The term online payment simply refers to a "transaction of goods and money in any form through the online media." There are three main types of online payment, which include one-time customer-to-vendor payment, recurring customer-to-vendor payment, and automatic bank-to-vendor payment.
One-time customer-to-vendor payments are used on retail and e-commerce websites, which ask the customer to provide their credit card information after they choose the products or services they’d like to purchase. Some websites allow customers to pay with a gift card, or even with an e-check, in which the customer would enter their personal checking account number and bank routing number, rather than their credit card number.
Recurring customer-to-vendor payments are scheduled payment plans, usually offered by businesses and companies that either have contracts or long-term ties with customers. Customers use this option to schedule automated direct debits at scheduled times, usually once a month.
Automatic bank-to-vendor payments are only available to a customer if their bank offers the online bill pay feature. Bank websites usually have a separate section on the customer’s personal banking page that allows the customer to transfer money between accounts, and to set up automatic or manual bill pay.
While it’s clear that the purpose of electronic payments is to provide customers with a convenient alternative, there are still a large number of people who do not use online payment services, and there are a few concerns with the way the system works.
History
Believe it or not, the idea of online payment was thought of before we even had the World Wide Web. In the late 1970’s, Michael Aldrich, an English innovator, came up with the concept of teleshopping, which would currently be called online shopping or e-commerce. His concept allowed us to think of the Web’s potential in a new way, and businesses everywhere wanted to find a way to make this online transaction system possible.
In 1987, CompuServe’s SWREG allowed software and shareware developers to sell and share their products in an online market, using “merchant accounts” and a secure payment system.
After Tim Berners-Lee developed the World Wide Web in 1990, Netscape introduced Secure Sockets Layer (SSL) in 1994. SSL technology encrypts the data to allow secure transactions to take place by confirming that the customer’s information is being received correctly by the right site or system. However, businesses do need to apply for an SSL certificate online in order to be able to access and use the encryption. That same year, Pizza Hut opened an online pizza shop, which allowed customers to order and pay for pizza without having to call them directly.
In 1995, Amazon introduced its online shopping site. Amazon patented the 1-Click shopping method in 1999, in which customers save their payment information on Amazon’s website in advance, and can, at that point, purchase anything on the website with a single click, without using any shopping cart software on the website. Since this patent’s release, Amazon has licensed 1-Click ordering to the Apple Store for online purchases. However, many businesses have recognized the need for a simple payment system for customers to use, and some have found ways to work around the patent, simply by using 2 clicks instead of 1.
In 1996, eBay’s auction website came onto the radar, and allowed customers to work with online payments on both ends of the transaction. Initially, eBay purchased Billpoint to use as its official payment system, however they quickly found that customers preferred other payment systems, such as PayPal because Billpoint was used strictly for eBay auction payments, and could not be used for other transactions on other sites.
In 2002, eBay finally bought PayPal and adopted it as its official payment system. This was an easy transition for most of eBay’s buyers and sellers, because most of them had already been using PayPal as their preferred method of payment prior to the change in systems.
How to Use Online Payment
Customers
For customers, online payment is a convenient alternative to payment by mail. Most retail websites have a separate checkout page in which the customer can choose to checkout as a “returning customer” (someone who has already allowed the website to save their payment information in the past), or as a “guest” (someone who has either not used the site before, or who has chosen in the past to not allow the website to retain personal information). These options allow customers to decide whether or not they want their information to be stored in the website’s database for future purchases.
In this case, systems like PayPal are extremely efficient. Most retail and e-commerce sites allow customers to pay through PayPal, so the customer simply needs to enter their PayPal username and password, and the payment is taken care of. Payment systems like PayPal also allow customers to view all of their pending and past transactions in one place, rather than in each of the sites they’ve made the purchases with.
Customers usually have several payment methods to choose from besides PayPal, including credit cards, debit cards, gift cards, coupons, and the Automated Clearing House Network (ACH), which consists of direct deposits, direct debits, and e-checks.
There is now also an option for kids and teens called BillMyParents, which is a system that does not act as payment at checkout, but rather as a way to send their shopping carts to their parents in the form of a wish list. At that point, the parents can review the shopping cart and either choose to checkout and purchase the items for their kids, or to clear the shopping cart if they don’t approve of the requested items. BillMyParents has also introduced a BillMyParents MasterCard prepaid debit card, which is now also a common option at many checkout stations.
Businesses
Businesses have the option of deciding to take care of online payments and transactions as an in-house service, or to work with a separate payment service like PayPal or ProPay to handle the transactions for them. If a business chooses to handle its own transactions, they can keep all of the profit they make from a transaction, however they have to apply for an SSL certificate, as previously stated, in order to ensure that all transactions on the site are secure. With shopping cart software, customers will be able to select items, and view and edit their selections before they purchase the items. The business then needs to find an appropriate payment processing service to be sure that all payment information is valid. These services are often available through separate online companies, and have the ability to validate a variety of payment methods.
Benefits
For both the customer and business sides of online transactions, there are several benefits. The two primary benefits are related to the low cost to use the system, and the immediate response from the system.
Customers and businesses are both finding that online payments save them time, because the alternative paper systems are less convenient, and less direct. Businesses have proven to be more successful when there are more convenient points of purchase, so we’re finding more and more corporations that provide an online alternative for customers to find and buy their services and products. This makes it possible for smaller businesses to reach a larger market, because customers will buy what they need if they’re given the appropriate and convenient resources to do so.
Dangers
While online payment is such an easy process, many customers are still weary about whether or not it’s too easy. The main concern with online transactions is the fact that personal information has to be entered to complete the task. Obviously, you can’t purchase an item or service without giving your credit card or check information, however, the problems arise when customers agree to save their information with the sites they use the most. It seems like the best thing to do, because it will save the customer some time whenever they decide to make an online payment in the future. However, the more sites that a customer allows to save their personal information, the more opportunities there are for hacking and identity theft.
This is something that cannot be completely stopped, but there are actions we can take as responsible customers and cyberspace users to prevent this from happening to us. It’s important to keep all personal information out of reach – don’t save any passwords or payment information in public spaces, public servers, or even on sites that require a username to access the information. It’s also good to know when payments are being processed on a secure site, which can be found simply by checking out the site’s web address. If the address starts with “https,” the site is secure. However an address that starts with “http” is not a secure site, and should not have access to personal information or payment information.
Conclusion
Due to the continuing rise in technology, it is becoming crucial for businesses to be connected with their customers through alternative media in order to maintain relationships, and to gain profit. Online banking allows these businesses to provide customers with a convenient way to purchase services and products, which can essentially be done anywhere with an Internet connection. Online banking is also becoming a simple-enough process that individuals can use services, such as PayPal, to efficiently buy, sell, and trade products with other individuals.
Online banking is opening doors for businesses and shoppers alike, and the amount of online banking users still continues to grow.
References
http://communication.howstuffworks.com/electronic-payment.htm
http://en.wikipedia.org/wiki/Paypal
http://images.google.com/
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