Securing Payments in the Digital World

One of the most crucial aspects of B2C EC, C2C EC, and m-commerce is ensuring that online transactions are secure. Although the transfer of money is a critical factor in online shopping, online banking, and online investing, security researchers and software companies are lamenting that people are often reluctant to change their habits when surfing the web and carelessly reveal sensitive information to unknown or fraudulent sites. In fact, more than 17.6 million consumers in the United States (or 7 percent of U.S. adults) became victims of identity theft in 2014. Security concerns and other factors (such as impatience, lengthy checkout procedures, or comparison shopping) lead shoppers to frequently abandon their shopping carts and to not follow through with a purchase report show that more than half of the online shopping carts are abandoned. Traditionally, paying for goods and services was limited to using credit and debit cards, but using these methods can open many security issues. To address these issues, there are now different ways of exchanging funds when buying and selling goods or services online. Issues related to different forms of online payment are discussed next.

1. Payment Services

Concerns for security have led to the inception of independent payment services such as PayPal (owned by eBay), Apple Pay, Square, or Google Wallet. These services allow online customers to purchase goods online without having to reveal much private information to the actual sellers. Rather than paying a seller by providing credit card information, an online shopper can simply pay by using his or her account with the payment service. Thus, the customer must provide the (sensitive) payment information only to the payment service, which keeps this information secure (along with other information such as e-mail address or purchase history) and does not share it with the online merchant. Google linked its payment service to the search results so that Internet users looking for a specific product can immediately see whether a merchant offers this payment option; this is intended to ease the online shopping experience for consumers, thus reducing the number of people abandoning their shopping carts.

Another payment service, PayPal, goes a step further by allowing anyone with an e-mail address to send and receive money. In other words, using this service, you can send money to your friends or family members, or you can receive money for anything you’re selling. This easy way to transfer money has been instrumental in the success of eBay, where anyone can sell or buy goods from other eBay users. With the increase in mobile interactions, mobile payment services such as Apple Pay, or Square are seeing an increase in popularity. Such services greatly facilitate making in-store payments and offer an alternative to carrying cash or credit cards (e.g., by allowing the user to pay for a cup of coffee using a smartphone). A recent development of mobile payment services is to allow for peer-to-peer payments, such that a group of friends could easily split the bill for a meal at a restaurant. For example, the hugely successful Chinese messaging platform WeChat not only allows making online and offline payments but also allows for peer-to-peer transactions.

2. Cryptocurrencies

One radical innovation in making and receiving payments is cryptocurrencies. Cryptocurrencies (the most widely used being Bitcoin) are virtual currencies that are not issued by any central bank and use encryption technologies to secure transactions and to generate new units of the currency. Often described as being primarily used for illicit purposes (such as dealing with drugs or weapons), these cryptocurrencies have various useful legitimate applications. Most of us are comfortable with providing credit card information to a reputable online retailer such as Amazon.com or NewEgg.com. Likewise, many of us have purchased things from other individuals or small companies using a payment service like PayPal. Credit card companies and payment services like PayPal act as trusted middlemen and provide consumers a safety net, giving them the confidence that their purchase will produce the desired good or service and ensuring that their personal financial information remains confidential. These services, however, come at a significant cost. Credit card companies charge vendors between 1 and 3 percent of the purchase amount of every transaction, a cost that is typically passed on to the consumer in the form of higher prices. Payment services such as PayPal also charge fees, which can be as high as several percentage points of the total price.

In contrast, the technology underlying Bitcoin requires no trusted middleman, reducing the transaction costs to negligible amounts. Thus, Bitcoin is very useful for everything from micropayments to international transfers. In fact, many major online companies (including Dell, Expedia, and Overstock.com) as well as offline retailers now provide ways for customers to pay with Bitcoin. In addition to extremely low transaction fees, Bitcoin transactions are anonymous, akin to cash payments. How does Bitcoin work? Bitcoin was launched around the year 2008 by an anonymous developer pseudo-named Satoshi Nakamoto. Bitcoin is transferred as payment within a completely decentralized.

3. Managing Risk in B2C Transactions

When making an online purchase using a credit or debit card, an online customer must transmit much personal information to a (sometimes unknown) merchant, and many Internet users (sometimes rightfully) fear being defrauded by an untrustworthy seller or falling victim to some other form of computer crime. For online merchants, the risk of people using fraudulent credit card data may be equally high. As in offline transactions, online consumers at times dispute transactions for various reasons. In such cases, the merchant is financially responsible for the transactions, and credit card issuers typically charge back transactions that are disputed by cardholders. For the merchants, such chargebacks normally result in the loss of the transaction amount, loss of the merchandise, processing costs, and chargeback fees; in addition, the merchant’s bank may charge higher fees or even close the merchant account if the chargeback rate is excessively high. Thus, minimizing chargebacks is of prime concern for online merchants. Some of the reasons for chargebacks, such as unclear store policies, product descriptions, shipping terms, or transaction currencies, can be minimized through good web store design; other reasons, such as stolen credit cards, require different safeguards (Visa, 2008).

References:

Visa. (2008). Visa e-commerce merchants’ guide to risk manage- ment. Retrieved June 29, 2016, from https://usa.visa.com/content/ dam/VCOM/download/merchants/visa-risk-management-guide- ecommerce.pdf

U.S. Census Bureau News. (2016, May 17). Quarterly retail e-com- merce sales 1st quarter 2016. Retrieved June 7, 2016, from http:// www2.census.gov/retail/releases/historical/ecomm/16q1.pdf

Valacich, J. S., Parboteeah, D. V., & Wells, J. D. (2007). The online consumer’s hierarchy of needs. Communications of the ACM, 50(9), 84–90.