How Online Payment Systems Are Used In Everyday Life

In this entry, we will discuss the significance of OPS in everyday life and the technologies necessary to make it all possible.  Consumers and businesses rely heavily on online payment systems daily for a multitude of transactions.  These transactions include travel, shopping, filing and paying taxes, paying bills and other banking transactions, as well as investing online.  Two main technologies in particular have emerged as a result of the increased demand of online payment systems:

Electronic bill payment and presentment (EBPP)

There are a significant number of bills that consumers pay on a regular basis, which include power bills, water, oil, internet, phone service, mortgages, car payments etc.  EBPP systems send bills from service providers to individual consumers via the internet.  The biggest difference between EBPP systems and the traditional method of bill payment, is that of technology. Rather than receiving a bill through the mail, writing out and sending a check, consumers receive their bills in an email, or are prompted to visit a website to view and pay their bills.  Three variations of EBPP currently exist:

·         Consolidation, where numerous bills for any one recipient are made available at one Web site, most commonly the recipient's bank. The actual task of consolidation is sometimes performed by a third party and fed to the Web sites where consumers receive the bills. The principal attraction of consolidation is that consumers can receive and pay numerous bills at the one location, thus minimizing the number of login IDs and passwords they must remember and maintain.

·         Biller Direct, where the bills produced by an organization are made available through that organization's Web site. This works well if the recipient has reasons to visit the biller's Web site other than to receive their bills. In the freight industry, for example, customers will visit a carrier's Web site to track items in transit, so it is reasonably convenient to receive and pay freight bills at the same site.

·         Direct email delivery, where the bills are emailed to the customer's inbox. It is convenient, because almost everyone has email and the customer has to do nothing except use email in order to receive a bill. Email delivery is proving especially popular in the B2B market in many countries.

Mediaries

There are also online payment systems that serve as mediaries and facilitate person-to-person payments, such as PayPal that have revolutionized the way funds can be exchanged on internet auction sites.  According to PayPal, one in three online buyers has an account with them.  PayPal is an acquirer, performing payment processing for online vendors, auction sites, and other commercial users, for which it charges a fee. It may also charge a fee for receiving money, proportional to the amount received. The fees depend on the currency used, the payment option used, the country of the sender, the country of the recipient, the amount sent and the recipient's account type. 

How do OPS affect your day to day online transactions?  Feel free to share your experiences.

Source:

Tamayo, Xavier, Jimenez, Luis and Flynn, Shawn P. (July 13, 2005) Trends in Consumer Payment Systems. Electronic Substitution for Mail: Models and Result, 8. Retrieved from: http://www.phoenixhecht.com/treasuryresources/PDF/PitneyBowes_trends%20in%20consumer%20payments.pdf

OPS: Everyday Operations

Many people would be surprised to learn just how much an online payment system (or “OPS”) effects the everyday operations of a company – especially when it comes to small businesses.  In this blog entry, we will discuss some of the daily benefits of using an OPS, as well as the major issues that are often associated with using an OPS.

LOWER COST

Being a small business owner, I can definitely attest to the everyday benefits of having an OPS. When I was first getting started, I initially considered having a merchant account setup for my company… But then I quickly discovered how much lower OPS fees were in comparison. Businesses (both big and small) make transactions each-and-every-day, so having a cost effective payment system easily becomes an important part of one’s daily operations.

USER FRIENDLY

OPS is arguably the most user-friendly method of online payment that is available today – for both company owners and their customers. Unlike waiting for a card to clear (which, in some cases, can take a significant amount of time) or mailing in a check (which can also be a very time-consuming process),  OPS allows customers to make secured purchases instantly, which is extremely beneficial for both parties involved. OPS prevents business owners from having to deal with notoriously complicated methods of payment, ultimately saving them the time and hassle of having to deal with these things every day that someone makes a purchase!

INCREASED MOBILITY

The daily grind of having to run the risk of accepting checks or even handling cash has essentially become obsolete with the emergence of OPS. OPS have a major hand in allowing companies who regularly participate in expos and trade shows where they are required to travel to receive online payments. For example: when making sales that are not online or in a store environment, owners (and consumers) are essentially confined to accepting cash or check payments, both of which can be extremely risky… But with an OPS, companies are able to travel and make sales DAILY, without method of payment being a concern.

SECURITY CONCERNS

Unfortunately, OPS is not a 100% fool-proof method of sending and receiving payments; it comes with its own set of risks just like every other everyday operation. On the consumer end, one may run the risk of their OPS account (such as PayPal or Google Checkout) being hacked – the same is true on the company end. “Two-factor authentication” has been created as a way of preventing potential break-ins; it does so by requiring account holders to to enter a six-digit code (in addition to their password) in an effort to eliminate any potential third-party scams.

With revenue (or receiving payment for goods/services) being the ultimate goal for all for-profit companies, whether a company is running their business solely online, or offers online sales in addition to having a physical store location, having (or not having) an OPS plays a major role in how they are able to conduct business on the daily basis. As a reader (and potential online consumer), how has OPS influenced your daily/regular shopping behavior?

Sources: http://sixrevisions.com/tools/online-payment-systems/

http://www.sba.gov/content/online-payment-services

Disadvantages of Online Payment Systems

In our last blog we discussed the advantages of Online Payment Systems (OPS) however some of the advantages are the very same reasons people shy away from using OPS.   It is much easier for younger generations, Y & Z Generation, to embrace change and seek the benefits of using innovative technology.  The Baby Boomer Generation on the other hand has the concept: if it’s not broke then why bother to fix it.  Older generations would rather take the extra initiative and time needed to travel to the store to make their purchases.  As well as spend the extra money for postage to send a check to make their bill payments.  Can you blame people for not fully trusting what they cannot see?  Have you ever given thought to the downfalls of OPS or are you just trusting that things will work as they are suppose to? Below we will examine a few of the negative aspects of using Online Payment Systems. 

Cons:

      Online Security: When we check out at a merchant and use our credit cards we must present photo ID.  However when making online payments there is no real authentication process to verify that the person entering the information online is not a criminal.  Without this verification process time becomes of the essence when it comes critical to dispute a fraudulent charge made using your credit/debit card because research is needed to prove your case.

**It makes sense to some to invest 20 minutes to drive to the location to make a purchase using check or cash rather than waste 1-3 days to dispute a charge because someone gained their credit card information.

      Missed Errors:  Can you imagine being in business since 1970, each time you needed to replenish inventory you contacted your supplier with whom you have a personal relationship to place your order.  The supplier delivers your goods in a timely fashion.  Upon delivery an invoice is provided and you either pay COD (cash on delivery) or mail in your payment.  Now 21^st Century technology is presented; you submit your order online which requires payment before delivery.  Once the goods arrive you realize you mistakenly order the wrong material.  Now you have you merchandise that cannot be used and you are out your money.  More time is now needed to return the “unnecessary material” to wait for the replacement order to arrive.  For many people the old way was more efficient.

      Fees: Management courses have taught us that there is an opportunity cost for every choice we make.  Surprisingly, OPS are no different.  During the Introduction of Info 3130 we learned that the overall objective of Information Systems is to reduce operational costs.  Since the core business of many organizations is not IT based and more specifically not specialized in Online Payment Systems an outside vendor is required to provide the online payment services.  An Online Payment Systems vendor like PayPal requires the merchant to pay a convenience fee ranging between 2.2%-3.9%.  Would it be beneficial to use their services as opposed to alternative payment methods? For corporate organizations this fee may prove to be inconsequential.  However, for the small business owner these fees could equate to astronomical figures eating away at the bottom line. 

I’m sure you’re thinking to yourself, you only identified three negative aspects of Online Payment Systems therefore the Pros outweigh the Cons.  However, many of the Pros center on convenience.  Do you think convenience is more important than security and preserving profit?  If you have a moment, please share your negatives experiences with Online Payment Systems and see if they align with the 3 major downfalls identified above.

Sources:

Laudon, Kenneth C. and Jane P. (2012) Management Information Systems: Managing the Digital Firm. (Twelfth Edition)

“Internet Payment Systems- Advantage, Cost, Online Payment Options, Security Efforts.” Reference for Business: Encyclopedia of Business, 2^nd Edition.  9/30/2012

< http://www.referenceforbusiness.com/small/Inc-Mail/Internet-Payment-Systems.html>

"Disadvantages of Internet Payment Gateways." Transactmoney. 9/30/2012

<http://www.transactmoney.com/transaction-articles/internet-payment-gateways.htm>