaction that is not applicable for transactions with low monetary value (Thanasankit, 2003). The micro payment model also competes against the free business model. Several companies are interested in the application of the micro payment system from the beginning. For examples the companies such as Compaq and IBM both have developed the platform for micro payment system in 1999 for anticipating the use of micro payment system for conducting the internet transactions. The companies also focussed on the World Wide Web Consortium for developing the standard required for making up the micro payment system. The World Wide Web consortium has developed the preliminary HTML standards that mainly include the tags like the price, duration, type, expiration and also many more. Presently there is no standard definition for the web micro payment that will include all the systems that is required for the micro payment system. Therefore these systems attempt to share the goal that results in minimization of the overhead cost of carrying out a single transaction. Most of the micro payment system attempts to save the cost which includes the cost relating to the management of the financial risk and the operational cost that includes processing, storage, communication and set up cost. The problem associated with the micro payment system is that it is not possible for a single publisher to create a micro payment system on their own. The main tactic of the profitable application of the micro payment system is reducing the transaction cost and forming a group transaction (Deshmukh, 2006). Analysis Micropayments is one of the most emergent and current topics in the context of ecommerce. The micropayments is advertised to bring in much convenience in making online payments and secure payments for such contents on the net which was previously difficult to get paid for. However there are some associated challenges which has prevented the wide spread implementation of micropayments. Current challenges One of the major challenges with implementation of micropayment system is the incidence of fixed cost and transaction cost in micropayment based system. Although the transaction cost involved in case of micropayment system is very small, the value of transaction is also very less and so the small transaction amount becomes a major cause of concern in case of micropayment based system (Valdes-Benavides and Hernandez-Verme, 2014). The main problem and challenge with payments is the fixed cost component of the payment. The problem of absorbing this fixed payment on any small value item is the major cause of concern that has intrigued and has kept the micropayment industry for all these areas. Another issue that plagues and is a hindrance towards the wide application of micropayment based system is the reliability and user friendliness of the system. For the micropayment system to be accepted widely the system has to be made fully reliable, secure and easy to use. To make this happen, everything starting from billing, user interface, software, authentic bank accounts should be made reliable and secure (Stanford, 2011). Since the transactions takes place online so the requirement of security is one of the top concerns. There are many technical challenges that are associated with micropayment based systems. Since micropayments are done online, the technical issue is a major concern of the micropayment based system. Micropayment transactions are typically instructions which are sequentially arranged bits of information. There is nothing inside those bits which can prevent fraudsters from copying that information (Odlyzko, 2003). In the light of this scenario the solving of following technical challenges becomes crucial to the implementation and success of micropayment system. Security Since micropayments is an online activity that involves inputting personal information such as bank account and other confidential data, the security issue is one of the major concerns of the microprocessor based system. A fail proof and robust security system is a mandatory requirement in order to authenticate payment information (Luo and Lee, 2004). How safe a micropayment based system is depends on whose point of view we are talking about. If the security is measured from the view point of user then the security is viewed as the receiving of goods by the user (Rikowski, 2005). For a seller’s viewpoint the security is viewed as the receiving of payments for the service or goods that he is selling. Scalability A common feature of the micropayment based system is that all the micropayment based system depends on a centralized broker. This creates a lot of demand and resulting heavy load on the server of the centralized broker. The transactions relating to micropayment based system are done by the broker. So the brokers represent a point where jam may occur for the data traffics (Schneider, 2014). Scalability represents the ability of a system to adapt to system changes if the system cannot adapt to the rapid growth of traffic. Reliability Availability of micropayment based system means that a customer can use it at any point of time to make their online payments. So the micropayment based system should be reliable such that there is no question of failure. It should be able to operate nonstop 24 hours a day, 7 days a week, and 365 days a year (Filipe and Obaidat, 2008). However the problem with most micropayment based system is that most of them use cryptographic mechanisms in order to control credit information. However the cryptographic systems do not provide adequate security and are prone to attacks themselves. Interoperability The payment system and financial system parameters in different countries are different. It is possible that these systems will be different in the country of the buyer and seller. Funds represent in one system cannot be converted into the funds of other system (Mühlhäuser, 2008). Interoperability of currencies and protocols are a must for the suitable and efficient functioning of micropayment based system. Anonymity Anonymity relates to how much knowledge different parties have about each other in an online based financial transactions. Anonymity is a very essential requirement in respect of online based financial transaction. Contemporary micropayment schemes comprise security by giving full anonymity to merchants and partial anonymity to users. Anonymity is important because the user may not want that the online purchases he or she makes should be uncovered or known by third party and cause inconvenience for him. Another area of concern is that since all the personal information of the account holder who is making the purchase is available with the merchant banker or the facilitator whose service the user is using to make payments every transaction that the user makes can be known and seen by the facilitator company. This problem and issue creates an ethical dilemma in the minds of customers. The problem is to how much the user of the facility can allow the merchant banker or Facilitator Company to view such personal information. This problem makes the user apprehensive about using online payment or micropayments system. Barriers to access Barriers in accessing online contents deter users to access a website. A barrier is in the form of entry fee forces many users to switch off many websites and online content. Researchers’ views that when a particular website asks for fees to access the online content hosted by it many users switch off the website and turn to a different website. Most of the content on the internet is available for free. So when certain content is not available at a certain website due to the website and the website asks for a fee to access the content, the user simply switches of the website and turns on to different website to search for the content. Future development trends There are social trends associated with micropayment based system. Most of the websites that are hosted online are free for access. So when the website owners’ starts charging for their content there are certain social issues that arise as a result. These trends are as follows. Assessing the cost When people are forced to pay for a certain online content then they must be able to judge the quality of content for which they are being forced to pay the fee. However in case of an online write up it is very difficult for the users to correctly access the true worth of an online content until and unless they make a purchase (Fullenkamp and Nsouli, 2004). Additionally to determine if the website and its content is worth the fee that it is charging the user has to spend some time on the website in order to access its value. This actually presents a mental transaction fee for each time the user spends time accessing the value of the online article. So if every website starts charging a fee for the content it provides then there is lot of mental transaction cost that is paid. However below a minimum amount that a website may charge it becomes very difficult to access the value. Another problem associated with charging fee for an online content is that the users of the content aren’t sure of the information in the content and is thus unsure of the information for which he or she is paying the fees. This is in contrast to the iTunes concept where the user is at least sure of the content he is getting for the fees that he is paying. Another problem is that most of the websites charge a flat rate for all the online content that is hosted. This is not a very effective system as different content may have different value associated with them and it is only the users who can determine the real worth of content. Trend of economic factors There are also economic challenges that are inhibitors to the wide spread implementation of micropayment systems. Some of these challenges are as follows. Transaction cost: Since the actual payment amount involved is very small, so the transaction costs that are involved even if very small have a very significant impact (Baddeley, 2004.). The one major inability of micropayments based companies is to keep these transaction costs low. Mental transaction cost: Since the website charge a cost to view the content hosted on their site, so the users have to estimate the value of the content that are using to judge if the document is fairly priced (Grinberg, 2011). This time spent in judging the worth of content comprises the mental transaction cost. Change of users’ habits Charging may cause other socio economic challenges. The lower segments of the socio economic classes are many times deprived from the benefits of online content. The lower segments of the socioeconomic classes cannot pay for all the online contents and hence has to limit the amount of online content that they can view. The lower segments of the socioeconomic ladder have to most of the time been depended on free online content. The lower segment of the society would not be able to view the same mass of content online as can be viewed by a person who is not so much economically deprived. Although micropayments are small charges in themselves if considered on a standalone basis, if all the micropayments are aggregated over a period of time then it amounts to quite a considerable sum for a low income based household. So, charging for online content in other terms creates a disparity in the society which is not desirable in an equitable society. Study shows that users are more willing to pay fees as one time subscription fees rather than pay per article that they view. This is because if they are asked to pay per article that they view they risk of summing up a huge aggregate bill. In contrast to that payment of fees as one time subscription fees ensures the user that they have to pay at least a fixed sum which they can be sure of. Technical characteristics Micropayments facilitate payments for intellectual properties and thus the creators of the original content get benefited. The creators of the original content do not get any benefit if their works are shared illegally and it also help customers in making legal purchases. For example in 2009 Rupert Murdoch in 2009 was the first to monetize his newspaper. The newspapers create an option for the customers to go in for online subscription to access them viewership rights to online contents. While these online subscriptions act as a perfect and guaranteed source of revenue for the newspapers this actually creates as a negative factor for the different users (Shy, 2001). When the online contents that are currently free start becoming available for a cost this may cause a change in usage for those who once accessed materials for free online. The question that arises is what happens to those who do not wants to book a monthly subscription but is interested for only one particular article of the newspaper. The coming of different customer loyalty scheme has resulted in creation of micropayment system in the retail space. Increasingly social media websites and other sites are being associated with the concepts. Starbucks for example realized this sometimes back and has benefitted enormously. The new trend in micropayment system is the emergence of payment through mobile and handheld devices especially through Bluetooth and related applications. Conclusion In this paper the concept of micropayment and its application is discussed in detail. Micropayment refers to all those payment where the value of transaction is less than $10. Micropayment based system are very useful and is an emerging market which offers high potential for future. However there are certain issues which are making the implementation of micropayment based system a difficulty. The challenges are in the field of technical, social and economical. Technical challenges mainly border on the aspects of security concern that are associated with online transactions. Social costs relate to the concepts such as barriers to entry and change of habits and economic costs refer to the concepts such as transaction cost. The success of the micropayment based system depends on the successful mitigation of these costs. The major problem that continues to bother and is the major hindrance towards wide acceptability of micropayment systems is the problem of transaction costs. The transaction costs although very less is a major concern since the amount of transaction is also very less. So this less value of transaction sounds very high for these low valued transactions. To be able to successfully implement micropayment system the transaction costs has to be brought down to an acceptable level if possible. References Baddeley, M., 2004. Using e-cash in the new economy: An economic analysis of micro-payment systems. Journal of Electronic Commerce Research, 5(4), pp.239-253. Bruck, P. A., Buchholz, A., Karssen, Z. and Zerfass, A., 2006. E-Content: Technologies and perspectives for the european market. France: Springer Science & Business Media. Deshmukh, A., 2006. Digital accounting: The effects of the internet and ERP on accounting. London: Idea Group Inc. Dlabay, L., Burrow, J., Brad Kleindl., 2008. Intro to business. OH: Cengage Learning. Filipe, J. and Obaidat, M. S., 2008. E-business and telecommunications. 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