Internet Payment and Banks

Abstract

In the context of the development of e-commerce on the Internet, a lot of electronic payment systems have been set up in order to secure online payments. To understand the success of Internet payment systems it is necessary to analyze the strategies of e-commerce players: consumers, "cyber merchants", managers of networks (telecommunications and payment), suppliers of electronic payment services and banks.Our results provide objective explanations of the success factors of Internet payment systems, and the domination of SSL card payment in the market (Treese and Stewart, 1998; Sahut, 2001; Turban and alii, 2006). Moreover, unsuccessful experiences show that it is necessary to consider network effects (Shapiro and Varian, 1998; Shy, 2001) and which business models to implement in order to avoid killing a new Internet payment system before it is even launched.This article also investigates the stakes for the banking environment of the Internet paymentsystems and the problem of money creation.

Full text

INTERNATIONAL JOURNAL OF BUSINESS, 13(4), 2008 ISSN: 1083−4346
Internet Payment and Banks
Jean-Michel Sahut
Professor of Finance, Amiens School of Management
& CEREGE – University of Poitiers, France
jmsahut@gmail.com
ABSTRACT
In the context of the development of e-commerce on the Internet, a lot of electronic
payment systems have been set up in order to secure online payments. To understand
the success of Internet payment systems it is necessary to analyse the strategies of e-
commerce actors: consumers, "cyber merchants", managers of networks
(telecommunications and payment), suppliers of electronic payment services and banks.
Our results provide objective explanations of the success factors of Internet payment
systems, and the domination of SSL card payment in the market (Turban and Alii,
2006). Moreover, unsuccessful experiences show that it is necessary to consider
network effects (Shapiro and Varian, 1998; Shy, 2001) and which business models to
implement in order to avoid killing a new Internet payment system before it is launched.
This article investigates also the stakes for the banking environment of the Internet
payment systems and the problem of money creation.
JEL Classification: E42, E51, G21, G29
Keywords: Electronic payment; Electronic money; Bank; Network effects; Security

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I. INTRODUCTION
The electronic commerce procures several benefits to his participants including
merchants and consumers, like time savings and convenience. In order to provide these
benefits in business to consumer (B2C) transactions, e-commerce needs effective
payment systems (Hassler, 2001). Nowadays, online B2C payments are increasing in
power in all areas of e-commerce. The enthusiasm caused by the Internet is moderated
by the reservations of consumers and companies, due to the chronic insecurity
reputation of the Internet. Since the mid- '90s, a plethora of innovative e-payment
solutions have emerged. By way of quotation, in November 2001, ePSO (Electronic
Payment Systems Observatory) counted nearly 180 systems in Europe (ePSO, 2002).
However, in spite of this diversity of payment solutions, we note that the most of them
approached the problems of payments from the exclusive angle of security. It created a
virulent debate on the liberalization of the use of “strong” cryptography tools which
facilitated regulation changes in this field in many countries.
These changes have allowed the emergence of secure Internet payment systems.
However, despite its lack of security, payment cards with the Secure Socket Layer
(SSL) protocol, which is a communication protocol, but not a payment protocol, always
dominate the Internet payment market. In fact, the success of payment solutions can be
understood only through the strategies of e-commerce actors: consumers, “cyber
merchants”, managers of networks (telecommunications and payment), suppliers of
electronic payment services and banks.
The object of this article is thus to analyze the Internet payment solutions and
their stakes for the banking environment. From this point of view, we will study the
needs of users (clients and merchants), and evaluate how the payment systems apply to
them. Firstly, after describing the different systems, we will present the set of analysed
criteria and justify their importance in the context of users’ preferences. Next, we will
evaluate, with a panel of experts, electronic payment systems under the criteria
previously described in order to understand the success of payment solutions like SSL
card payments, despite their defects (Caunter, 2001; Wales, 2003). We will then discuss
the stakes of this market. Lastly, we will consider the impact of the diffusion of these
payment solutions on the banking environment.
II. INTERNET PAYMENT SYSTEMS
A lot of initiatives tried, on the one hand, to apprehend these various systems, and on
the other hand, to compare them. In order to be able to analyze these systems, it is of
primary importance to present their features and especially to establish a typology.
Before exposing typologies and features of electronic payment systems, a brief
definition of an electronic payment system is essential because, in the literature, the
term “electronic payment system” (e-payment system) is used often with senses very
different.
In our article, electronic payment systems permit to “transfer funds without
restriction, nor definition as for the support or to the technology used for this purpose”
(Yuan, 2003). They consist “of the instructions to transfer value bundled together with

INTERNATIONAL JOURNAL OF BUSINESS, 13(4), 2008 363
the communications system” (Kuttner and McAndrews, 2001). These systems
introduced thus far generally fall into a special category.
In the literature, we find several proposals for electronic payment systems`
typology. The first classification of electronic payment systems, proposed by
Medvinsky & Neuman (1993), was based on two criteria, namely the form of the
money and the transfer’s way of the funds. The authors distinguished between
electronic money based systems and credit-debit card based systems.
However, with the evolution of Internet, the development of cryptography and
the emergence of several kinds of payment solutions, other classifications have come.
First, we note the study of Havinga and alii (1996) which distinguishes between
systems based on traditional means of payment, especially bank cards, virtual money
and credit-debit systems based on virtual accounts. Then, in 1997, Wayner introduces a
new more practical typology by keeping the category of “virtual money based systems”
(presented previously by Medvinsky and Neuman (1993) and Havinga and alii (1996))
and distinguishing the category of “account based systems”. Asokan and alii (1997)
proposed also another typology based on the flows exchanged between the payer and
the paid. After that, a second wave of classification will follow, we noted the researches
of Kuttner & McAndrews (2001), Abrazhevich (2001) and Stroborn and alii (2004).
The analysis of all these works carried out us to conclude that electronic payment
system thus far generally fall into one of two major families: those based on accounts
and those based on electronic money. OECD (2000) proposed this classification too.
Nevertheless, the contribution of the present article is to detail these two families of
systems. Indeed, we were able to identify several categories constituting each family
based on their operational principle. Thus, our approach reveals two levels in
classification of electronic payment systems. So, we keep the first level of classification
that distinct between of “account-based systems” and “electronic money based
systems”. In the second level, for the first family, we brought together payment systems
in five main categories: smart card based systems, electronic checks, email payments,
other electronic systems for micro payment, and mobile payments. For the second
family, we distinguish between electronic wallet, virtual wallet and virtual money. The
following scheme summarizes our typology of electronic payment system.
In Table 1, we present the classification of payments systems, accompanied by a
brief description of each of them. Next, we expand on their characteristics.

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Table 1
Payment systems characteristics
Systems Types Examples Features Transaction Value
Account Based Systems
Traditional card
based systems
Cybermut
Telecommerce
Payline
SIPS
Dynamic
virtual card GIE Carte Bancaire
Card Based
Systems
SET –
CyberCOMM GIE Carte Bancaire
Based on the SSL
protocol
Security problems
with buyer and vendor
authentication
Alternative solutions
focused on security
improvement
Macro-payments
(due to relatively
high costs of a single
transaction)
Electronic
Checks
NetChex
CheckFree
Dematerialization of
traditional checks
Have not gained large
acceptance
More popular in the
USA and France
Macro-payments
(cheaper than card
systems but still
relatively expensive)
E-mail
Payments Paypal, Billpoint, Yahoo
PayDirect, Citibank’s
C2it
E-mails used for
notification
P2P market
Micro-payments
Macro-payments
P 2 P payments
Telecom kiosk Tel2Get, EasyClick Service included in
phone bill
ISP kiosk
w-HA
Monthly payments per
use, act, volume or
subscription
Personal
account Firstgate, Clik&Buy Service included in
Internet
bill
Other
Electronic
Solutions for
micro
payments
Pre-paid card EasyCode, Carte à Plus Scratch and phone
cards
Micro-payments
Mobile
Payments
Mobile wallet
Mobile data
verification
Built-in data-
storing chip
Built-in smart
card reader
Platform initiatives:
J2ME
(SunMicrosystems)
Mobile Payment
Services Association
(Orange, Telephonica
Mobiles,
T-Mobile, Vodafone)
Development phase
Attempts to create an
interoperable platform
Planned common use
for micro-payments
Application to
macro-payments
rather doubtful
Electronic or
virtual wallet
Proton, Moneo,
Geldkarte,
Visa Cash
Electronic
Money
Systems
Virtual money Cyberbucks (Digicash),
Beenzs
Based on smart cards
or software
Prepayment systems
Bank does not
participate in
transactions
Micro-payments

INTERNATIONAL JOURNAL OF BUSINESS, 13(4), 2008 365
A. Account-based Systems
Credit and debit card payment with the SSL (Secure Socket Layer) protocol is the most
common way of paying on the Internet. An SSL-based transaction assures the
encryption and integrity of a transferred message. Merchants can use it in two ways:
with or without an intermediary. The version without intermediary (SSLWI) assures
message encryption and integrity but exposes both parties to other risks. As a customer
communicates their card number and expiry date directly to a merchant, the card
number can be illegally used. Moreover, the existence of the merchant is not ensured.
The vendor in turn does not have a guarantee that the buyer exists and that they will not
repudiate the purchase afterwards. The version with an intermediary (SSLI) assumes
the participation of a third trusted party, which guarantees the existence of the vendor
as well as denying them access to the buyer’s card data. It increases security on the
customer’s side, assuring them of the merchant’s authentication and data confidentiality.
Nonetheless, the latter is still not able to identify the buyer. This asymmetry can be
eliminated by integrating an electronic signature system into the technology. The
electronic signature allows the authentication of the buyer. However, such a solution
requires the buyer to have a card reader (CyberCOMM1) or an electronic certificate
(SET: Secure Electronic Transaction), which, because it involves additional costs,
would have more difficulty in achieving a sufficient market acceptance. Due to the
failure of SET, Visa decided to develop the payment protocol 3D Secure2, which was
inspired by SET but makes it much less constraining for merchants (installation of a
plug in software only). Thus this system moves complexity towards the e-commerce
platform of Visa and banks, and merchants do not have the responsibility of engaging
in the validation procedure of the transaction. Moreover, Visa guarantees non-
repudiation transactions to the merchants, and thus removes the unpaid transactions
(about 5% of all transactions in France3). At the same time, dynamic virtual bank cards
(DVC) have emerged. They allow banks to generate a single-use card, cryptogram
number and expiry date every time the card user buys online. This solution does not
require any additional applications for merchants and significantly minimizes the risk
of the transaction. In France, the GIE Carte Bancaire launched e-Carte Bleue in April
20024. An electronic check is the transposition of a traditional check into a
dematerialised environment. It uses a digital signature based on key public
infrastructure (PKI) that can be automatically verified for authenticity. The customer
sends his payment order to a merchant, who presents it to an e-check issuing institution,
in order to authenticate it and make the payment. Then, the data related to the e-check is
transmitted to a clearing system. The procedure of fund transfer is the same as in the
case of a paper check. Similar to the card based system, electronic checks are used for
macro-payments but their unit transaction costs are lower. Nevertheless, due to their
limited popularity in traditional payments (in fact, used only in the United States and
France), they do not constitute a serious threat to card based systems.
E-mail based payments are also used for micro-payments. They are designed for
small businesses as well as for P2P (person-to-person) transactions. Online auctions
constitute the largest source of e-mail payment revenues. However, they are also used
to pay for online gambling and adult entertainment, as well as low-value international

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payments. As a matter of fact, e-mail payments are not processed via e-mail. E-mails
are used for notification, but funds are transferred in the same way banks settle inter-
bank transactions. A customer loads an amount of money from his bank account into a
service provider account, then specifies the sum of money to be sent and enters the
email address of a recipient. Both customer and recipient are notified that the money
has been sent. The recipient receives the money and withdraws it from their bank
account.
Apart from electronic/virtual wallets and e-mail payments, micro-payments can
be handled by incorporating the consumption of a service into phone or Internet billing.
Payments included in the phone bill are paid via a telecom kiosk, while Internet bill-
based solutions can be operated in Internet service provider (ISP) kiosks and personal
account systems. These solutions are very easy to use but they are more expensive than
the other micro-payment solutions and have some serious limitations, as they frequently
require two telephone lines - lines using ADSL or additional applications. Another
solution is based on pre-paid phone and scratch cards but it has just started to be
commercially deployed.
Mobile payments are the payments carried out by PTDs (Personal Trusted
Devices), such as wireless phones or PDA (Personal Digital Assistant), as well as by
other emerging ones such as set-top boxes for interactive television systems or game
consoles. Mobile payments can be used for: wireless Internet shopping, face-to-face
shopping, vending machines, event and public transport ticketing, P2P (Person-to-
Person) payments, pay-as-you-use payments, etc. Although mobile commerce and
mobile payment seem very attractive and convenient to users, after a few years of
research and different projects, their popularity is still far from ubiquitous.
B. Electronic money based Systems
At the outset, electronic money included three types of payment systems: electronic
wallets, virtual wallets and virtual money. Electronic and virtual wallets first require
money to be deposited with the manager of the payment system, by various traditional
means of payment. Electronic wallets are based on smart card technology, which is
used to store data about the customer's funds. Cash is loaded into the e-wallet by a
transfer from the cardholder's account. In this way, banks are not involved in the
transaction at the moment of purchase. E-wallets mainly target the micro-payment
market. At present, they can be used at points of sale, vending machines, parking
meters, ticket machines, public payphones, and set-top boxes for interactive TV, etc.
The integration of this system into Internet payments requires a smart card reader on the
customer’s side. The simplest and most realistic way to achieve this is to build readers
into mobile phones. Such a solution can accelerate the development of pay-per-use
services, such as online games, music, ticketing or mass transit systems. Systems based
on the virtual wallet are quite similar to those based on electronic wallets. The only
difference is that cash is stocked on the software instead of on a smart card. After
having created an account at the system issuer, the buyer only has to enter their ID and
password at the moment of transaction. The virtual wallet is used for macro and micro-
payments via the Internet. Virtual money, like Cyberbuck (Digicash) or Beenz, were
pure electronic currencies. The consumer buys coins from the provider of this sort of

INTERNATIONAL JOURNAL OF BUSINESS, 13(4), 2008 367
money and stores them on his hard drive. Each coin is protected by an encrypted
number and an encoded signature, in order to avoid unauthorized duplication or
counterfeiting. The shape of this sort of money is not very different from the money
included in virtual wallets. But the principles are different because it is not necessary to
deposit money before receiving electronic money and there is no official exchange rate
for it, as with an official currency like the US dollar.
III. METHODOLOGY AND CRITERIA
This study contains two parts: the selection of criteria and the evaluation process of
payment solutions. In the first part, we have selected the criteria and their importance
from a review of the literature and individual interviews with the 32 French experts
who participated in the evaluation process in March 2005.
For the second part of our study, we used a modified Delphi process5. A Delphi
panel offers a systematic way to reach a consensus thanks to the judgement of experts
or professionals in a given field, (who consult each other at periodic intervals during a
given period). The same participants are generally consulted on a number of different
series of questions, by means of short questionnaires or by discussions in groups. In
phase one, we collected the opinions of 32 French experts. In phase two, a small panel
of 7 experts interpreted the results from the participants of the first phase and drew
conclusions by consensus.
Our review of the literature enabled us to identify several researches which tried
to develop and introduce criteria permitting to assess the electronic payment systems on
Internet. For this purpose, Schmidt and Muller (1999) affirm to have identified more
that 30 assessment criteria in the literature. In what concerns us, we distinguish two
literature development phases. The first phase relates to "constructivists" work in the
matter. The main researches are those of Neuman and Medvinsky (1995), Furche and
Wrightson (1996), Havinga and alii (1996), Asokan and alii (1997), MacKie-Mason
and White (1997) and Wayner (1997). These papers developed and insisted, especially,
on the technical aspects as determinant criteria of success of an electronic payment
system. But, the use’s experience feedback of those systems demonstrates that
costumers use mainly the solutions which one notes problems regularly, namely the
bank cards (Caunter, 2001; Wales, 2003). For that, at the beginning of the years 2000,
the second phase of research works which granted, in addition to the technical
dimension, an importance to the various users’ needs of electronic payment systems,
immersed (Bellare and alii, 2000; Wright, 2002; Tsiakis and Stephanides, 2005).
We recall that MacKie-Mason and White (1997) and Schmidt & Muller (1999)
highlight the significant number of the criteria identified to assess an electronic
payment system. They also underline that these criteria are not the same from an author
to another. We point out that this number certainly increased with the advent of the
literature’s second phase. Nevertheless, a thorough reading of the literature allows us to
define the main criteria of evaluation and the elements of measurement.
The following table synthesizes the four types of criteria as well as the review of
the literature which justifies them.

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Table 2
Criteria in electronic payment literature
Criteria Elements of measurement Source in literature
Security
• Identification
• Confidentiality
• Authentification
• Integrity
• Customer solvability
• Non-repudiation
• Durability
• Liquidity/convertibility
• Anonymity
• Bellare and Alii (2000)
• Abrazhevich D. (2001)
• Sahut (2001)
• Wright (2002)
• Peffers and Ma (2003)
• Tsiakis and Stephanides (2005)
Cost • Customer
• Seller
• Schmidt and Müller (1999)
• Hadidi and Siripaiboon (1999)
• Wright (2002)
• Chou, Lee, and Chung (2004)
Convenience • Installation/subscription
• Process complexity/speed
• Wright (2002)
• Lee and Tsang (2003)
• Chou, Lee, and Chung (2004)
Universality • Payment type
• Interoperability
• Hadidi and Siripaiboon (1999)
• Abrazhevich (2001)
• Kannen and Alii (2003)
A. Security
According to the literature and professional studies, the greatest deterrent for customers
paying via the Internet is the possibility of fraud. Forrester (2004) proved that for every
$1,000 of Internet business transactions, $1 is still fraudulent6. Then, we have decided
to attribute the highest importance to the set of security factors. Having analysed the
components of security systems, we have distinguished nine levels of security:
identification, confidentiality, authentication, data integrity, customer solvability, non-
repudiation, durability, liquidity/convertibility and anonymity/traceability. This
distinction is based on already existing research works (e.g., Sahut, 2001) and enriched
with three additional factors mentioned by Peffers and Ma (2003). All of the evaluation
criteria have been attributed the same relative weight in the composition of the global
security score. The only exceptions are the non-repudiation and anonymity/traceability
criteria, which are considered a particularly important component of security systems. It
is difficult to balance the protection of sellers and the control of personal data use. A
great concern of online customers is the possibility of keeping payment activities
private and of preventing third parties from observing and tracking spending habits
(Camponovo and Pigneur, 2003).
The nine security criteria are provided below:

INTERNATIONAL JOURNAL OF BUSINESS, 13(4), 2008 369
1. Identification: in order to initiate a transaction both parties have to be identified:
a buyer, who is obliged to pay, and a merchant, who is obliged to provide a
product or service. When buyers pay online they cannot use clues from direct
observation of the vendor’s appearance and behaviour to identify them,, as
would be possible if they were face-to-face. The same risk applies to the
merchants; buyers can acquire goods without paying.
2. Confidentiality: only indispensable transaction details are revealed to the parties,
other data remain unknown. For instance, the vendor should not know a
customer's card number when an intermediary provides him with a payment
certification. The intermediary, in turn, is not supposed to be informed of
purchase details. Another problem is to ensure that an unintended third party will
not intercept data, as their possible abusive use is the major Internet risk concern.
3. Authentication: electronic transactions have to be authenticated. Honest
intentions of trading parties are ensured by the terms of transaction (product
features and quantity, price, delivery date etc.). The electronic translation of this
contract is the key factor of the future development of electronic commerce.
Customers require a guarantee that a merchant will not charge them for an
imaginary purchase.
4. Data integrity: during the session, payment data cannot be intentionally or
unintentionally tampered with.
5. Non-repudiation: merchants want to be sure that the payment obligation will
not be repudiated afterwards.
6. Customer solvency: customer solvency can be verified by a merchant or, to a
certain extent, guaranteed by a bank.
7. Durability: users want to be sure that their data or transaction details can be
verified and are not going to be misused after a certain period of time. The
transaction system has to be resistant to any hardware or software defaults.
8. Liquidity/convertibility: transferred money can be withdrawn or converted to
another currency immediately, without any additional procedures.
9. Anonymity (Privacy): anonymity (or privacy) refers to a customer’s ability to
do a transaction on the Internet, without her/his identity being known. When a
credit card is used, the user needs to be identified in order to have a secure
payment. But customers want to be anonymous to the merchants and prefer not
to leave any traces of completed transactions.
B. Cost
The cost of an e-payment system is often an under estimated criterion when considering
users’ choices, as is the development of e-payment systems through network effects. A
crucial condition to the payment system’s success is that the cost of payment systems,
to both the customer and the merchant, should be inexpensive, especially at the
beginning in order to reach a large base of users, which leads to positive network
effects (Leibbrandt, 2004). The solutions that designers also have to pay attention to are
the fixed transaction fees and charges. This risk factor is particularly important in the
case of micro-payments, as a unit transaction cost determines a minimal payment that
yields profits. Nevertheless, the global weight of this factor is lower than the

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importance of the security criteria. In most of the existing business models the
transaction costs are covered by sellers who, subsequently, get their money back by
charging customers for other services.
Customer cost: depending on business models, costs can include installation,
subscription and recurrent usage. The recurrent costs can take the form of commissions
on transactions, or monthly subscription fees.
Seller cost: sellers are able to cover the installation or subscription costs. However,
they can also be charged recurrent transaction fees.
C. Convenience
Other than a small number of technological enthusiasts, most parties to electronic
transactions are reluctant to learn about complex processes or applications.
Convenience is considered one of the deciding factors of the system’s success (Lee and
Alii, 2003). Payment systems are expected to be transparent and integrated with a
universal net environment (e.g., SSL card payment). Thus, payment systems should
require the least amount of effort and equipment. Consequently, complex proprietary
solutions, requiring installation of additional software or equipment, (e.g.,
CyberCOMM) were rejected soon after their introduction. This criterion in our analysis
has the same global importance as the universality criterion.
Installation/subscription: payers are unwilling to follow lengthy or over-sophisticated
installation and subscription procedures.
Process complexity/speed: all users (buyers and sellers) expect the payment system to
be fast and trouble-free. They do not want to waste their time on complex payment
procedures.
D. Universality
According to Kannen and alii (2003), payment systems should have as few constraints
as possible, as far as software, localization, minimal or maximal amount of payment, or
currency of payment are concerned, to allow adoption by any customer or merchant.
This feature is also attributed a lower weight than security factors7. The lack of
interoperability among systems is a great barrier to their future development. This
problem has also led to many failures of electronic payment solutions.
Payment type: this criterion depends on the possibility of making micro-payments,
macro-payments and payments in foreign currencies.
Interoperability: this criterion measures the payment system compatibility with other
electronic payment systems and infrastructures.
Table 3 summarizes the set of criteria and their relative importance to the success
of electronic payment systems, defined from the expert interviews. The maximum score
corresponds to the relatively highest importance of the feature.

INTERNATIONAL JOURNAL OF BUSINESS, 13(4), 2008 371
Table 3
Set of evaluation criteria
Feature Weight
Security
 Identification
 Confidentiality
 Authentification
 Integrity
 Customer solvability
 Non-repudiation
 Durability
 Liquidity/convertibility
 Anonymity
Total Security Score
2
2
2
2
2
3
2
2
3
20
Cost
 Customer
 Seller
Total Cost Score
5
5
10
Convenience
 Installation/subscription
 Process complexity/speed
Total Convenience Score
5
5
10
Universality
 Payment type
 Interoperability
Total Universality Score
5
5
10
Maximal Score 50
IV. RESULTS AND INTERPRETATION
A first analysis makes it possible to distinguish three groups from the systems,
according to their mark.
mark ≤ 30: characterizes systems that have disappeared, like SET or CyberComm.
These very secure solutions neglect the other factors, so their global mark is bad. In
particular, SET-based systems were too slow.
30 < mark < 35: systems whose development is still dubious, like e-check or e-carte
bleue. They are less secure than the first group’s systems, but their cost and
convenience partially fills this gap.
mark > 35: it is a group where the payment systems are already successes, even if the
mark, as regards security, of the systems tested is rather average.
The mark obtained by the email payment system Paypal shows that it could, in
the middle term, compete with the SSL card payment. Moreover, the structure of risks

Sahut
372
is different for email payments compared to SSL payments: the management of the
email payment system appears as a risk factor, because it can go bankrupt (which harms
the durability and the liquidity/convertibility of the payment system) but the global
security increases (security mark going from 8 to 15).
Table 4
Evaluation of payment system
Legend:
SSLI = credit and debit card payment with the SSL protocol 3.0 with an intermediary (bank or
payment service provider) who insure the payment processing and can guarantee payments.
SSLWI = credit and debit card payment with the SSL protocol 3.0 without an intermediary.
For a description of SSL protocol 3.0: http://wp.netscape.com/eng/ssl3/3-SPEC.HTM#2
DVD = Dynamic Virtual Card
The domination of SSL card payment on the market is also explained by network
effects where the cost of the system plays a dominating role at its beginning.
SET SSLI
SSL
WI
Cyber
Comm
E-carte
Bleue
(DVC)
Odysseo
(virtual
wallet)
eCheck
.Net Paypal
1.5
2
1.5
2
2
3
2
2
2
1
2
1
2
1
0
2
2
2
13
1
2
1
2
0
0
2
2
0
10
2
2
2
2
2
3
2
2
2
1.5
2
1.5
2
0
1
2
2
2
14
1.5
2
1
2
2
3
1
0
3
15.5
1
2
1
2
0
3
2
2
2
1.5
2
2
2
2
1.5
1
1
2
Security (max 20)
 Identification
 Confidentiality
 Authentification
 Integrity
 Customer solvability
 Non-repudiation
 Durability
 Liquidity/convertibility
 Anonymity (Privacy)
Total Security Score 15
18 19 15
3
0
5
2
7
5
5
10
1
0
1
4
5
3
2
5
4
2
5
4
Cost (max 10)
 Customer
 Seller
Total Cost Score 3 1 6 9
2.5
0.5
5
3
8
5
5
10
0.5
0.5
3
4
7
2
2
4
2.5
2.5
3.5
4.5
Convenience (max 10)
 Installation/subscription
 Process complexity
Total Convenience Score 3 1 6 8
3
2
3
5
8
3
5
8
3
2
3
5
8
4.5
1
5.5
3
3
6
4
3
Universality (max 10)
 Payment type
 Interoperability
Total Universality Score 5 5 7
TOTAL (max 50) 29 36 38 26 34 30 32 39

INTERNATIONAL JOURNAL OF BUSINESS, 13(4), 2008 373
In general, consumers do not take into account the network effects they may
cause that can, in some cases, lead to a blockage. Consumers do not make their choice
of consumption based on intrinsic technological quality, but according to the number of
people who have already chosen the system. This makes technology gravitational and
increases its chances of becoming essential in the future. The launching of a payment
system must be done on the basis of an economic logic and, more importantly, on a
logic of "network good". The network effects are thus starting to increase the levels of
adoption. In the same manner, the means of Internet payment falls under these
problems of "network good", which makes it possible to understand why the market is
dominated by SSL card payment despite its precarious security. Its facility and ease of
use, together with its integration with the two principal browsers, "Internet Explorer"
and "Netscape Navigator", have created an established base of users, with which other
systems such as SET, cannot compete, in spite of their superiority in terms of security.
Leibbrandt (2004) suggests subsidizing the development, using the most effective
technology in order to generate a significant established user base, could lead to
increased product or service prices afterwards.
To avoid the death of highly secure solutions, and thus more expensive solutions,
it is necessary to question which business model to implement. Indeed, the traditional
business models used by the banks (direct invoicing of buyers and merchants) led to
resounding failures.
V. IMPACT ON THE BANKING SYSTEM
As money is the lifeblood of economies, electronic payments have strongly influenced
the banking sector. Banks are no longer the only managers of money flows. Moreover,
they seem to be losing control over their creation. The problem of uncontrolled money
creation outside the usual banking institutions is considered quite serious and
constitutes a topic of many economic debates. Nowadays, money can be created
independently of the banking systems by e-payment providers. This happens when the
e-payment providers grant consumer credits. The dilution of the role of central banks in
monetary policy can lead to a huge dysfunction in the whole banking system. Endless
discussions have led to the conclusion that e-payment providers should not be permitted
to award credit unless they have the status of credit institutions. However, the dynamic
development of the Internet economy weakens the decision-making power of banks and
the banking system. Therefore, they have to search for alternative solutions. Currently,
central banks can compensate the loss of control over money creation by issuing
electronic money or augmenting the level of obligatory reserves. In the long term new
tools will have to be provided, otherwise economies may experience very serious
problems.
The loss of control is not the only consequence of the development of e-payment
systems. Another issue results from the fact that banks exposed to tough competition
from new entrants can no longer be sure of the stability of their profits. The growing
number of payment service providers decreases the predictability of customer choices
and increases the variability of revenue. Moreover, since a significant part of
information on customers’ investments, solvency, credit strategies etc. is no longer

Sahut
374
registered in the databases of central banks, the ability of central banks to identify the
objectives and priorities of monetary policy is significantly undermined.
All of these factors can lead to serious deregulation of banking systems.
Economies may face serious problems resulting from their unpreparedness for the new
marketplace. Therefore, we cannot neglect the urgent necessity of adjusting financial
and legal systems to the rules of the Internet economy.
VI. CONCLUSION
Since the emergence of electronic payments, their features and strategies of
development have been constantly changing. At the outset, e-payment providers
focused exclusively on security issues proposing proprietary systems that were quite
expensive and user-unfriendly. Having realized that the market rejects such solutions,
they started concentrating on costs and convenience, proposing less secure systems.
Surprisingly, they did much better. The best example is the SSL card payment, which
has always been heavily criticized for its insecurity. Its leading position in macro-
payments is due to several factors: simplicity, interoperability and popularity of the
original payment mode (offline transactions by card) in traditional payment systems.
This article shows that for an Internet payment system to be successful it is
important that it is designed to meet the user’s need. To be the best in one aspect, like
security, is not enough to get a large market share. SSL card payments achieved a
critical market share because of its ability in terms of cost and convenience, despite its
insufficiencies with respect to security. They now dominate the e-payment market. It is
a non-optimal equilibrium because it is the most widely-used payment system, but its
low security slows down e-commerce development. This situation seems difficult to
change because network effects play a crucial role. Only email payment systems appear
as a serious competitor. Another solution is governmental intervention because
consumers do not take into account the network effects that they cause, which lead to a
blocking on SSL - a very non-efficient technology.
The first step to take to get out of this vicious circle is to make all interested
parties realise that a change in the present situation can bring important benefits. The
introduction of a new, more advantageous system could increase the level of payment
service security, decrease losses caused by frauds as well as allowing the better
positioning of participants within the value chain. However, the real introduction of
such a system requires a joint effort of all parties and this condition is the fundamental
factor impeding the changes. Although governmental interventionism is inconsistent
with the rules of free market economy, it seems that imposing legal restrictions could
constitute an efficient way to induce some changes. The introductions of normalisation
standards or of administrative constraints are examples of possible state actions.
ENDNOTES
1. http://www.journaldunet.com/9911/991116cybercomm.shtml (accessed 12/05/07)
2. http://partnernetwork.visa.com/pf/3dsec/main.jsp (accessed 12/05/07)
3. http://www.fia-net.com/ (accessed 27/02/07)
4. http://www.e-cartebleue.com/client/home.asp (accessed 27/02/07)

INTERNATIONAL JOURNAL OF BUSINESS, 13(4), 2008 375
5. Linstone H. (1975), The Delphi Method, Addison Wesley, Linstone H. & M.
Turoff : http://www.is.njit.edu/pubs/delphibook/ (accessed 10/04/07)
6. http://www.forrester.com/find?N=50058 (accessed 27/12/06)
7. http://searchcio.techtarget.com/originalContent/0,289142,sid19_gci798143,00.html
(accessed 27/12/06)
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