In-depth Reflection 1: Electronic Payments

Topic 7 shall be the reviewed for this initial reflection. I think it is important to develop the idea that electronic payment methods and e-Commerce cannot be placed together in the same categories. When people initially think of “e-Commerce”, many would come to the conclusion that it is simply ways for paying other people and businesses over the Internet than manually. Even though this is a major part of e-Commerce, it is not what this subject is completely about as I have found out lately!

The Business Dictionary describes electronic payment as simply “Enables a user to make online payments” This is true, but as a whole there is much more that users of electronic payments do between themselves and businesses.

e-Commerce has enabled people throughout the World who have Internet access to also access the most basic of all online interactions; the ability to pay without the need for physical exchanges. Essentially I think that electronic payment is a non-physical exchange between the three types of relationships, B2C, B2B and C2C.

Obvious examples that personally spring to mind when one thinks of electronic payments include:

• B-Pay.
• EFT.
• Bank accounts and online portals.
• e-Bay.
• Direct Debit.
• Phone banking.
• Cashless shopping.
• Pay-pal.
• EFTPOS/Credit cards.

How Stuff Works gives us a breakdown of the three types of electronic payments that can occur online by utilising Internet and network technologies:

1. A one-time customer-to-vendor payment is commonly used when you shop online at an e-Commerce site, such as Amazon. You click on the shopping cart icon, type in your credit card information and click on the checkout button. The site processes your credit card information and sends you an e-mail notifying you that your payment was received. On some Web sites, you can use an e-check instead of a credit card. To pay by e-check, you type in your account number and your bank's routing number. The vendor authorizes payment through the customer's bank, which then either initiates an electronic funds transfer (EFT) or prints a check and mails it to the vendor.

2. You make a recurring customer-to-vendor payment when you pay a bill through a regularly scheduled direct debit from your checking account or an automatic charge to your credit card. This type of payment plan is commonly offered by car insurance companies, phone companies and loan management companies. Some long-term contracts (like those at gyms or fitness centers) require this type of automated payment schedule.

3. To use automatic bank-to-vendor payment, your bank must offer a service called online bill pay. You log on to your bank's Web site, enter the vendor's information and authorize your bank to electronically transfer money from your account to pay your bill. In most cases, you can choose whether to do this manually for each billing cycle or have your bills automatically paid on the same day each month.

From what I can relate and think about, these three different types of payments are the only ones I personally use, not to mention transactions in the B2B marketplace. Basically the first point is when I wish to pay for goods like when actually at the shop, when I have reoccurring bills such as rent or debt payments and lastly when special cases or managing my funds in-between accounts.

The benefits of such online and electronic payment methods are numerous, importantly for the user but also for the businesses that provide these features. But one major topic still puts a dark cloud over e-payments, the concept of security and trusted online sites.
When describing the benefits of e-payments that e-Commerce gives to the users the following are sum of what I consider to be important:

• Reduced costs.
• Simplified transactions
• Instant processing.
• Instantaneous transaction between accounts.
• Recordable transaction history.
• Retrievable transaction data.
• 24/7 accessibility.

“With all the benefits of electronic payment, it's no wonder that its use is on the rise. More than 12 billion ACH payments were made in 2004, a 20 percent increase from 2003 [ref]. The 2004 Federal Reserve Payments Study noted that from 2000 to 2003, electronic payments grew as payment by check declined, which suggests that electronic payments are replacing checks.”

(Sourced - How stuff Works Online Resource.)

But all of these factors lead to one word which states why electronic payments are becoming so popular and part of everyday life, its the Convenience it provides!

Basically, I think when you look at the raw positives and negatives of electronic payment, the benefits of using it far outweigh the traditional forms of payment. Still security and trust issues still persist as users remain very cautious of online secure payment. Portals that use programs that have secure payment facilities, the greatest example I can think of is e-Bay focus on protecting against the following concepts such as:

• Fraud.
• Money laundering.
• Crime financing.
• Privacy issues.
• Identity theft.
• Hacking or interception of payment data.

By paring other computer programs which may manage funds, banking, taxes, expenses and revenues with electronic online payment methods, the average customer or business process becomes much more simplified and quicker.

I almost neglected to touch on the topic of how electronic payments also exist in physical form that almost everyone in 1st class countries use, the Debit and/or Credit Card. The concept of how such cards were implemented relates to the need to achieve “Critical Mass” in order for that form of e-Payment to be fully established and therefore accepted.

For such a product and service to be setup and implemented amongst entire countries let alone the World, would require special strategic control and development. Products and services that the involve such encompassing of the Worlds financial services include:

Smart Cards – Basically a debit or credit card that is more powerful, with more memory and has better encryption capabilities. Recently American Express has been advertising their new cards. A very good new product as card fraud is on the rise and I think that the magnetic strip technology is far outdated.

Stored Value Cards – The Company I work for provides the majority of these types of cards within Australia under “Creditline” products. Store branded cards that are prepaid with a value nominated to them for one time use only.

e-Micropayments – Very small value amounts held on cards that currently are hard finance due to their insignificance. iTunes seems to have mastered this market for their iTunes store.

e-Checking – Virtual electronic checks, basic swap over.

Electronic bill payments – B-pay as it’s known here allows people to electronically pay their bills they receive from businesses such as Telstra, Energy Australia and AGL, etc. Avery convenient method.

Reference:

• Business Dictionary.

http://www.businessdictionary.com/definition/electronic-payment-system.html

• How Stuff Works Online Resource.

http://communication.howstuffworks.com/electronic-payment2.htm