The History of Paying Online And Risk Management

Recently, online payment has become one of the most popular forms of money transaction. Today, various payment systems exist, and new ones emerge with rapid speed.

The growing popularity of different methods can be explained by the ever-growing impact of the Internet on the life of the society, economic realities, and other factors.

The objective of this article is to define the system, explore factors that contribute to the ever-growing popularity, analyze the latest trends, and identify the place that online payment occupies in e-commerce.

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Introduction to Online Payments Risk Management ($14.13)

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Experts define online payment systems as “e-commerce businesses allowing money transfers to be made through the Internet” (Trifonoff, 2008). This trend emerged as an alternative to such traditional methods as, for example,checks,and Moneyorders. Today numerous payment systems exist; however, all of them can be divided into five main categories: ACH payments, merchant account, payment gateway, payment processor, and PCI compliance. A brief overview of each category is presented below.

ACH is an abbreviation that stands for Automated Clearing House. It is comprised of systems that include electronic credit and debit transfers allowing customers to make transfers from their bank accounts (Meyer, 2012). ACH is one of the most popular options among those who prefer electronic transfers.

Merchant account allows its customer to receive cash through debit or credit cards (Meyer, 2012). It should be noted that the latter still remain one of the most popular payment options in the USA. Statistics shows that nearly 90% of all electronic transfers in North America are made using credit cards (Turban et. al., 2008).

Payment gateway is used as a middleman between a merchant and a sponsoring bank (Meyer, 2012), which allows to securely pass credit card information. For more information on payment gateways, John Hawthorne has a guide which examines the most popular payment gateways to help you decide which one is right for your business.

Payment processor is used to handle credit card transactions (Meyer, 2012). The main advantage of this payment option is that it uses anti-fraud measures ensuring that both a customer and a merchant are protected.

PCI is an abbreviation that stands for Payment Card Industry. This type of online payment is designed to correspond to the Payment Card Industry Data Security Standard ensuring that the cardholder data are carefully protected.
Experts forecast increased popularity of online payment in the next several years, which is preconditioned by a number of factors. The most important of them are the following:

1. The US economic recession is believed to result in increased revenue, which in turn will demand introduction of the new payment methods (Loewen, n.d.).
2. The number of Americans qualifying for credit is supposed to decrease with each year. This will result in decreased number of the credit cards issued. It is evident that this category of Americans will demand for alternative payment method.
3. The ever-growing number of online businesses is supposed to boost the emergence of non-traditional methods.

So, current economic realities trigger the development of online payment; while the main issues of online payment designers is to make such payments quick, convenient, and safe.

According to the report prepared by Vantiv Inc. & Mercator Advisory Group (2012), currently there are ten main trends in online payment one should pay attention to:

1.  Non-cash payments continue to grow in popularity, which however differs from method to method. For example, prepaid cards enjoy rapidly growing popularity, while the usage of credit cards is increasing moderately (Vantiv Inc. & Mercator Advisory Group, 2012).
2. Security of is another issue that should be noted. According to Vantiv Inc. & Mercator Advisory Group (2012), 6 in 10 respondents worry about the security of their electronic wallets. So, designers of systems should pay special attention to security issue to win customer loyalty.
3. Prepaid cards have become one of the most popular types of online payment, and their popularity is continuing to increase.
4. Mobile payments are now popular among 15% of respondents (Vantiv Inc. & Mercator Advisory Group, 2012). It is however prospected that this figure will increase to 62% in the next 5 years.
5.  iPads and other tablets are gaining popularity among the merchants, they “are finding them useful for streamlining in-store processes and engaging customers to increase sales”(Vantiv Inc. & Mercator Advisory Group, 2012).
6. Today, only 3% of respondents use mobile banking (Vantiv Inc. & Mercator Advisory Group, 2012), while the number of those who are aware of it is more than eight times. This makes experts think that mobile banking is a promising trend in online payment.
7. Person-to-person payment, or P2P, is quickly becoming popular among average users.
8. Nearly 80% of respondents are aware of different online payment methods. This makes experts believe that in the near future it will surpass the popularity of cash and credit card payments.
9. Social network payments are the emerging type of online payments. (10) Legislative acts governing online payments are changing quickly, which makes it difficult for the merchants and average customers to adjust to them. In fact, this field of human activity still lacks clarity and sometimes transparency.

Further development of online payment is supposed to contribute to the improvement of e-commerce. Today, the new systems emerge at a rapid speed, and the legislation governing their operation is changing all the time. This makes it difficult to the companies and average customers to orient in e-commerce.
References
Loewen, K. (n.d.). Future of online payment. Retrieved from http://www.activenetwork.com/Assets/ACTIVE+World/The+Future+of+Online+Payments.

Meyer, R. (2012). 10 excellent online payment systems. Retrieved from http://sixrevisions.com/tools/online-payment-systems/

Trifonoff (2008). Online payments: How to pay on the Internet. Retrieved from
Turban, E., King, D., McKay, J., Marshall, P., Lee, J. & Vielhand, D. (2008). Electronic commerce 2008: A managerial perspective. London: Pearson Education Ltd.

Vantiv Inc. & Mercator Advisory Group (2012). Top 10 payment trends to watch in 2012. Retrieved from http://www.nacmsouthtexas.org/VantivTop10Trendswhitepaper.pdf .

Payments through these services can also have high drop through rates. For merchants especially, when using advertising with pay-per-clicks, it’s important to watch your invalid clicks metric.

Take a look at this Infographic by Website Promoter.

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