While significant change has occurred in the use of payment networks, a number of innovations are currently under discussion or development that would continue to leverage existing payment networks new ways.

The Federal Reserve has already expanded the scope of the ACH network to send payments to Canada. Currently, a number of different associations, government agencies and private corporations are discussing further extension of this payment system to other countries. In particular, discussions are already under way to investigate the feasibility of expanding ACH payments to Mexico and Europe.  Given the large amount of money transfers sent each year from the U.S. to Mexico, a low-cost means of transferring funds internationally would potentially be in very high demand.

Third party payment providers are leveraging existing networks to provide electronic person-to person payments on the Internet and at ATMs. Companies such as PayPal, Citibank and eBay are utilizing the ACH, credit card and EFT networks to provide electronic P2P payments over the Internet. While each of these companies is a network in itself, the clearing and settling of funds mainly takes place over traditional payment networks. These networks also allow small merchants to access the credit card networks.

At ATMs, Concord EFS and Money Gram are teaming up to offer electronic person-to-person payments via the electronic funds transfer network. Using a special access card and one-time PIN number, consumers will be able to send payments from person to person. In addition to domestic person to-person payments, this application could be expanded to include international P2P payments.

Significant investment and research has gone into investigating the creation of mobile payment applications. In addition to leveraging telecommunications networks, these innovations typically utilize existing payment and banking networks. In particular, Visa and MasterCard have worked closely with third party providers and telecommunications firms. While these applications achieved marginal success in Europe and Asia, the United States has been slow to adopt mobile payments.

It should also be noted that several merchants have utilized new wireless technology and the credit card networks to offer innovative new services to customers. For example, McDonald’s has used ExxonMobil’s Speed pass technology to make paying for small-value purchases with credit cards quicker and more convenient at the point of sale.

Recently, NACHA has spearheaded an effort by several financial institutions to promote ACH payments over the Internet. If successful, Project Action could make ACH a viable alternative to credit cards for Internet purchases. The project is still in the proposal stage. Several companies and network operators are also testing the feasibility of making payments on the Internet using PIN-based debit cards. NYCE gained significant attention the past few years for its SafeDebit project. While no definitive solution has emerged, future innovation in this area is certainly anticipated.

Over the last several years there have been a number of initiatives on the Internet Payment Front. Ever since the dawn of e-commerce, Credit Cards have ruled the roost, primarily because they were already in wide circulation and used extensively by the brick and mortar business. However, credit cards, while great for the day to day purchased in the physical world, came across one big problem in the virtual world.  So as you can expect, the credit card number and PIN numbers were the only proof of identity. This meant that security became a big concern, so much so that Credit card companies started to charge higher for Internet enabled merchant accounts. This meant that credit cards became too expensive for smaller purchases. This in turn brought in a host of new payment systems which have sprung up focusing on increased security on the net, or facility for micro-payments (up to 10 cents) or both.

1. Paypal

2. TradEnable

3. eCharge Phone

4. Mondex

5. Internet Cash

PayPal is a money transfer system that was originally launched for C2C (customer-to-customer) transactions, but recently, X.com, the company behind the service, introduced B2C transactions, by offering accounts for businesses. Paypal acts as a neutral intermediary offering low risk to both seller/receiver and buyer/sender of the money.

PayPal uses e-mail to inform the receiver that a payment has been made . It accepts money from the purchaser in one of three ways:

1. Charging the purchaser's credit card for any transactions (payments)

2. Debiting a checking account for any payments

3. The purchaser sending a check to create a positive balance in his account at PayPal, and having any payments deducted from the account
   Payment recipients can use the money in the account for online purchases or payments, can receive the payment from PayPal by check, or can have PayPal directly deposit the money into their checking account.

How It Works

This is truly one of the easiest services for purchasers to use. Setting up an e-mail account at Yahoo takes longer! As a payer, all you have to do is to provide your name, your e-mail address, your credit card information, and your billing address for your credit card.

Newly instituted business and premier accounts permit businesses and consumers who use their accounts frequently to accept payments via PayPal without requiring merchant accounts, and having these amounts moved to their checking accounts daily.

Business and premier accounts get 24/7 customer support by both phone and e-mail. They also have the ability to download Quicken/QuickBooks/Excel-compatible transaction logs.

For regular PayPal account holders, payments must be made at the PayPal site. For business and premier account holders, payments can be accepted directly on their own sites using a Web Accept button. Finally, business and premier account holders can create automated invoices to send to auction winners and others.

There's one additional service available that's worth its weight in gold. Sites that run affiliate programs, sweepstakes, lotteries, or hold marketing surveys might need to send small value checks to many, many recipients. PayPal's business services let these merchants upload a file with e-mail addresses and amounts, and pay the recipients in bulk. Since checks cost at least $1 each to process, and often have to be reissued, this service, priced at the lesser of $.25 or 2% per payment, is an unbeatable deal.

Payment Terms

For transactions between customers, there's no fee associated with using PayPal, no doubt contributing to its popularity. PayPal makes money on the float - when your money sits in your account, they're collecting interest on it.

For business accounts, the merchants are charged a 2.2% discount rate + 30 cents on the money, which is better than the rate charged by merchant banks for accepting credit cards, in most cases.

It's not exactly news to anyone running an auction site that by and large, online auctions are based on trust. The trust is that a seller will provide the object that was sold, as promised, and that a seller will pay for the piece. However, trust is often a rare commodity in the Internet world. This is where an intermediary such as TradEnable comes in handy. Tradenable allows buyers and sellers to set terms online. After both parties agree to the terms, Tradenable emails the buyer, asking him to pay the amount to Tradenable. The payment can be made via credit card, personal or business check, money order, cashier's check or wire transfer. All payments must be made in US dollars.

This is kept in an escrow account, and the seller is informed via e-mail to log-in to Tradenable's site to get the shipping details. After the goods are received, inspected and approved by the buyer, the seller is paid by Tradenable for the goods. If the buyer is dissatisfied and returns the goods, the seller will also be given time to inspect and accept the goods as returned. In this case, Tradenable returns the money to the buyer.

For credit-card transactions:

• Up to $500, the I-Escrow fee is 6 percent with a minimum fee of $2.95

• Between $500.01 and $2,500, $30 and 5 percent of the transaction amount over $500

• Between $2,500.01 and $5,000, $130 and 4 percent of the transaction amount over $2,500.

• Credit-card transactions above $5,001 currently aren't accepted.

For cash transactions:

• Up to $500, the I-Escrow fee is 6 percent with a minimum fee of $5.95

• Between $500.01 and $2,500, $30 and 3 percent of the transaction amount over $500

• Between $2,500.01 and $25,000, $90 and 1 percent of the transaction amount over $2,500.

• Cash transactions above $25,000 currently aren't accepted.

Naturally, this would mean that I-escrow wouldn't really be the preferred option for small transactions.

Another alternative payment solution that is fast becoming popular is eCharge Phone because it allows customers to bill purchases to their local phone bills. This makes it convenient for people who do not own a credit card, or who do not wish to give their card numbers due to security reasons. eCharge Phone can handle payments ranging from $1 to $300, as well as recurring subscription charges, such as ISP charges. Their merchant network currently includes such well-publicized sites as ClassMates.com and McAfee.com.

eCharge Phone uses proprietary security technology similar to Caller ID to identify your telephone number via a Public Switched Network. Your eCharge Phone purchase total will show up as a Pay Per Call charge on your telephone bill, including information on the online merchant provider and the date and time of the transaction.

You select a digital good or service for purchase and choose eCharge Phone as your payment method. Your computer automatically connects to a special purchase number that charges the purchase amount to your telephone bill. You receive the goods or services immediately after completing your transaction.

In order for customers to use eCharge Phone, they have to be connected to the Internet via a dial-up line. eCharge will be adding the capability to handle payments of those connected via DSL, ISDN, and cable in the near future, but dial-up is still the king with 93% of home Internet users. (TR's Online Census, published by Telecommunications Reports International).

Since eCharge Phone tracks the phone number from where the call came, no other personal information need be entered.

eCharge is currently live in the US, Canada, England, and Sweden, with plans to go into many other countries.

About 100 merchants are currently using this solution, but since the customer doesn't need an account to use it, its success doesn't depend on size of network of merchants.

Payment Terms

The cost to merchants to offer the eCharge Phone option is a one-time $50 setup fee, plus an 8.25% per transaction fee. The customer also gets hit with a consumer fee ranging between $.50 and $2.00, on a sliding scale depending on the size of the order. Merchants can pick up the consumer fee, if they choose.

eCharge Phone is a good way for merchants to get around the Visa and MasterCard restrictions on immediate fulfillment merchants. It's also an excellent way to get at the 32% of customers that don't own credit cards. Customers have to be willing to experiment with what is basically a new technology for most of them.

Mondex electronic cash works in the same way as cash which means merchants can transact using digital channels like the Internet, mobile phones and digital television with less risk of fraud.

Mondex operates on a smart card and is accessible to everyone, including the youth market and those without bank accounts.

The microchip contains a 'purse' in which Mondex value is held electronically. The purse is divided into five separate pockets, allowing up to five different currencies to be held on the card at any one time. The microchip also contains Mondex security programs that protect transactions between one Mondex card and another.

Compelling benefits to consumers and merchants transacting via the Internet, mobile phones and digital television can be seen in the following areas:

• MONDEX is a SmartCard-based electronic cash application, built for MULTOS card operating system chip cards. The MONDEX e-purse can be used in everyday cash transactions.

• Because it's electronic, MONDEX is also useful over a standard phone line, digital TV, mobile phone or via the Internet The chip maintains the last 10 transactions and locks the application with a user-selected code. Private payments between individuals are also possible (provided the infrastructure is present), helping to eliminate the need to carry around any sums of cash.

• Mondex provides a direct electronic equivalent of cash, bringing compelling benefits to consumers and merchants transacting via the Internet, mobile phones and digital television. It is simple to use, replicating exactly the workings of physical cash online and is accessible to everyone, including the youth market and those without bank accounts. The e-cash facility enables instant transfer of value between merchants and customers (or between consumers) and doesn't require bank authorization. It also allows users to make secure online purchases without giving any personal details.
  The Mondex card can be brought from franchisees and can be recharged through a phoneline. Once charged, the customer can use them to make purchases on the Internet E-cash is particularly suited to micro payments for which credit cards are too expensive. Mondex does not require central clearing or authorization. which enables a secure and confidential transfer of "money" to occur instantly - exactly like paying with cash.

• Mondex enables merchants to target e-commerce markets that are not adequately serviced by traditional payment methods e.g. the youth market, small payment market (such as selling articles or songs individually), those concerned about credit card security etc.
  Since Mondex allows the card to be recharged, there is no need to keep large amounts in the card, thus reducing risk. In addition, the buyer retains his anonymity, something that no credit card can assure.

If you are a merchant whose customers are people who have traditionally been paying cash, then Internet Cash would really be of interest. It's ideal for teens and children - and for gifts. It's also perfect for people who don't have credit cards (~31% of the US population and most of the rest of the world), or who would rather not pay with credit cards on the Web.

Customers purchase InternetCash™ cards at one of hundreds of physical stores around like prepaid phone cards, they'll also be available from vending machines and ATM machines. Customers pay the retailers for the cards using whatever payment methods the retailers typically accept, including cash. Cards are sold in denominations of $10, $20, $50 and $100.

Customers then go to the InternetCash™ site, and activate their cards by entering a 20-digit code from the back of the card and creating a personal identification number.

When the customer is ready to check out with the merchant, he selects the payment method of InternetCash™. A secure window that's hosted by InternetCash™ appears asking him to enter the card number (if he opted not to take the cookie), and to enter his pin. Purchases are automatically deducted from the value of the card, and a customer can pay with up to 30 cards. Within the next month, customers will be able to transfer value from one card to another so that they can consolidate the value of cards when they're validating them, rather than paying with multiple cards. At that time, C2C commerce will be enabled because customers will be able to transfer their balances to other customers' cards.

Once the merchant receives verification from InternetCash™ that the payment was made successfully, which takes place behind the scenes with an API that runs on the merchant's server, the merchant gives the customer an order confirmation number and the sale is concluded. The merchant stores only an encrypted digital signature from the customer and a payment authorization number from InternetCash™. Consequently, there's nothing in the merchant's database that's of value to hackers or that presents a risk for customers.

If the customer is purchasing digital goods, he doesn't even need to provide a name or address, just the payment information. In certain immediate fulfillment industries, the ones that have been targeted as high risk by Visa and Mastercard, this can really expedite the checkout process and insure anonymity on the part of the shopper.

Payment terms

As an online merchant, the discount rate is negotiated as a percentage not as a per-transaction fee, so it lends itself well to micropayments. Customers do not pay a premium to use InternetCash™, but when C2C commerce is enabled, the payer will pay a small fee to transfer money to the recipient. InternetCash™ is one of the few payment solutions that genuinely acts as an alternative currency on the Web. Anyone can get InternetCash™ because no credit card is required to make the purchase. The customer's money sits on a server, so it's not tied to the machine at which the customer is sitting when he activates his card, yet the pin resolves the repudiation issue that concerns merchants.