The Potential of Server-based Internet Payment ...

Institute for Prospective Technological Studies Directorate General Joint Research Centre European Commission

The Potential of Server-based Internet Payment Systems – An attempt to assess the future of Internet payments –

Background Paper No. 3 Electronic Payment Systems Observatory (ePSO)

July 2001 K. Böhle EUR 19935 EN

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European Commission Joint Research Centre (DG JRC) Institute for Prospective Technological Studies http://www.jrc.es

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Report EUR 19935 EN

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Abstract This assessment of the future of Internet payments concentrates on the potential of serverbased Internet payment systems. The central server-based approach is seen as a relevant future trend and "paradigm shift" in the development of Internet Payment systems, and the analysis therefore goes beyond the mere observation of a "second generation" of Internet payment systems (such as prepaid scratchcards, "private currencies", P2P systems, and 3D-SET). The assessment is problem-oriented. To analyse the Internet payment problem and to understand the medium term development of Internet payment systems, the Internet payment problem is defined and its main parameters are distinguished. These parameters or criteria constitute the tool to later assess the advancements and drawbacks of serverbased Internet payment systems. To better understand the recent trend towards serverbased payment systems, an evolutionary approach to the development of Internet payment system is also taken. The analysis reveals the remarkable potential of server-based payment services. From the customers' and merchants' point of view, the new approach is an important step forward with respect to ease of use, minimising the requirements for local software. It can also be seen as a major step towards a common user experience. Server-based payment services have the potential to integrate different payment systems and to provide further added value services, eg EBPP. The server based approach has also strengths when it comes to payments without bank account, P2P payments, micro-payments, anonymous payments, and it is a must for mobile phone payments. Still a range of intriguing questions needs further consideration, eg.: G

The new approach strengthens the strategic position of payment service providers. Will this help to facilitate cross border payments?

G

Will the new approach, defined by access to a central server, slow down the progress of payment schemes that rely on smart cards and PKI infrastructure?

G

Do "virtual accounts" (combined sometimes with prepaid cards) meet the criteria and demand for true "electronic cash"?

G

How should regulators cope with the speed of technological change, the intricate “technicalities”, and the contingency of emerging payment systems like "prepaid cards/prepaid accounts"?

Contents

1 INTRODUCTION....................................................................................... 1 1.1 Role of the background paper.............................................................. 1 1.2 The future of Internet payment systems .............................................. 2 2 THE INTERNET PAYMENT PROBLEM................................................... 3 2.1 Common misconceptions .................................................................... 3 2.2 THE REAL PROBLEMS ...................................................................... 4 3 THE DEVELOPMENT OF INTERNET PAYMENT SYSTEMS ................ 7 3.1 Pre-history ........................................................................................... 7 3.2 Pioneer phase...................................................................................... 9 3.3 "Roll back forward" ............................................................................ 10 3.4 Internet payment systems – the second wave ................................... 11 4

THE "SECOND WAVE": A PARADIGM SHIFT ..................................... 12

5 ASSESSMENT OF ACHIEVEMENTS AND DRAWBACKS................... 18 5.1 Convenience...................................................................................... 18 5.2 Trust and security .............................................................................. 19 5.3 Special groups and special payment situations ................................. 19 5.4 Competition ....................................................................................... 20 5.5 Reduction of available payment options (electronic cash) ................. 21 5.6 "Technicalities" as a regulatory problem ............................................ 21 BIBLIOGRAPHY ........................................................................................... 23

1 1.1

INTRODUCTION ROLE OF THE BACKGROUND PAPER

This third background paper is about the future of Internet payment systems. This topic was suggested and approved at the first Steering Group Meeting of 21 November 2000. The future of Internet payment systems has already been the focus of two issues of the ePSO-Newsletter (ePSO-N 05 and ePSO-N 06) supporting the preparation of this background paper. Like with all background papers, the draft version has been sent to the Steering Group for review. Comments received from the Steering Group, and members of the ePSO-Forum have been considered for the present version. Remarks by Benjamin Hanssens (ECB), Amir Herzberg (NewGenPay) and Arnd Weber (ITAS) have been especially helpful. Our assessment of the future of Internet payments concentrates on the potential of serverbased Internet payment systems. Obviously there is a new generation of Internet payment systems: prepaid scratchcards (eg InternetCash, paysafecard), loyalty and incentive schemes (eg beenz), P2P systems (eg PayPal), micro(billing) solutions (eg kiosque or NET 900), 3D-SET credit card payments, and also the range of mobile payment solutions aiming at the Internet belong to this new generation. We hold that these payment systems are visible expressions of a major underlying trend towards a centralised server-based approach rather than just a number of unrelated new payment methods. Assuming that this trend exists, we can start scrutinising its implications and consequences. What are the shortcomings and disadvantages of this development? Our analysis suggests that the new approach provides some clear benefits, especially in terms of convenience for users, adequacy with respect to many payment types and situations, and harmonisation at the level of payment infrastructure. The trend towards server-based systems also raises new and intriguing questions: As the new approach strengthens the strategic position of payment service providers, will this help to facilitate cross border payments? Will the new approach defined by access to a central server slow down the progress of payment schemes that rely on smart cards and PKI infrastructure? Do "virtual accounts" (combined sometimes with prepaid cards) meet the criteria and demand for true "electronic cash"? How should regulators cope with the speed of technological change, the intricate “technicalities”, and the contingency of emerging payment systems?

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1.2

THE FUTURE OF INTERNET PAYMENT SYSTEMS

Up until now, there has been very little discussion of electronic retail payment systems outside practitioner circles. Even ground breaking innovations like the move from payment of wages in cash to giro transfers, the introduction of credit cards, the emergence of international payment networks, or the spread of ATMs went without major public debate. More attention has been paid to the introduction of electronic payment systems at Point of Sale, and especially the development of electronic purses.1 This cannot be compared, however, to the hype produced by every announcement of a new Internet payment method or pilot. To judge from the list maintained by Michael Peirce (2001) and the ePSO-database of e-payment systems (2001), there are about 150 different schemes. Of course, their status and state of deployment vary considerable. The excitement they generate, however, has not yet yielded many in-depth studies on the subject for two reasons. Firstly the apparent pace and dynamics of development seem to make it too early for retrospective studies and, secondly, the future is hard to predict, discouraging prospective studies. Our attempt at understanding the medium term development of Internet payment systems is problem-oriented. Consequently we start (in section 2) defining the Internet payment problem and distinguishing its main parameters. These parameters or criteria also constitute our tool to later assess the advancements and drawbacks of new payment systems. To better understand the recent trend towards server-based payment systems, a look at the short history of Internet payment systems is helpful (section 3). Instead of terming it "history", it would be better and more precise to talk of "re-construction" of the development process. It helps to be aware of: -

early pointers to the server-based approach,

-

the number of payment options available (what they share, where they differ),

-

the competition between payment service providers, and

-

the disappearance or weakening of certain payment options when a winner, i.e. a dominant approach, catches on.

We propose a model of four consecutive stages. In the most recent stage we address the second wave of Internet payment systems. In section 4 we further analyse the "second wave" and argue that it represents a "paradigm shift", comprising front-end and back-end innovations – changing fundamentally the way

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payments on the Internet are made. Finally, in section 5, the new server-based approach is assessed, focussing on the advancements it brings, remaining requirements, and new questions posed.

2 2.1

THE INTERNET PAYMENT PROBLEM COMMON MISCONCEPTIONS

An assessment of the Internet payment problem must start by identifying the misconceptions behind common assertions, before focussing on the real problems. First: It is sometimes believed that Internet payment systems could evolve independently from the overall retail payments sector. This is not true. The development of Internet payment systems is not autonomous, and remains linked to the general development of retail payment system. The development of Internet payment systems is often based on existing electronic payment systems, and vice versa.2 Second: It is often stated that e-commerce requires Internet-specific payment systems. This is not generally true. Internet payment systems are not required as long as the Internet is used as just another order channel for distance selling of physical goods in addition to mail order and telephone order (MO/TO). Surveys asking customers and merchants what payment methods they prefer for purchases on the Internet reflect and confirm this. The results are always the same: the traditional non-electronic payment systems are the most popular. If electronic payment systems are chosen, traditional methods from the real world (credit card, debit card) are the most frequently used. Two recent studies, one based on a survey of e-tailers (Berlecon Research 2001), the other on a survey of Internet users of which 90% had already bought something via Internet (Stroborn 2001), prove the above statement. Although both studies were conducted in the German market, their general results should apply to other European countries too. The case is slightly different if we consider cross-border trade of tangible goods. Cash on delivery, paying via credit transfer or using a credit card are possible, but costs involved and problems of dispute resolution and consumer refund make cross-border trade often less attractive. In addition not all national payment instruments, e.g. debit card payments or e-purses, are yet internationally viable – due to a lack of standardisation and interoperability. So there might be a niche for new Internet payment systems. All in all however the demand for new international payment methods should not be overestimated. 1

For the wide e-purse literature see Leo van Hove's bibliography available as searchable database at the ePSO website http://epso.jrc.es/

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On the one hand cross-border trade is only a minor fraction of retail commerce, and on the other hand in many cases, B2C e-commerce cross border is not sound, either from an ecological point of view or with respect to transaction costs. Most retailers, trying to serve an international customer base, will also establish a distribution network (including stores and accounts at different national banks) thus converting international trade to local trade. Third: It is often stated that e-commerce for intangible goods and services requires Internet-specific payment systems. We would agree. The delivery of digital goods all over the world in real-time, sophisticated ways to make use of all types of remote databases and electronic services, and copyright management problems require adequate payment mechanisms. Nevertheless even this part of e-commerce has never been absolutely impossible on the Internet using standard payment instruments like credit cards. Fourth: It is often stated that security is a fundamental problem for Internet trade. This is true. But if the partners involved are willing to accept the risks or are not aware of them, then unsecured e-commerce is possible. It has therefore to be underlined that adequately secured payment instruments (with eg security equivalents for “card present” or "handwritten signature") are desirable, but not an indispensable condition for e-commerce. Indeed, even today payment data is frequently sent over the net without any security measures or using just SSL. It is however questionable whether this unsecured type of ecommerce is sustainable as risks and fraud develop.

2.2

THE REAL PROBLEMS

If the real problems are not of the "to pay or not to pay" variety, what are they? Precisely because Internet payment systems are not indispensable, what matters is the quality of service. There is a need for considerable improvements especially when paying for digital goods and services. It is not a general, but a qualified need composed of many different parameters. To map the most important parameters we offer a set of criteria that later can serve as a matrix to assess advancements and bottlenecks of Internet payment systems. These criteria are presented in Diagram 1 below.

2

It is only a matter of time before Internet technology migrates to the real POS (eg as "soft POS") or, equally, before the retail payment networks migrate to the Internet.

4

Diagram 1: Criteria defining problem areas / quality of payment services physical goods / digital goods

trust (incl. security, privacy) / risks

convenience/ effort of use

established B2C relation / spontaneous purchases

recorded payments / anonymous payments Internet-Payments higher value payments / micropayments

groups with bank account (credit card) / groups without bank account (credit card)

domestic payments / cross border payments

B2C payments / P2P payments

The scheme offered proposes first a basic distinction between payments for digital goods and services on the one hand and physical goods on the other hand – for the reasons explained above. In more detailed studies further subdivisions of goods and services would make sense. Next we propose two general criteria, convenience and trust. Both criteria can be represented on a scale from high to low, i.e. payment systems that are very convenient to use through to those that involve extreme effort, and those attracting a high level of trust through to those where high risks are involved. Of course, both criteria are composed of many factors. A ‘convenient’ payment system, for example, includes factors such as ease of registration, download, installation, configuration, user-friendly interface, fitting into and taking up common habits, a hotline for user requests etc. Factors affecting ‘trust’ are associated firstly, with technical procedures (eg algorithms, protocols), and social procedures (eg the distribution of liabilities, data protection,

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guarantees, seals of approval), and secondly, with assessments of parties and actors involved (eg trusting your certification authority, trusting an adult content provider, a bank from an off-shore country, etc). It has to be underlined that trust is crucial for e-commerce on open networks because of the specifically risky situation: -

open networks have as yet no built in security architecture,

-

the merchant is not present,

-

the customer is not present,

-

the payment card is not present,

-

the goods to be purchased are not present (only as representations), and

-

delivery of goods and payment are not synchronised.

The next two criteria on the left-hand side of the diagram indicate specific social relations relevant to e-commerce: between customer and merchant, and between customer and bank. Is there already an established relationship to rely on when an online-transaction takes place? Where there is none, more specific and difficult situations arise, i.e. mainly where payments for spontaneous ("pay as you go") and/or anonymous purchases are made. To a certain extent, they reflect the need for an equivalent of cash in the virtual world. On the right hand side are three pairs of criteria defining payment types. The payment type has an influence on the choice of appropriate (and available) payment methods. There are cases where recorded payments are needed and welcome and others where anonymous payments are preferred. The choice of payment method also depends on the amount of money to be paid. The two extremes on a scale of payment values, ie high value payments and micro-payments, are particularly problematic. Very high payments require additional trust and may ask for a trustee as intermediary, micro-payments may deserve efficient payment mechanisms either of the prepaid type, where amounts are "tickered" down or of the (micro)billing type, where aggregation comes first and payment later.3 Comparing domestic and cross border payments, the latter are more challenging, because not all national payment systems are applicable and trust is, generally speaking, reduced.

3

There seems to be consensus that transaction based micropayment systems (pay now) are not the way to go and that there are a range of business models for small value products circumventing the micropayment problem relying on indirect revenue streams or subscription models. The need for micropayment systems is debated for instance in Riehm and Böhle 1999 and Clay 2000.

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Global Internet commerce and European integration, however, increase the importance of resolving problems with cross border payments in the B2C sector. This leads to the distinction made between B2C payments and P2P payments. P2P facilities gained momentum with online auctions, and as such they alleviated the payment problem in a specific segment of e-commerce. P2P schemes, however, also allow for money transfers from person A to person B – thus competing, for example, with credit transfers or checks. P2P Internet payment systems may also have some relevance for the cross-border credit transfer issue still relying on costly funds transfer systems established by banks.4 In short: this set of criteria helps to structure and define problem areas and to assess the state of Internet payment solutions.5

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THE DEVELOPMENT OF INTERNET PAYMENT SYSTEMS SO FAR

This section looks at the past to better understand current trends. We distinguish four phases in our reconstruction of the development process: (1) pre-history, (2) pioneer phase, (3) "roll back forward" (banking sector initiatives) including the incipient death of first generation Internet payment systems, and (4) the current second wave of Internet payment systems.6

3.1

PRE-HISTORY

Before the Internet really took off, several developments in the e-payments field were already taking place all relevant to later Internet payment systems. We let the pre-history end in 1992, when the World Wide Web became a success and the number of IP-Servers exceeded one million. Since the 1980s, different types of electronic payment systems have been developed. The principal rationale has been to replace, at least in part, the use of cash and paper-based payment instruments, which were regarded as too costly. We saw the emergence of epayment systems at Point of Sale like, for example, the so-called "electronic cash" system in Germany, combining debit card and PIN (Klein 1997). 4

5

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One might compare the challenge of credit transfer via the banking networks by P2P systems with the early days of Internet-telephony, when microphone and soundcard of the PC replaced the phone and the Internet served as a voice channel – attractive for long distance calls cross border. The problem areas can be further determined combining different criteria. Take for example a non-account holder, who wants to purchase a low value good at a merchant's site from abroad, never ever having bought something from this merchant before. What payment method could he or she use today? Think of someone with a bank account, an established relationship between merchant and customer in one country, would he or she find it difficult to pay for an item of, let's say, 30 Euro by credit or debit card? The description till 1998 is based on an earlier attempt to outline the genesis of Internet payment systems by Böhle and Riehm (1998, pp 105-128).

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More or less at the same time "cash like" payment methods, with value circulating from chipcard to chipcard or via electronic networks, were conceptualised and tested. The pioneering work of David Chaum (that later materialised in the European CAFE project and in the eCash product) and the Mondex approach have to be mentioned here. The 80’s saw the development of a third innovation path with the single purpose stored value smart card, which gradually replaced the previous magnetic stripe card of the 70’s. The idea of prepaid stored value for a single purpose was later generalised, leading to electronic purses. Danmønt, launched in 1992, was the first nationally rolled out stored value card of this type in the world. These e-purses were just another payment instrument at Point of Sale competing with access products and cash. Unlike the more cash oriented approaches, however, it was impossible with these e-purses to perform value transactions from purse to purse. The 80’s also saw the advent of videotex services (eg Minitel, Btx), more commonly known as consumer online services, in Europe. Within these services home banking flourished (including payments) and some even argued that home banking was a "killer application" for these services. As these services evolved, (micro)billing systems became part of it. To sum up: At the time when the World Wide Web was first recognised as a major opportunity for e-commerce, there were already five different approaches to e-payments in place: POS systems, e-cash (software-based and hardware-based), prepaid single purpose cards, e-purses, and (micro)billing. The challenge ahead was to make them fit for the Internet, in other words: to adjust the methods once developed for proprietary networks and closed user groups to insecure open networks. It has to be also kept in mind that the development of the 80's brought about specialised payment intermediaries operating the e-payment systems. With regard to the server based approach maybe those collection systems integrated into consumer online services can be considered as closest forerunners. Table 1 lists some significant events of the first phase in chronological order.

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Table 1: Selected events in the pre-history of Internet payment systems Time 1976 – 1992 1976 1978 1982 1983 1983 1984 1986 1987 1989 1991 1992

3.2

Event Pre-history Diffie and Hellmann's seminal work on public key cryptography First prepaid telephone card (magnetic stripe) in Belgium Chaum published seminal work on "blind signatures" for untraceable payments Launch of videotex services (eg Minitel in France and Btx in Germany) First prepaid telephone smartcard introduced in France "Telecarte" Minitel incorporates kiosque, a microbilling scheme National roll out of the GIE Carte Bancaire smartcard for debit and credit Btx-homebanking takes off after ZKA standardisation in Germany Foundation of DigiCash in The Netherlands Development of Mondex starts at NatWest in the United Kingdom Launch of Danmønt e-purse in Denmark

PIONEER PHASE

During the pioneer phase of Internet payments, credit card information and bank account numbers were sent via the Internet without any security precautions. Since then, this habit has not completely vanished, although secure alternatives have gained ground. As early as 1994, the security of Internet payments was increased by the SSL-standard to levels comparable with those of MO/TO-procedures. The first secure payment method tested in the so called "cyberbuck" trial was the token approach by DigiCash in 1994. "Cyberbucks" were not issued by a bank and this type of "private Internet currency" had obvious appeal for the first generation of Internet users. Also in 1994, two further startups entered the market: First Virtual Holding and CyberCash Inc. Acting as intermediaries between customers, merchants and the established credit card networks, their role as Internet payment providers was similar to the role of the established POS payment service providers (especially in the case of CyberCash). From the banking sector's point of view, this phase could also be termed "the phase of irritation". E-purse schemes not issued by banks emerged throughout Europe, the Digicash trial showed up the danger of these "private currencies", Mondex was exciting because of its peer-to-peer functionality, and the established intermediaries found themselves threatened by start-ups. However, once the irritation had faded and the challenge was accepted, we see banking sector initiatives dominating the next phase.

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Table 2: Selected events of the pioneer phase Time 1993-1995 1994 1994 1994 1994 1995

3.3

Event Pioneer phase First Virtual founded SSL developed by Netscape Public trials with token e-money, i.e. "cyberbucks" of DigiCash CyberCash founded Mondex pilot starts in Swindon

"ROLL BACK FORWARD"

While the pioneer phase showed a loss of control of the payment business by the banking sector, the subsequent phase sees it regaining control (roll back) through new initiatives (forward). An important step in this direction was the credit card companies’ development of SET and their attempt to push it through (relying on "fat-wallets"). At the same time national banking industries made some effort to make their traditional payment instruments fit for use on the Internet and to take over the schemes of the start-up companies. When reconstructing the past in the light of the present, the adoption of the "fat wallet approach" from the pioneers appears as a double edged sword. The banking sector initiatives were complemented by regulatory measures concerned with e-money. In Germany, e-money business was explicitly declared ‘banking business’ as early as 1997. The European Commission, however, put forward a more liberal approach a year later, proposing Electronic Money Institutions with fewer requirements. SET has been developed to satisfy different purposes; the main one being an attempt to fight fraud by authentication of all parties involved. Thus it is a paradigmatic component of secure e-commerce. At the same time it was an attempt to control the complete transaction chain and to return to "business as usual", i.e. by ruling out SSL and new independent payment intermediaries. As indicated above, in some countries national credit institutions have adopted the innovative payment systems of the pioneering start-ups. In the long run, however, this approach has not turned out to be very successful. The death of first generation Internet payment systems began already in 1998, when the FirstVirtual service was discontinued and DigiCash went bankrupt. At the same time, efforts to bring direct debits, home banking and also e-purses to the Internet were increased.

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Table 3: Selected events of the "role back forward" phase Time 1995-1998 1995 1996 1997 1997 1998 1998 1998 1998

3.4

Event Roll back forward Mark Twain Bank offers eCash (DigiCash) First SET-transaction (30.12.1996) Foundation of SETCo by major credit card organisations Internet payments using e-purses in Belgium (Banksys C-ZAM/PC readers/Proton) Issuing of e-money regulated as banking business in Germany (Kreditwesengesetz) Draft proposal of EMI-directive First Virtual discontinued (July) eCash bankruptcy (Chapter 11) (November)

INTERNET PAYMENT SYSTEMS – THE SECOND WAVE

At the end of the last millennium there were still no success stories to be told. The scant success of e-money schemes – in the real and virtual world – and the gradual death of the most innovative Internet payment schemes were debated at many conferences. The incumbent access products were used quite more frequently than new schemes. Attempts to make them safer by authentication technologies, however, did neither catch on as anticipated. More recently however, analysts (Brown et al. 2000, Birch 2001) have seen light at the end of the tunnel. Internet payment systems, such "prepaid virtual accounts" (e.g. InternetCash) or P2P payment methods (e.g. PayPal) are expected to take-off. These new schemes obviously target niche markets: online auctions, groups with neither bank account nor credit cards (especially younger people) and the adult-content market (i.e. pornography), where anonymous payments without any records are welcome. In the case of money transfers from individual A to individual B for private purposes (money gifts, pocket-money, lending money to a friend) the attractiveness of the new schemes may depend on available alternatives (eg credit transfers), but P2P functionality clearly fills a gap. Further interesting payment innovations are those systems that allow for metering (eg Firstgate's click & buy). Here payments are made eg per usage time, per click, per bytes. This attempt at introducing the "pay per" principle was also present in some earlier micropayment schemes, but now a previous software download is not always required. In more general terms, this approach can be regarded as a step towards adjusting payment solutions to the requirements of digital goods and services, which are consumed quite differently from physical goods. It is also important to note that the "pay per" principle is also present with mobile payments. A good example is Jalda, which allows charging

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according to the amount of information downloaded, time online, number of mouse clicks, number of searches, level of search, number of data files (such as articles), and airtime (see Dahlström 2001). So far we have only considered new payment methods "beyond the credit card" (Brown et al. 2000). However, credit card payments on the Internet have also evolved. The first "thin wallet" for SET which came to the market in 1999, and the 3D-SET approach promoted since the end of 2000, come to mind. Further developments have already been announced.7 This "new wave" advances systems innovation and, more importantly, renewed competition between incumbent actors and new entrants to the payment services market. Today credit card companies claim to cover – depending on country – between 70% and 93% of all Internet payments leaving the rest for other Internet payment methods. This ratio may change. New competitors can easily be detected if the perspective is broadened to the whole range of financial applications. Mobile telecommunications and transport are "the sectors creating real alternatives to 'traditional' bank-issued schemes" (Birch 2001).8

Table 4: Selected events of the "second wave" Time 1999-2001 1999 1999 1999 1999 1999 2000 2000 2000 2001

4

Event Internet payment systems – the second wave Thin SET wallet by GlobeSet P2P payment schemes emerge, e.g. PayPal Virtual accounts emerge, eg virtual cash+ of Banesto Publication of CEPS-Specifications (March) Foundation of CEPSCo (November) CyberCash payment system stops operation in Germany (December) EMI-directive published 3D-SET promoted by Visa and Eurocard/MasterCard CyberCash bankruptcy (Chapter 11), 2.3.2001

THE "SECOND WAVE": A PARADIGM SHIFT

Past experience would lead us to expect these schemes to fail just as their predecessors did. However, such a view is premature. It overlooks the particular strengths of the new systems. The "second wave" of Internet payment systems clearly indicates a more thorough orientation towards the demands and needs of consumer groups, requirements of special application areas, and the particular characteristics of digital goods and services.

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8

See Lafferty 2000, Caldwell 2001, and Lelieveldt 2001 for new developments announced by Visa and Mastercard including VPAS, 3D-secure, SPA UCAF. Find the m-payment issue extensively discussed in the ePSO background paper No. 2 by Malte Krueger (Krueger 2001).

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The paradigm shift is composed of "front-end" and "back-end" innovations.9 At the frontend, customers and merchants are liberated from complex payment software. Software requirements are reduced to a minimum and substituted by access to a central server. The central server or "payment host" takes over communication with customers and merchants during the transaction phase, and authorises, clears and settles payments when required. Typically the central server can also be assessed during the pre- or post-payment phases to check eg the payment history, the balance or to prepare for future transactions. The back-end innovation is related to the potential of a central payment server to host many payment schemes and to offer added value, e.g. EBPP functionality.10 In terms of user interface design, this "architecture" (see diagram 2) promises to unify the user experience and to reduce the cognitive work – just as card payments in the real world or access to mail-server accounts in the virtual world follow similar routines.

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The term "paradigm shift" was introduced first by Thomas S. Kuhn (1962) to characterise scientific revolutions. 10 To give a concrete example: P.S.K. (Österreichische Postsparkasse) offers an EBPP solution "bezahlen.at" – basically a combination of billing and a direct debiting mandate. With regard to Internet payments it works as follows: Clicking on the shopping basket of an e-merchant leads to the production of a bill. The customer accepts the bill presented and the payment can immediately take place. To pay this way, a Java applet is sent from the payment server to the user's screen and the user types in her name and a password. Furthermore, the fact that all bills generated are stored on the server for later access by customers, offer an additional service to consumers.

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Diagram 2: Internet payment scheme with payment host as intermediary

Authorisation / Clearing / Settlement

[4b]

Payment Host A1

A2

A3

…

[5]

Payment Systems

An

[4a] [3]

[2]

Customer

Merchant [1]

Legend: In this model the basic steps are: 1/ Click on the "pay" button at the merchant site choosing the preferred payment method, leading to 2/ automatic push through to the Payment Host, granting 3/ customer access after authentication (PIN, password). Once approved, 4/ the payment host takes over communication with customers, merchants and payment networks if required, till the payment part of the transaction is completed. 5/ Customers access their account at the server independent of actual transaction.

What we called "liberation from complex payment software" in the paragraph above needs some further explanation to avoid misunderstandings.11 Without doubt "fat wallets", i.e. complex payment software installed at the payer's local PC, were lacking convenience. One answer was to make the wallet software "thin". This line can be further developed till the payment software comes just as another browser plug-in. Another question is what has to be regarded as the most advantageous interplay between local computer functions and central server functions. In the typical server-based approach there is hardly any function left for local software. But it can be argued that for example the digital signing of payment orders should be done at the users' device and 11

In the ePSO-Forum Amir Herzberg commented on an earlier version of this paper arguing we would overestimate server based wallets and underestimate local wallets. See Forum's archive for May and June 2001 at http://www.jrc.es/archives/epso-forum.html (access free, registration required).

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should not be delegated to a central server, that it would be nice to have local bookkeeping functions and to avoid troubles with unavailable central servers. As the preferences of consumers are hard to guess, the idea to offer a server-based payment system with a local e-wallet as an option seems to be a flexible answer (eg NewGenPay). The future of local e-wallets may therefore depend to a large extend on the added value it can provide. An interesting case in point is the combination of e-wallet and copyright management functions as in the case of the Magex wallet (BIS 2000). So it might well be that local e-wallets will revive, but at present the general trend towards server-based payment systems (and not only server based wallets) seems to prevail.12 The paradigm shift is evident looking at recent SET developments. Today it is frankly admitted that the "thick wallet approach" has by and large failed, and in Europe VISA and Eurocard are committed to pushing through the implementation of 3D-SET (see Box 1 on next page for further explanation). Credit card companies provide server-based wallets for cardholders and server-based POS for merchants.

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This conclusion is contrary to an interesting IBM white paper of 1999 still claiming that personal wallets "hold out the best mix of features, privacy and cost effectiveness for a wide range of applications"(IBM 1999, 5). In this paper site wallets, remote wallets, distributed wallets and personal wallets are compared.

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Box 1: The 3D-SET model (information by VISA)

"What is 3D SET? In effect, 3D SET is a major evolution of the original distributed structure of SET as the Three Domain Model continues to use SET as the interoperability protocol. The innate flexibility of the system allows portability from one PC to another, WAP mobile phones and digital TV. It has been extensively tested and is already available as a full production system - certified server based wallets and POS solutions exist today and are available from multiple vendors. … Visa has developed 3D SET so that the Issuing and Acquiring banks keep the certificates on behalf of the cardholders and merchants in encrypted form in a secure server environment. This means that cardholders do not need to store or protect certificates on their own equipment and merchants can easily participate in 3D SET." Source: http://www.visa.com/pd/eu_shop/merchants/3d_set/main.html http://www.visa.com/pd/eu_shop/merchants/faqs/main.html#3

There are obvious advantages to this new approach: G

mobility for the customer,

G

independence of operating system, and

G

device independence.

However, the most important advantage of a central server approach is possibly its ease of maintenance, making upgrades of SET much more simple. Proponents of 3D-SET regard the server-based wallet approach as the "right balance between security and ease of use" for the time being (Schürer 2001). The future of 3D-SET is outside the scope of this paper, but it seems clear that further developments will follow.13

13

In the SET discussion list ,"set-discuss", the issue of how the server-based wallet approach might change SET was raised. It was stated that server-based wallets would no longer require a certificate for each cardholder. If the issuing bank issues just one certificate declaring the cardholder as its customer and guaranteeing the payment, that is enough. The archive of the list "set-discuss" is accessible without registration; for this particular topic see http://lists.commerce.net/archives/set-discuss/200008/.

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Competitors of SET at the level of payment infrastructure, for example Jalda, use the same centralised approach. The same is true if we look at another "competitor" of SET, namely SSL. Interesting attempts have been made to overcome the limitations of SSL and to integrate it smoothly into the payment process based on a server-based approach. To give but one example: Commerzbank in Germany opted for SSL, re-defining the role of CyberCash (note: the company, not the system) as a payment hosting service for customers, merchants and banks (POSH service). Merchants are enabled to process all major credit cards based on SSL. At the same time, the payment host adds further functionality, allowing for a) direct debiting, b) pre-authorisation of payments (choice of debiting later), and c) a provision to pay money back to the customer later if necessary. It must be added that credit card companies are also prepared for non-SET transactions, introducing for example "virtual card numbers" for e-commerce (Pache 2001). All in all, as SET gets easier and easier, so SSL processing and other non-SET credit card processing systems get more and more sophisticated. The paradigm shift observed is, however, not restricted to credit card payments: G

Payment instruments, previously paper-based and requiring a hand-written signature, can now be incorporated. A server-based approach to direct debits relying on 3D-SET is one option.

G

The Finnish Internet payment system "electronic giro" (see Salste 2001) shows that credit transfers can also follow the same procedural logic.

G

Internet payment systems based on so called "prepaid virtual accounts" suitable for micropayments and P2P, must also be regarded as a type of server-based payment method, following the same access logic. They can be added to the portfolio of payment methods managed by a central payment host.14

The paradigm shift also embraces m-payments. Indeed, it can be argued that the trend towards central server based systems is especially suitable for m-payments because memory restrictions of wireless devices exclude large software downloads. In other words, all these payment methods can be structured in the same way, with a payment host between customers and merchants on the one hand and the banking networks on the other. The user experience is that of a common WWW front-end: initiating the payment process by a click and accessing the central server by a password 14

The "prepaid account" path of payment innovation has not only been followed by start-up companies looking at niche markets, but also by credit card companies. In March 2001 eg Eurocard announced to pilot P2P payments (Pache 2001).

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and/or PIN (like the access to popular central mail services like hotmail or freemail). Regarding the back-end the experience is close to the one users might have with the established POS-systems in the real world. Once the access to the network is established all procedures take place in the background hidden to the users. That is to say, the new approach combines WWW-user-interface and traditional electronic payment infrastructure. The integration of this type of front-end and back-end for internet payments is the essence of the paradigm shift predicated.

5

ASSESSMENT OF ACHIEVEMENTS AND DRAWBACKS

The potential of the server-based approach can now be assessed by applying the criteria introduced before. In addition we draw the attention to competition issues, and close with a comment on technicalities as a regulatory problem.

5.1

CONVENIENCE

5.1.1 Ease of use From the customers' and merchants' point of view, the new approach is an important step forward with respect to ease of use, minimising the requirements for local software. As server-based payment services have the potential to integrate different payment systems, merchants have the choice to offer the range of payment systems at their shops they want dealing with only one payment service provider.

5.1.2 Adequacy for paying for intangible goods The new approach could also fulfil requirements of paying for digital goods and services (eg by metering time, bytes, clicks, searches etc.).

5.1.3 Step towards a common user experience (standardisation) More generally, the server-based approach can also be seen as a major step towards a common user experience, i.e. standardisation. More and more payment systems implement the same procedural logic leading to a new standard just as browser-software and e-mail programs came to resemble each other by way of assimilation. This does not exclude special features, terms and conditions of particular systems.

5.1.4 Potential beyond payments It must be added that the central server approach is open to additional services generating added value. One can, for instance, think of EBPP as an additional service enhancing convenience. One might also see the payment host service as part of an enhanced Internet

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banking approach, capable of integration into e-commerce procedures and of handling all payment methods asked for.

5.2

TRUST AND SECURITY

5.2.1 Payment Service Providers could make the trust gap smaller Buying and paying have to be conceptualised as integrated by nature. If the payment is disassociated from the purchase, users feel uncomfortable. There are many responses to this basic need of merchants and consumers. While the payment guarantee plus repudiation/dispute handling is essential for the merchant, getting money back and having control over when payments take place is essential for customers. There are different ways of achieving this: seals of approval, offering payments with a consumer friendly legal framework (like direct debits in Germany), trusted third party models (escrow) etc. Second wave payment systems do not address this issue as such; however, central payment service providers are able to act as trusted third parties, offering a more complete service as regards security, thereby reducing the lack of trust inherent in retail ecommerce.

5.2.2 Central server approach vs. smart card and PKI based approaches Although in the medium term smart cards and PKI will be part of the unifying central server approach as they foster and ease authentication, in the short term both approaches to security are, to a certain extent, in competition. This is partly because the server-basedapproach arose as a consequence of the poor start made by systems requiring digital signatures and certificates of all parties involved (e.g. SET). The central server approach releases the user from the burden of dealing with digital signatures and certificates. This however has a price: the principles of PKI, assuming multilateral and decentralised security efforts, are indirectly weakened. Though both requirements can be reconciled in the medium term when smart cards become ubiquitous, this is a security issue that should be investigated.

5.3

SPECIAL GROUPS AND SPECIAL PAYMENT SITUATIONS

5.3.1 Groups without bank accounts and anonymous payments "Virtual accounts" , especially the scratchcard approach, seem to offer a solution to the Internet payment problems of groups without bank account and credit cards and the problem of anonymous payments at the same time. This is true up to a point and might be regarded as an advancement although it is as yet too early to talk of success. Nevertheless it has to be noted that e-purses, in principle, offer a solution to the same problems,

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especially so-called "white cards". It may be, therefore, that scratch card schemes fill the gap only temporarily.

5.3.2 Micro-payments It is promising to see prepaid and post paid systems (micro-billing) based on the server approach. We should add however, that the availability of micropayment solutions does not automatically signal success. The "micropayment problem", as we see it, is paradoxically not a payment problem, but first of all a problem of content. Above all, free content on the Internet is the major enemy of micro-payments. For example, when (Micro)Billing, which worked (more or less) well within consumer online services, migrated to the Internet, they had to struggle hard for success. Information offered for free is so rich that it is hard to offer "premium content" for a few Euro cents. The market for digital products and services worth paying for may also be held back by the lack of adequate Copyright Management Systems (CRMS). In both cases – content for free or no content at all – micro-payments are obsolete.

5.3.3 Cross border payments The position of emerging payment hosts as new intermediaries in the overall payment system must be assessed. These intermediaries may be more or less close to the banking world. They might be start-ups, but more often they seem to be the established e-payment processors (or a combination of both). Their role is especially interesting with respect to international payments. One might expect that this new degree of centralisation could favour interoperable cross-border payment solutions. It is an open question: could these payment service providers cooperate internationally and thus ease cross border payments? One may also ask what potential internationally operating payment service providers (like Bibit, iPIN, Earthport) have for increasing the chances of more efficient cross-border payments of different types soon?

5.4

COMPETITION

5.4.1 Infrastructure competition and co-operation It is especially interesting to see the long standing competition between SSL and SET reformulated as "enhanced SSL" vs. "eased SET". We would assume that, in the medium term, both schemes will converge and become almost "browser-only solutions" and hard to distinguish from the users' point of view. Competitive new approaches to payment infrastructure are also emerging which try to satisfy the needs of m-payments and special

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requirements for payments of digital goods and services. Infrastructure competition is new and it is worth further consideration from the point of view of quality of service.

5.4.2 Central server approach vs. e-purses In the short term the central server approach may also be seen as a surrogate for smart card based payment systems like e-purses. To a certain extent, the success of "prepaid cards/virtual accounts" has to do with the lack of success of e-purses for Internet payments. This, for once, is due to poor smart card reader distribution. The central server approach, however, also questions the rationale for off-line products like e-purses. Epurses were supposed to be cheaper than "access products" because they don't require online-authorisation.15 However, this may not hold in an online environment.

5.5

REDUCTION OF AVAILABLE PAYMENT OPTIONS (ELECTRONIC CASH)

If the central server approach becomes dominant, it would be to the detriment of concepts like "electronic cash", "e-purses", "software-wallets" specifically, and, more generally, to all approaches where the individual is the bearer, owner and immediate spender of money. The question is whether "prepaid cards/virtual accounts" have become the appropriate representation of cash in the virtual world. As shown above, "prepaid cards/virtual accounts" have many of the characteristics of cash: anonymity, micropayment ability, P2P payments (in some cases), and they are not discriminatory, i.e. they don’t exclude special groups from their use. Problems with these schemes may result from their poor security (as reported e.g. for PayPal by Cave 2001), and it can be argued that they still do not meet the circulation criteria in the way that true cash does. Therefore a vision assessment of "electronic cash" might be advisable.

5.6

"TECHNICALITIES" AS A REGULATORY PROBLEM

Discussion of the status of payment systems relying on "virtual accounts" in banking law has yet to produce clear results. They could, arguably, be classified as either e-money business or deposit taking. This controversy may reveal shortcomings in any legislation which tries to keep up with cutting edge technology. What was common practice when the legal text was written may be outdated by the time it is implemented, and new technical forms not covered by its wording (like e.g. "virtual accounts") could have emerged. In addition, the sophisticated technicalities of the electronic payment systems may be rather difficult, ambiguous and contingent. For example, one could even interpret

15

It is a common argument that e-purses are more successful (if ever) where communication costs are high and vice versa (see OECD 1999, p. 108, Mester 2000, p. 13).

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the token-based electronic cash system invented by David Chaum as example of the "virtual account" approach. Interestingly, the inventor himself admits this ambiguity: "It's more a matter of how you want to interpret the technical system than there really being a clear distinction between an electronic form of money itself compared to just an electronic banking system"(Chaum 1999). As a consequence, regulators may want to concentrate more on the basic business scheme involved (in this case probably around the term "prepaid"). Nevertheless, the technical details remain important, for instance in connection with fraud prevention, money laundering and other risks.

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BIBLIOGRAPHY Berlecon Research Kassieren im Ecommerce - Eine Analyse relevanter Zahlungssysteme aus Händlersicht (Getting your bills paid in e-commerce). Berlin: Berlecon Research 2001; extracts at http://www.berlecon.de/studien/zahlungssysteme/en/index.html [Study analysing the merchant side of internet payments. It underlines the role of those payment instruments most heavily used in the traditional MO/TO sector for e-tailers too.] Birch, David The Future of Retail Payment Systems (Interview by Knud Böhle). ePSO-Newsletter No. 5 (February 2001). http://epso.jrc.es/newsletter/vol05/7.html [Stresses the role of non-banks in the telecommunication and transport sector for e-payment innovations today. Holds that we will see harmonisation at the infrastructure level, i.e. security infrastructure based on technologies such as smartcards and PKI, leading to intensified competition at the product level.] BIS (Bank for International Settlements) Committee on Payment and Settlement Systems (CPSS): Survey of Electronic Money Developments, Bank for International Settlements, Basel, Switzerland, May 2000: http://www.bis.org/publ/cpss38.htm. [The report provides information on electronic money schemes in 68 countries; the Magex wallet is mentioned in the part about the United Kingdom.] Böhle, Knud On Hype, Sacred Cows, Data Holes, and How to Cope with them. ePSO-Newsletter No. 4 (January 2001). http://epso.jrc.es/newsletter/vol04/6.html [To assess the dynamics in the field of internet payments, it is suggested to strengthen the collection and production of reliable data, to assess visions of actors, to look at the development of retail payment systems from an evolutionary perspective and to pay attention to the long-term change of the payment infrastructure.] Böhle, Knud Access is king: about the bright future of server-based e-payment systems. ePSO-Newsletter No. 6 (March 2001) [6&2] http://epso.jrc.es/newsletter/vol06/2.html [Presents some of the basic ideas about server-based internet payment systems being further elaborated in this background paper.] Böhle, Knud CashWorld Conference report. Seville, February 2001(compuscript). Freely available from the ePSOForum archive of February 2001; registration required. http://www.jrc.es/archives/epso-forum.html [Contains information on fraud prevention by credit card companies, on new payment systems entering the German market and the influence of "payment culture" on internet payment systems.] Böhle, Knud; Krueger, Malte; Herrmann, Christoph, Carat, Gerard, Maghiros, Ioannis Electronic Payment Systems – Strategic and Technical Issues. Background Paper No. 1. Electronic Payment Systems Observatory (ePSO), December 2000, Seville 2000. http://epso.jrc.es/Docs/Backgrnd-1.pdf [In the context of this paper chapter II "Payment systems transformations – a more general framework" is of interest.] Böhle, Knud; Riehm, Ulrich Blütenträume - Über Zahlungssysteminnovationen und Internet-Handel in Deutschland. Karlsruhe: Forschungszentrum Karlsruhe. Wissenschaftliche Berichte, FZKA 6161 (Dezember 1998) 1998. http://www.itas.fzk.de/deu/itaslit/lit98.htm#ID713 [Study on electronic payment systems and B2C ecommerce in Germany for the Federal Ministry for Research; in the context of this paper chapter 8, pp. 103-120, about the genesis of internet-payment systems is relevant.]

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Brown, Duncan; Kasica, Christina; Bassanese, Paola Second Generation of E-Payments: E-Business Beyond the Credit Card. An Ovum Report. August 2000. Extracts available at http://www.ovum.com/cgi-bin/showpage.asp?doc=/research/epy/overview/default.htm [Already the extracts of this £ 2.500 study give a clear idea of the "new breed of internet payment systems". The importance of "Payment Service Providers" is underlined. An additional text of 5 February 2001 ("E-payment - that'll do nicely") contains a summary of the main arguments, available at http://www.ovum.com/cgi-bin/showPage.asp?doc=/research/epy/findings/epy2.htm.] Bucci, Piero Internet Payment Systems in Italy. ePSO-Newsletter No. 5 (February 2001). http://epso.jrc.es/newsletter/vol05/4.html [Description of the present situation of the Italian market concerning internet payment systems touching upon SSL, SET, SET Light, Mover smartcard, virtual prepaid card numbers.] Caldwell, Kaye ePayments: Is the Credit Card System Failing eCommerce? Is a Solution in Sight? CommerceNet Newsletter, “The Public Policy Report,” Vol. 3, No.5 May 2001. http://www.commerce.net/research/public-policy/2k1/pp3.5-1IsCCsystemfailingec.pdf [Review of Internet payment systems beyond credit cards with authentication in the US; with reference to credit card payments Visa Payer Authentication (VPAS) and plans of Mastercard's to adopt 3D-SET are mentioned.] Cave, Damien Losing faith in PayPal. Salon 21st http://www.salon.com/tech/feature/2001/02/23/pay_pal/ [Reasoning about the P2P system PayPal in terms of risk management, anti-fraud techniques, regulation and trust.] Chaum, David Transcript of the telephone conversation with Jens-Ingo Brodesser from Moving Art, Friday, the 19th March 1999 (distributed first via mailing list e-money). [Interview with the founder of DigiCash and inventor of eCash after declaration of chapter 11 bankruptcy of his company.] Dahlström, Erik The Jalda Payment Method. ePSO-Newsletter No. 5 (February 2001). http://epso.jrc.es/newsletter/vol05/5.html [Description of Jalda developed by EHPT and the Telia PayIT payment service using it; includes comparison between Jalda and SET.] ePSO database on e-payments http://epso.jrc.es/paysys.html [This database provides information on electronic payment systems, related projects and initiatives.] IBM Internet Wallet Choices and Answers. A White Paper for Business and Technical Managers. International Business Machines Corporation. Hawthorne 1999 www.bankinfo.com/ecomm/wallet.pdf [In this paper site wallets, remote wallets, distributed wallets and personal wallets are explained and compared in technical and business terms.] IIR C@shWorld. 5. IIR-Kongress Zahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt am Main: IIR 2001. [Conference on electronic payment systems covering especially the German and Austrian situation.]

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Klein, Stephan Hürdenlauf electronic cash. Die Entstehung eines elektronischen kartengestützten Zahlungssystems als sozialer Prozess. Mölln 1997. [Detailed study about the social process underlying the emergence of a new Point of Sale payment system "electronic cash" in Germany.] Kranz, Michael Neuer Markt für virtuelle Produkte: Mit dem Micropayment NET900 wird das Internet zum direkten Distributionskanal. In: IIR: C@shWorld. 5. IIR-Kongress Zahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt am Main: IIR 2001. [Report of a microbilling provider in Germany about recent system developments and the rather great difficulty (in comparison with consumer online services) to find content that needs a micropayment system to be paid for.] Kuhn, Thomas S. The Structure of Scientific Revolution. Chicago 1962. [Ground-breaking work on the process of change in science substituting the idea of linear progress by the concept of "paradigm shift".] Lafferty VISA USA Working On 3D Secure Protocol. Lafferty Publications, Nov 15 2000 retrieved at http://www.epaynews.com/ March 2001. [About Visa USA announcing a 3D Secure Protocol. Comments on this by Jon Prideaux of Visa Europe are quoted.] Lelieveldt, Simon New payment authentication methods for use on the Internet. ePSO-Newsletter No. 8 (July 2001) [8&3]. http://epso.jrc.es/newsletter/vol08/3.html [Some information about Mastercard's SPA and UCAF, a similar approach by Maestro, and Visa's 3Dsecure.] Meridian Research Top 10 Strategic IT initiatives in e-Payment Services for the New Millennium. Special Brief. February, 2000 http://www.meridien-research.com/ (guest subscription for download required). [Among the 10 points are predictions that wireless payments, non-credit card payment mechanisms and electronic wallets will have a future.] Mester, Loretta J. The Changing Nature of the Payment System: Should New Players Mean New Rules? Federal Reserve Bank of Philadelphia. Business review March/April 2000, pp. 3-26. [Analysis of the changing retail payment system in the US including e-payment innovations and internet payments.] OECD OECD Information Technology Outlook 2000: ICTs, E-commerce and the Information Economy, March 2000. [The Outlook contains four chapters about technological and policy issues surrounding electronic settlement of payments.] Peirce, Michael Payment mechanisms designed for the Internet: http://ganges.cs.tcd.ie/mepeirce/Project/oninternet.html (electronic only, last web-site update 2001). Rader, Michael; Riehm, Ulrich Payments by mobile phone more convenient than e-wallets? ePSO-Newsletter No. 2 (October 2000). http://epso.jrc.es/newsletter/vol02/2-1.html [The authors make the point that mobile phones provide a user interface for payments that is more convenient than e-wallets.]

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Pache, Arne Die Kreditwirtschaft als Trust Broker in Online Medien. In: IIR: C@shWorld. 5. IIR-Kongress Zahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt am Main: IIR 2001. [Contribution presents activities and plans of Eurocard in Europe regarding fraud prevention, 3D-SET, non-SET payments and P2P.] Riehm, Ulrich; Böhle, Knud Geschäftsmodelle für den Handel mit niedrigpreisigen Gütern im Internet. In: Thießen, F. (Ed.): Bezahlsysteme im Internet. Frankfurt am Main: Knapp 1999, pp. 194-206 [The article focuses on indirect income models for providers of digital goods and services on the Internet.] Sachs Jürgen Bill Presentment, Debitorenoptimierung und Risikomanagement mit bezahlen.at. In: IIR: C@shWorld. 5. IIR-Kongress Zahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt am Main: IIR 2001. [Presentation of an EBPP solution ("bezahlen.at") to be used also for retail e-commerce thereby enhancing the payment service by an electronic billing feature.] Salste, Tuomas Internet Payment Systems in Finland. ePSO-Newsletter No. 5 (February 2001). http://epso.jrc.es/newsletter/vol05/3.html [The situation in Finland is characterised by the prominent role of online bank transfer as internet payment system followed by credit card payments.] Schürer, Tilo Sichere Kreditkartenzahlungen im Internet – die Sicht eines Issuers. In: IIR: C@shWorld. 5. IIRKongress Zahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt am Main: IIR 2001. [Lists advantages of 3D-SET for customers, merchants and payment providers, and claims 3D-SET to establish the right balance between convenience and security at present.] Shirky, Clay The Case Against Micropayments. openp2p.com (19.12.2000) http://www.openp2p.com/pub/a/p2p/2000/12/19/micropayments.html [Main arguments of the author are about the lack of demand for transaction-based micropayment schemes in general and the cognitive overhead they involve in particular.] Stroborn, Karsten Online-Umfrage: So will der Kunde im Internet bezahlen. In: IIR: C@shWorld. 5. IIR-Kongress Zahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt am Main: IIR 2001. [The survey underlines the role of traditional payment methods even for experienced internet users and savvy online-shoppers. Results of study online at http://www.iww.uni-karlsruhe.de/IZV4/ (in German).]

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