New Payment Methods - Case Study Example

NEW PAYMENT METHODS by NEW PAYMENT METHOD Introduction Technological advances create new opportunities for new electronic payment methods. Technology is very dynamic and companies have to adopt the new payments methods as a way of survival and attainment of competitive advantage. Electronic payment systems are influenced by the consumer behaviour and purchasing power. Consumers have varied needs and wants, they also have different buying patterns that influence their modes of payment. In order for firms to grow and survive the competition in the market, they must understand the needs and requirements of their target audience. As a result, firms have started searching for new platforms such as the new payment methods to reach their consumers (Resnick & Callanan 2001). The term new payment method is a relatively new term and few companies have implemented it in their marketing strategies. It has the prospective of becoming a prevailing strategic tool that many businesses might use in future in order to gain a new customer base and retain loyal customers. This essay will give clear analysis of the term new payment forms. It will first look at the reasons that led to formation of new payment methods and why the new methods are famous (Horder 2002). It will describe different types of new payment methods and discuss the advantages and drawbacks of using these methods. The paper will also discuss a marketing theory that links the new payment methods and give recommendations of how marketers can create awareness of the new payment methods. Definition of New payment forms These are the alternative Payment methods used to pay for goods in place of the traditional methods. The new methods mostly use electronic platforms to pay for goods as opposed to traditional methods such as cash and checks (Roberds 2009). Basically, the term new payment method refers to the new forms of payments a customer can choose when buying products. For example, Bitcons, PayPal in-store, Dwolla, Izettle, Znap, mobile point of sale, and other latest payment technologies. Background Payment methods emerged with a number of factors linked to each country, including political, environmental, technological and national policies. The basic trend, though, across all boarders is the passage from paper to electronic payments. The shift from paper payment to electronic payment methods has had effect of breaking down the payment system into distinctive business segments. Traditional consumer retail payments don’t require immediate agreement. Traditional electronic payments include bank payments, and money transfers that are carried out through non-bank mediators such as western union, which work as credit transfer but doesn’t rely on funds between accounts (FATF.GAFI, 2006). On the other hand, new payment methods are innovative and involve new ways of initiating payment and reaching potential consumers by allowing flexibility of payment for goods and services. Reasons for the shift to new payment methods The need to shift to new payment method was influenced by the shortcoming of the traditional methods of payment such as cash, checks and other offline money transfer services. These limitations include labour intensive process and a trail of paper work. Use of numerous documentation for transactions is very laborious and time consuming (Bhagat & Dong 2005). The traditional payment limits the mobility of the consumer and the choices they have for making payment. These shortcomings demanded the need for more efficient payments methods that would address the needs of various consumers (Chang 2008). Another vital reason for the movement or shift to the new payment methods was a need for a more robust real time payment system that could offer services at any time and place (Roberds 2009). A real time payment system is very useful in processing huge transactions and eliminating barriers of time and geographical proximity to financial service providers such as banks (Reference). The shift was also influenced by the need to address varied needs of consumers since different consumers have different preferences of payment. Some require the traditional method while other requires real-time money transfers (Gowrisankaran 2007). Furthermore, companies use the new payment methods as a way of differentiating their services, attain competitive advantage and attract new customers and business partnerships (Force 2006). New Payment Methods and Existing Theories The term new payment methods are related to different marketing existing theories. One of the most applicable theories that match best with the term new payment methods is digital marketing (Barnum 2009) Digital marketing refers to promotion of products and services using all forms of digital advertising platforms to reach the target segment. Digital marketing includes marketing methods such as the internet, computer and communication technologies and interactive digital media. Digital marketing use advanced technology to penetrate new markets and acquire new customer’s at the most effective and economical way (Zhuo et al 2012). Both digital marketing and new payment methods focus on new markets and new ways to reach different customers. The two techniques interrelate because they use the same technological aspect in order to meet a new customer base. Social representation theory is a deep structure aspect of consumer behaviour as has been shown by previous studies (Boumelki & Gullet 2010; Stewart & Lacassagne 2005). New forms of payment affect consumers experience in everyday digital market place. The theory of social representations fits to the ideal of social exchange in marketing, which embraces the concept of a balance between individual and the larger social need. The theory of social representation is rich and appropriate for finding out what a group think concerning the products and services especially the technological innovations, such as new payment methods. Furthermore, there’s a link between new payment methods and consumer buying behaviour. Consumer buying behaviour relates to how people buy, what they buy, when and why they buy. It is a subcategory of marketing that combines all elements from psychology, sociology, anthropology and economics (Talloo 2008). The major active role behind consumer buying behaviour is to improve firms marketing strategies by understanding what customers want and need. Consumer buying behaviour is an important tool when it comes to new payment methods because it is critical for firms to understand consumer buying and preferred patterns. The shift in consumer buying patterns led to introduction of the new payment methods. Business to consumer (B2C) model refers to business transactions conducted between a firm and its customers who are the final consumers of the firm’s products. The model is popular for companies that sell products and services through the internet. Amazon uses this model to sell books and other literature over the internet. In fact, Amazon.com used this model to become success in online marketing of its products (Serva & Mark 103). The model involves selling directly to consumers and thus eliminates delays in processing transactions and reduce transaction costs. It also protects the consumers in terms of security frauds that are involved when middlemen are involved in a transaction. Moreover, B2C gives consumers a direct interaction with the firm and thus maintain customer loyalty and satisfaction. The model links with the new payment methods in that it is easy to create direct consumer awareness of new payment methods using the model. For example, Amazon sends customers information about new payment methods through their emails (Serva & Mark 101). Since Amazon has established close links with its customers through this model, it is easy to send them updates of electronic payment methods that suit specific needs of different consumers. Through online selling that is facilitated by the B2C model, it is possible to develop electronic methods that support online transactions and is suited to a specific group of consumers. The new payment methods are numerous, for example, PayPal, Znap, Bitcoin, Dwolla and iZettle. PayPal customers use the PayPal mobile app to create a barcode that can be scanned at the till during payment. Customers’ payments are processed through their PayPal account, which is convenient and fast. Dwolla is an American system of payment that reduces the cost of online payments (Travlos 2007). It levies a flat fee of 25 cents for transactions over $ 10 .It is a cheaper method of payment for online goods and services. iZettle uses card reader slots into mobile phones to facilitate payment via credit/debit cards. The technology reduces queues in banking halls and saves time. Bitcoin allows firms to make payments without incurring high transaction costs. It can be used over international trade platforms and it is convenient, easy to use and saves on time and costs especially for voluminous transactions. Other new payment forms include mobile payments. The technique uses mobile phone apps to make payments such as utility bills and tickets. Mobile payment is fast, real time and convenient because the customer can make payment any time and place without the need for a financial intermediary (James 2008). Online Banking e Payments allow customers to access their bank accounts online and make funds transfer and other forms of payment at any time provided they have an internet connection. The platform saves time and is less costly compared to offline money transfers. Electronic checks allow customers to make instant payments using their checking accounts without waiting for check maturity period to lapse. These new payment systems offer convenience, efficiency, cost effective and save time. Importance of New Payment Methods The advent of Technology has revolutionized and changed the way human beings interact with each other; relationships are not constrained by national boarders, ideas travel as speed of light. New payment methods are introduced to match the new continuum, the term is still relatively new, but most companies are trying to deploy those new payment methods. For example, Dell, a well-known company, uses Bitcoin for payments. Bitcoin is a digital form of currency which can be transferred securely between any two people in the world. Dell accepted this form of new payment because I t gives consumers more flexibility, can be easily made from any region of the world, and offers reduced payment costs (Dell 2015). Another good example is Starbucks; 10% of Starbucks transactions occur via mobile payments. Starbucks requires a two-step process that enables customers to pay for tickets via mobile phones. Customers need to sign up and attach the transactions on their Starbucks card. The new payment methods are used by the company to survive the competition and gain competitive advantage of cost saving, convenience and speed of service delivery. Firms need to adopt new payments methods to address the changing needs of consumers and keep up with the dynamism of technology (Crede 2004). Failure to adopt to technological advances results in collapse since the firm is unable to meet the needs of the consumers. New payment systems can help a company gain competitive advantage by reducing transaction costs and timely processing of transactions. Another importance is attracting new customers to the firm. Potential customers can be attracted by use of new payment methods that suit their specific needs and offer them more convenience. For example, use of mobile payment can help attract new customers who regularly use this form of payment as opposed to sticking to inflexible traditional methods of payment (Szmigin & Foxall 2011). Is New Method Of Payment Just A New Trend? Using new payment methods is a new trend that companying are adopting because it has numerous benefits. Firms use the payment methods to cut transaction costs, save time and offer convenience to their customers. The trend will last because all firms are currently adopting the new payment methods in order to survive the market competition. In addition, technology changes constantly and new electronic payment systems are created to address changing needs of the customers. The trend is long lasting and payment methods will get better with technological advances (Horder 2002). Advantages A major advantage of the new payment methods is that they build customer loyalty. The methods address customers’ changing needs and preferences of making payments. Customers feel valued if their needs are taken care of and thus their resolution to remain loyal to the business. Use of new payment methods can attract new customers. For example, customers who prefer advanced methods of payment such as online payments will be attracted to the firm once it starts using the online payment platform (Strout 2014). Another advantage is competitive advantage that may be gained through offering payment services at a cheaper cost, more convenience and timely than the competitors. Moreover, a firm can survive market competition by constantly adopting to the latest technological methods of payment. The methods offer convenience of payment especially settlement of utility bills. A client can keep track of their monthly utility bills payment by obtaining online statements showing number and frequency of transactions. Another advantage is easing the transaction processes especially for huge transactions (Gowrisankaran 2007). While the traditional payment methods involve several processes for fund verification, the new methods are real time and fast. The transaction process just involve verifying user authenticity and clicking to send funds. Furthermore, these methods eliminate delay in service delivery because they are real time. For example, the delays in processing check payment is eliminated in the online banking check ePayments. The online checking system ensures that interbank fund transfer is automated and only takes a few hours. Customers are saved from the delays and the resultant inconvenience those (Roberds 2009). Some new methods offer reward such as travel points that can be redeemed for prizes and free services. Disadvantages The greatest disadvantage of the new payment methods is poor security of funds and transaction records. For example, online payments are prone to security breaches and many people have lost their money through online fraud. It is complex to track down the perpetrators/culprits of fraud and other financial crimes associated with the new payment methods. As a result, people feel insecure and shy away from using the new methods. The methods aren’t fit for all customers (Hogan &Edward 2007). Most of the new methods require the use of the internet or other technological devices to access funds. These facilities are not accessible to all customers due to cost constraints and high illiteracy levels especially in developing economies. Another shortcoming is lack of awareness about the existence of the new methods. As technology changes, new methods are developed References (Barnum, Kutzin, & Saxenian 2005). The consumers may not keenly follow the new technological trends and may fail to know about advanced methods of payment. Another disadvantage is the potential additional transaction costs associated with new methods. Customers pay an extra transaction costs that prevent some people from adopting the new methods. Some of the new methods cannot be used to make small transactions because the transaction costs are too high. These methods are suitable for voluminous transactions (Chang 2008). For example, paying for tickets through methods such as Bitcoin is uneconomical because of high transaction costs. Customers who use Bitcoin for payment may miss on paying their tickets since they need to log into a mobile application to pay for tickets and electronic bills. Use of electronic systems can make a customer lose track of their monthly payments such as utility bills. This is because the electronic bill payment automatically remits the funds to the utility companies (Roberds 2009). The payee may fail to notice when under/overpayments are made due to the automation. This is a dangerous situation because people need to account for all their money, especially controlling their expenses. Conclusion The new payment methods reduce transaction costs, increase efficiency and saves transaction cost. The methods emerged due to the limitations of traditional methods of payment such as laborious processes and paper work. The new methods have numerous advantages including increasing customer loyalty and gaining competitive advantage. Some of its short comings include insecurity, lack of awareness and inaccessibility to some customers. Increased advertising of the new methods will create awareness. Firms can also hold demonstrations to show customers how the methods work and explain the benefits of using the new methods (Bhagat & Dong 2005). Marketers will use the new term to market their products. They will explain to customers the flexible of the products offered especially the new convenient methods of paying for products. Appendix New payment methods: refers to the new forms of payments a customer can choose when buying products. Bitcoins: is a digital form of currency which can be transferred securely between any two people in the world iZettle: a form of payment that uses card reader slots into mobile phones to facilitate payment via credit/debit cards. Dwolla: an American system of payment that reduces the cost of online payments. It charges a flat fee of 25 cents for transactions over $ 10 PayPal: allows customers to use the PayPal mobile app to create a barcode that can be scanned at the till during payment. Digital marketing: refers to promotion of products and services using all forms of digital advertising platforms to reach the target segment New Trend: new developments in a certain field or area Dell Corporation: Is a company that manufactures computer and IT technological devices. Mobile payment systems: refers to mobile phone applications that facilitate small payments such as tickets and utility bills. Electronic banking checking ePayments: is a new automated payment that allows for real time check payment. References Barnum, H., Kutzin, J., & Saxenian, H. 2005. Incentives and provider payment methods. The International journal of health planning and management, 10(1), 23-45. Bishop, F., & Saunders, P. (2005). U.S. Patent Application 11/164,352. Chang, S. (2008). Takeovers of privately held targets, methods of payment, and bidder returns. The Journal of Finance, 53(2), 773-784. Chen, J. F., & Wang, J. S. 2006. U.S. Patent No. 5,590,197. Washington, DC: U.S. Patent and Trademark Office. Crede, A. (2004). Electronic commerce and the banking industry: the requirement and opportunities for new payment systems using the Internet.Journal of Computer‐Mediated Communication, 1(3), Force, F. A. T. 2006. Report on new payment methods. Paris. http://www. fatf-gafi. org/dataoecd/30/47/37627240. pdf. Gowrisankaran, G., & Stavins, J. 2002. Network externalities and technology adoption: lessons from electronic payments (No. w8943). National Bureau of Economic Research. Hogan, Edward J. 2007. "System and method for conducting cashless transactions on a computer network." U.S. Patent No. 5,692,132. 25 Nov. Horder, J. P. 2002. Methods of Payment. British medical journal, 1(5446), 1381. Pooler, V. H. (2003). Methods of Payment. In Global Purchasing: Reaching for the World (pp. 157-169). Springer US. Roberds, W. 2009. The impact of fraud on new methods of retail payment. Economic Review, (Q 1), 42-52. Roberds, W. 2010. The impact of fraud on new methods of retail payment. Economic Review, Serva, Mark A., John Skip Benamati, and Mark A. Fuller. "Trustworthiness in B2C e-commerce: An examination of alternative models." ACM SIGMIS Database 36.3 (2005): 89-108. Slovin, M. B., Sushka, M. E., & Polonchek, J. A.2004. Methods of payment in asset sales: Contracting with equity versus cash. The Journal of Finance, 60(5), 2385-2407. Szmigin, I., & Foxall, G. 2011. Three forms of innovation resistance: the case of retail payment methods. Technovation, 18(6), 459-468. Vilmos, A., & Karnouskos, S. 2013, September. SEMOPS: design of a new payment service. In 2012 23rd International Workshop on Database and Expert Systems Applications (pp. 865-865). IEEE Computer Society. Mara Friedman. 2003. 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