Payment system

As a payment method, all forms and processes of transfer of ownership of means of payment are referred to. Alternatively, it is also spoken of payment methods, payment systems and payment instruments. A common use of these terms has so far not enforced.

The choice of payment method ranges from simple cash at the box office to innovative electronic solutions (eg mobile payment ).

• 3.1 The chicken and egg problem
• 3.2 The problem of risk allocation at a distance

Classification of Payment Methods

Payment methods can be classified according to different criteria. Frequently, for example, distinguished between classical and electronic payment methods. Traditional payment methods are therefore the delivery, the (paper) check and the transfer, which can take place either before delivery (prepayment) or after delivery ( payment on account ). The electronic payment method, the method will be counted, for which payment may be released directly via electronic media (such as credit and debit card payments).

It is unclear, however, how the transfer is classified via online banking in this classification. In contrast to paper-based transfer the payment is indeed released on electronic media, however, the release can not take place immediately. Instead, the debtor must first log into the online banking its bank and then enter the data transfer manually. In the based on the online banking payment method giropay account for some of these intermediate steps, which is why it can be clearly counted on electronic payment method.

A further subdivision differs according to the time of payment: " Pay before" means payment before the delivery date, " pay now " payment at the time of delivery, and "pay later " payment after the time of delivery. An unambiguous assignment is not possible for each payment method, even after this systematization. If an initiated via a mobile phone payment on the billed telephone units billed, this can happen on the one hand, the monthly phone bill, which would suggest a classification as "pay later ". It could on the other hand, however, also be a prepaid card, the procedure would be the category " pay before" assign.

The Federal Office for Security in Information Technology, therefore, dispense with the above classifications, and distinguishes between primary and secondary payment method:

• Primary payment methods include the physical transfer of monetary units ( cash or electronic money), bank transfer and direct debit.
• Derived payment method, such as a credit card, check or variety developed for e-commerce payment method that will link the payment process ultimately back to one of the original payment method. Derived payment methods are further divided into the following groups: Cheque -based methods represent an instruction to the bank of the debtor to pay the said sum of money at the expense of his account in credit.
• Credit card and debit card-based methods are used for obtaining cash at the bank counter or ATM and cashless payment for goods and services from contractors of the card-issuing organizations.
• Value cards based methods use prepaid credit cards that can not be recharged in the rule. Examples are T-Pay MicroMoney, paysafecard or ukashcard.
• E -mail-based methods make use of e- mail messages for transmitting accounting information. By management of the process with an e- mail address attached reference accounts are held; known examples of this are PayPal and moneybookers.
• Mobile phone -based methods use the mobile phone for transmitting accounting information. The mobile phone serves simultaneously for authentication. Current providers of mobile phone-based methods are, for example mpass, a joint project of Vodafone and O2, or Crandy.
• Collection and billing procedures, any other method in which overdue amounts collected from third parties. This includes, for example, cash on delivery, where a delivery service occurs as a collection agency, specifically developed for electronic trading methods ClickandBuy, iclear and T-Pay (up to 2011) and the accounting of the phone value-added services or dialer.

Choice of payment method

The importance of the offer cashless payment method has greatly increased in recent years. First, the euro trading institution is experiencing a significant increase in non-cash payments in retail stores. On the other hand, more and more traders the Internet as a distribution channel and are dependent on suitable methods for cashless payment of goods and services for this purpose.

In particular, electronic trading is a suitable range of payment methods (electronic money) more and more a factor for success. Often purchases are canceled when there is not the most suitable payment method available. Against this background, the choice of payment method in importance. The choice of payment method must be based on the suitability for the present payment scenario, on the requirements of the debtor and to the requirements of the payee.

Payment scenarios

Payment scenarios are differentiated according to the application scenario, the amount of height, the origin of the clients and the frequency of payment.

Categorization according to the application scenario:

• Payment at the POS: Point of Sale As the place is called, physically meet at the seller and buyer. This is often a stationary POS workstation or vending machine. The meeting can also be outside the seller's premises to take place (eg taxis, delivery services ).
• Payment at a distance: A remote sales include all sales or service contracts which are concluded between sellers and buyers via telephone, Internet, mail or through other means of distance communication. Thus, the distance includes both the traditional mail order and e-commerce over the Internet ( e-commerce).

Categorization according to the amount of height:

• Macropayment (from about 5 euros )
• Micropayment (from about 5 cents to about 5 euros )
• Milli Payment, Mini Payment, Picopayment or nano Payment (up to about 5 cents)

Categorization according to the origin of the customers:

• Home
• Foreign countries

For foreign customers, make sure that the payment methods offered are available abroad. This has been introduced, for example, in the direct debit as part of the harmonization of the European Payments Area ( SEPA).

Categorization according to the frequency of payment:

• Unique: customer and supplier meet only once.
• Recurring: customer and supplier meet together repeatedly.

For recurring services used customer will probably take a higher one-time registration effort in buying than in seldom-used services. Also, the risk for the retailer decreases when you already have positive experiences on the customer's payment history. The direct debit system is particularly well suited for the collection regularly recurring receivables.

Requirements of the debtor

From the perspective of the debtor safest possible payment processing is desired. Additional requirements include a low installation and registration costs, low costs and a high number of acceptance points.

• Security: With respect to safety organizational and legal arrangements are considered, which are suitable to prevent the entry of damages from the perspective of the payer. The security requirements can be further subdivided into the transaction control, authentication, lock and lower liability amount: Transaction Control: The debtor would on the one hand to be sure that his desired transaction is successfully initiated. Secondly, he wants to be able to control that no unauthorized transaction was performed.
• Authentication: The strength of the authentication are indications of how easy it can be for a third party, without authorization to initiate payments from the debtor.
• Lock Out: When a barrier against future orders damages are excluded even if a third party has overcome the authentication mechanism.
• Amount of liability: The liability amount indicates the amount for which the customer has to pay a maximum, where there have been a possible lock unauthorized dispositions at his expense.

Requirements of the payee

As surveys show, playing for retailers, especially the direct and immediate usability of a payment method ( distribution / acceptance by the customer) a very important role. Other important requirements are an effective protection against non-payment, low cost, and support of integrated processes.

• Distribution / acceptance by the customer: is decisive in the choice of payment method that not every customer can actually use spontaneously and directly each payment method. In particular, newer payment methods such as PayPal, ClickandBuy, Moneybookers or T -Pay, subject to registration, creating a hurdle for first-time use of the payment method is provided. Traditional payment methods such as bank transfer, direct debit or credit card processes have the advantage of a historically existing, relatively high prevalence here. Paying attention is mainly due to the spread in addressing the target group, such as in younger customers or clients from abroad.
• Protection against non-payment: Depending on which payment method is considered, it provides more or less protection against defaults. The spectrum ranges from a very low or no protection, for example, if you pay by direct debit or invoice at a distance, right up to a complete protection, such as when money card system of the German banking industry, or the payment by cash.
• Costs: The costs incurred on merchant website through the integration and use of payment method, can be fundamentally different in the following ways: Costs incurred by the purchase of software or hardware components, such as terminals or software, so credit card payments can be accepted in the first place and settled or allowed.
• Costs incurred by the regular, of a purchase process independent dispensing fees, such as monthly license fees or charges for the basic provision of services by the payment method provider
• Costs incurred for the processing of a payment. For credit card payments, for example, often fall sales-related authorization costs, plus a revenue-based fee to a service fee.

Specific problems of payment method

From the outlined requirements of the payer and the payee results in two fundamental problems in the design of payment procedures. Firstly, the demand leads to a high number of acceptance points or after high coverage on the client side to a chicken-and- egg problem. On the other hand arises from the mutual need for security, especially in the distance a problem, as a train - to - train - fulfillment at distance selling is not possible.

The chicken-and- egg problem

The chicken-and- egg problem (also known as a network effect or penguin effect) is the reason that new payment method to enforce very difficult. So customers will only bear the initial expenses (eg registration) for a new payment method, if it is accepted by many retailers. The dealer integrate a new payment method again only when it is used by a sufficient number of customers. Thus, there is a situation of mutual waiting and consequently no dissemination of the payment method, as long as no critical mass of users is reached.

The problem of risk allocation at a distance

In the distance no train - to - train - fulfillment as in retail stores is possible due to the transport time of the product. Therefore, either the buyer (prepayment) or the seller has to go in advance. From this it necessarily creates a risk: either the buyer runs the risk that a paid by cash goods are not delivered and the already paid amount will not be refunded, or the dealer is taking a payment risk. This is, for example, that in spite of proper delivery of an invoice is not paid or a payment by debit or credit card is returned. Therefore, these payment methods are often combined with additional measures to hedge cash risks, such as address checks, negative list checks or credit scoring.

Payment by cash in advance is No. 1 on the popularity with the trade in electronic commerce; in sales in advance reaches # 3

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