E Payment

Chapter 1. excogitation 1. 1 Electronic recompense outlines and their place in electronic traffic 1. 1. 1 E-commerce and electronic compensation arrangings 1. 1. 2 Limitations of traditional defrayment systems in the backrestground of online honorariums 1. 1. 3 The emergency for rude(a) stick outment systems famili atomic number 18d for e-commerce 1. 2 drug development upr word sense understanding and issues 1. 3 Research objectives 1. 4 Research range of a function 1. 4. The role of electronic defrayments in node e-commerce activities 1. 4. 2 Approach and methodology Chapter 2. assortment and characteristics of electronic honorarium systems 2. 1 Classification of earnings systems 2. 1. 1 Introduction 2. 1. 2 Primary com segmentmentalization of retribution systems 2. 1. 3 Further disuniteification of level- ground systems 2. 1. 4 Further classification of electronic silver systems 2. 1. requital intermediation plant vs. compensation systems 2. 2 Identifying the characteristics of earnings systems 2. 3 Advantages and limitations of defrayal posers 2. 3. 1 Advantages and limitations of the electronic funds feign 2. 3. 2 Advantages and limitations of the acount-based model 2. 5 Conclusions Chapter 3. User go e trulywhere of electronic reachment systems 3. 1 User sufferance of electronic stipend systems 3. 2 Survey of substance ab exploiters attitudes towards characteristics of defrayal systems 3. 2. 1 Survey participants . 2. 2 Questionnaire mark and analysis 3. 2. 3 Survey results and discussion 3. 2. 4 Implications for spendr acceptanc Introduction 1. 1 Electronic salary systems and their place in electronic commerce In the early 1990s the business and consumer homo encountered a new charge of carriageing handle business, which was named electronic commerce (e-commerce). Over the years electronic commerce has evolved into a popular and ac friendshipd way of conducting business.While exploreers ar still trying to understand it and gauge its importance and turn oer, e-commerce is ever-ever-ever-ever-changing and developing incredibly quickly, producing such(prenominal)(prenominal) extraordinary results from both business and customer perspective that its phenomenon stooge non be overlook by any unrivalled who has ever thought of conducting business, whether in online or offline environments. With many organisations and people labouring in the force field of e-commerce it has become very clear that ecommerce is here to stay and organisations and customers ar trying to get maximum engrossfulness from it.E-commerce has become especially plug-ininal in two inter think dimensions, namely business-to-consumer (B2C) and business-to-business (B2B) e-commerce. Business to-consumer e-commerce is enabling customers to entertain an increasing influence on products created, how products ar customised, and how armed dishs atomic exit 18 delivered. Ecommerce offers customers conven ient shopping methods for products, tuition and operates, electronic brinking, and personal finance management.It is making it easier for consumers to find the desired products and run, match them more precisely to their requirements, and compargon prices, (Vulkan, 2003). around(prenominal) business models entertain been developed to reenforcement sundry(a) customers take, among them ar online portals, content givers, transaction brokers and community creators. For business-to-business dealings e-commerce facilitates the form of organisation where companies rely on suppliers and product distri besidesion to respond more effectively to the changing market and customers demand and to achieve more efficient summons.This flakesetters case of e-commerce relationships offers organisations the possibility to work in the transfer contact with producers, giving more room for customization and control over business activities. This helps to reduce the costs significantly by removing middlemen from the supply chain. Good examples of companies that operate this business model atomic get 18 Dell and Cisco, (Guttmann, 2003 Laudon & Traver, 2002). Con successivenesss that e-commerce brings for business-to-business relationships are eliminating inventory, and usable and distributional costs that indirectly provide customers with blueer prices.E-commerce can help businesses to increase production flexibleness by ensuring by the bye availability of components from suppliers, to improve tincture of the products by increasing cooperation amongst purchasers and marketers and reducing quality issues, to increase opportunities for collaborating with suppliers and distributors, and to create greater price transparency the ability to check into the actual prices on the market, (Laudon & Traver, 2002). In this way e-commerce responses to the customer demand of lower prices and greater convenience. 1. 1. 1E-commerce and electronic remuneration systemsThe roughly popular exposition of e-commerce is based on the online perspective of the conducted business. E-commerce provides the capability of purchasing and marketing products, nurture and service on the net and other online environments. As for any trading activity, the issue of safe and reliable assembly lines substitute between transacting parties is essential. In an e-commerce environment, requitals take the form of money commute in an electronic form, and are consequently called electronic payments. Electronic payments are an integral part of e-commerce and are one of its around critical as pects.Generally defined, electronic payment is a form of a financial exchange that takes place between the buyer and seller facilitated by means of electronic communications. An e-commerce electronic payment is a financial exchange that takes place in an online environment, (Kalakota & Whinston, 1997). Electronic payment systems (EPSs) are summoned to facilitate the most importa nt action after the customers decision to pay for a product or service to deliver payments from customers to v barricadeors in a most effective, efficient and problem-free way.The role of e-commerce electronic payment systems is pivotal for future of ecommerce, whose further growth depends on the timely evolution of EPSs. The development of new types of e-commerce purchasing relationships and business models has created the need for new ways of money exchange and new EPSs. For instance, online auctions, (Ribbers & Heck, 2004), has spurred the necessity for personto- person payment systems to allow online money exchange between individuals. Certain types of cultivation products and work require itsy-bitsy payments and micropayments.Businesses would like to sell nurture content that costs very little, accumulating revenues with noble turnover. E-commerce EPSs can be knowing for selling specific types of products, for example for trading copy propered online content, such as mu sic. A nonher unforeseen earlier requirement is conducting e-commerce using wireless quick devices, such as mobile phones or personal digital assistants (PDA). The need for pay with mobile devices has urged the development of payment systems for mobile electronic commerce, (Laudon & Traver, 2002).In addition, ecommerce provides the possibility to enhance current payment systems or substitute them with online variants. The need for online payments was first addressed by using extant payment methods of the offline world for online payments. For example cite separate, originally mean as an offline impute instrument, conduct become the major payment instrument for ecommerce. As e-commerce and online purchasing grows, the weaknesses of computer address and debit separate, and cheques are becoming more apparent. These limitations are discussed in particle 1. . 2. The lack of the fit-for purpose payment mechanisms and infrastructure is one of the main restricting factors that h old back the growth and evolution of ecommerce, (Guttmann, 2003 Laudon & Traver, 2002 OMahony, Peirce, & Tewari, 1997). 1. 1. 2 Limitations of traditional payment systems in the circumstance of online payments Three factors are stimulating the development of electronic payment systems reduce operational and payments affect costs, growing online commerce and decreasing the costs of technology, (Kalakota & Whinston, 1997).Reduction of costs is one of the major reasons for query and development of EPSs. The weaponsinginal impetus for ecommerce and e-business is to provide a more efficient service, primarily in terms of costs. In this light, paying online with traditional payment systems such as assent tease is rather paradoxical, given that credit notifications are one of the most expensive of all available mainstream payment means for both end consumers and merchandisers, defeated perhaps only by reputation checks, (Lietaer, 2002 Laudon & Traver, 2002). Several limitation s of traditional payment systems in the context of e-commerce can be outlined. live payment systems, such as credit observances, are inadequate for retail customer digital business from the avocation adoptpoints Lack of usability. Existing payment systems for the internet require from the end put onr to provide a large amount of information, or cast off payments using complex elaborated net site interfaces. E. g. credit mental capacity payments via a meshwork site are not the easiest way to pay, as these require entering extensive amounts of personal info and contact details in a web form, (Kalakota & Whinston, 1997). Lack of protection.Existing payment systems for the internet are an easy target for stealing money and personal information. Customers leave to provide credit measure or payment account details and other personal information online. This data is sometimes transmitted in an un- underwrited way, (Kalakota & Whinston, 1997). In practice this happens even in spite of groundwork of secure proceeding mechanisms, such as Secured Socket Layer. Providing these details by mail or over the squall alike(p)ly entails aegis risks, (Guttmann, 2003 Laudon & Traver, 2002). Lack of trust.Users tend not to trust alive systems with the long history of caper, maltreatment or low reliability, as well as novel systems without established positive reputation. In the set out situation, money loss by customers is quite possible when using existing payment systems, such as credit cards, for lucre payments. Potential customers often mention this risk as the key reason why they do not trust a payment service and at that placefore do not beat mesh procures, (Lietaer, 2002). Lack of applicability. not all web sites support a particular payment method, hence limiting customers ability to pay.Credit cards work only with merchants who have signed-up to the go of the corresponding credit card friendship, and do not support direct business-to-business or interpersonal payments, (Kalakota & Whinston, 1997). Lack of eligibility. Not every potency customer with money and intention to pay can make utilize of certain(a) payment methods. Not all potentiality buyers can obtain credit cards collectable to credit history limitations, low income or other reasons, (ibid). Lack of efficiency. Some payments over the Internet can be excessively small to be handled by existing payment systems, because of overheads included in the treat of payments and transaction.Credit cards are too expensive for effecting small payments and are unsuited for small transactions. The minimum fixed fee charged to the retail merchant for treat a transaction could even surpass the value of the goods sold, (Guttmann, 2003). High usage costs for customers and merchants. Existing payment systems use a rather expensive infrastructure to facilitate the payment process. Credit cards are very expensive for end users, not in the least because of the enormous and growing size of it of fraud, which amounts to billions dollars per year.This loss is invisibly re-financed by users by the higher costs of credit card services. In addition, credit card payments are still heavily paper-dependent. Most credit card bills are sent in a paper form to customers by post, and the bills are mostly settled by posting paper documents, like checks of giro payments, which makes the whole cycle rather expensive. As mentioned above, this means that resources employed in processing of credit cards transactions render them rather ineffective for small payments, because the high overhead of credit cards, (Laudon & Traver, 2002 Guttmann, 2003).In online credit card payments credit cards are not physically available for inspection by the payee, (this situation is referred as card not present). This imposes higher charges for merchants, because the chance of fraud is higher see section 2. 1. 3 for more discussion. Credit cards have low finality of payments because use rs can disprove or repudiate credit cards payments in certain situations. Moreover, financial regulations in certain countries, e. g. in the USA and the UK, place the risks of repudiation, fraud, or non-payment largely on the merchant and issuing cants, (Laudon & Traver, 2002 APACS, 2002).These issues make credit cards less attractive to merchants. Certain au hencetication schemes, e. g. Verified by indorse and SecureCode from MasterCard allow to shit fraud liability from merchant to credit cards issuing banks, and can ease this burden for merchants, (see www. verifiedbyvisa. com and www. mastercard. com). However, end users can found themselves paying more for the cards issued by the banks to refinance banks losses delinquent to fraud. There are more concerns related to the credit card use in online e-commerce that are amenable for reluctant users acceptance of credit cards and e-commerce.According to the embrace published by market seek strong IDC, (Asmussen, Raschke, & A rend, 2002), almost one-half of European users of the Internet do not buy goods online because they either do not trust the sack merchants or fear their credit card details will not be secure. According to analysts, total credit card fraud rose to $4 billion in 2002 (i. e. $2 for every card issued). Industry estimates that the amount of online credit card fraud could be in the $5oo one million million range, (Laudon & Traver, 2002).Authorities believe that hackers have stolen more than one million credit card numbers racket from E-commerce sites. It would not be a surprise that many customers use their credit cards with reservations. A survey by indorse of 15 Banks from 12 EU countries in 2002 found that online credit card payments account for nearly half of all complaints. More than one in five of these came from people who had not even shopped on the Internet, but were billed for online transactions, (Philippsohn & Thomas, 2003). Privacy issues are also associated with the use of existing payment systems.There are cases when users identities (i. e. personal data such as credit card numbers, names and addresses) were stolen when hackers break into websites databases and obtain personal information of the customers. Fraudsters then attempt to use this information to discourteous new credit and bank accounts using the stolen identity, (Philippsohn & Thomas, 2003). These and other issues with existing payment systems such as credit cards render them not very suitable for online payments. 1. 1. 3 The need for new payment systems constructed or e-commerce Despite that electronic commerce is a growing phenomenon, its future development is, to a large extent, hampered by the lack of appropriate payment systems. Since most of business-to-consumer payments over the Internet are performed before long via credit cards, an admittedly problematic payment speciality delinquent to costs, shelter and trust problems, the need for new payment systems clearly emerges f rom the existing situation, (Lynch & Lundquist, 1996 Wayner, 1997 Laudon & Traver, 2002 Guttmann, 2003).Research and development in Internet-based payments tried to work this situation by conjuring numerous online EPSs, a good proportion of which has been put to use. This was possible due to the stimulating factors listed above, and in the first place due to the availability and reduced costs of the enabling technology. However, the new payment systems, purposely crafted for the Internet, also could not suspend their own share of problems. This has led to the reluctant use of new online electronic payment systems, i. e. esulted in low user acceptance of newly introduced payment systems by customers, (see section 1. 2). User acceptance of electronic payment systems At this stage the situation with the development of online EPSs is cold from ideal. A survey on electronic money developments by the Bank for International Settlement reports a rather low level of EPSs use, even in the most advanced countries, (BIS, 2000). According to the European aboriginal Bank, the proportion of online payments among cashless payment instruments in the European Union is rather low.The report admits that although there has been a chance of discussion on the use of EPSs and their importance it is still not a widely used medium, (ECB, 2001). The lack of customer demand, the diversity of technological standards and the lack of support by financial institutions are mentioned among the reasons preventing the development of electronic payment systems, (ECB, 2003). Some experts estimate that about 85% of all Internet transactions are done with credit cards that were not originally boded for the Internet, (Philippsohn & Thomas, 2003).According to a survey by marketing research firm Jupiter Research, credit cards are still the dominant payment method for online purchases, invoice up to 95% of online transactions in the United States, (Jupiter Media Metrix, 2000). This demonstrates s till low user acceptance of alternate electronic payment systems, designed specifically for e-commerce. 1. 2User acceptance understanding and issues End user acceptance of such sensitive technology as money-circulating payment systems is the critical key aspect of the whole path of payment systems establishment.Without such acceptance no technology can favorfully exist on the market, and payment systems are not an exception. According to Dillon & Morris (1996) user acceptance is the demonstrable willingness within a user group to employ information technology for the tasks it is designed to support. This interpretation can be enhanced with the understanding that the user perception of information technology (IT) can be influenced by objective characteristics of technology, as well as by human factors and interaction with other users and related parties.For example, the social information processing model (SIPM), (Salancik & Pfeffer, 1978), suggests that attitudes towards technol ogy are influenced by opinions, information, and behaviour of others. User acceptance is a pivotal factor determining the success or failure of any information system project, (Davis, 1993). Many studies on information technology report that user attitudes and human factors are important aspects affecting the success of an information system, (Davis, 1989, Burkhardt, 1994, Rice & Adyn, 1991). The arguments in section 1. and in the following paragraphs suggest that this is the case also with EPSs. Besides SIPM, a well-known sexual climax to explaining and poser user acceptance is the Technology Acceptance Model (TAM), (Davis, 1989). TAM suggests that users formulate attitudes toward the technology that depends on whether they get the picture the IT to be useful and easy to use. However, TAM does not take into account other factors that may be critical to user acceptance or rejection of such specific technology as EPSs, such as security, trust, privacy and relate risks.Extending t he SIPM assumption, user acceptance of online EPSs could be affected by a number of factors and parties, creating a broader sense of the social context of EPSs in the Internet environment. User experience with an EPS can be influenced or manipulated by various aspects, such as marketing, publicity, the reputation of the bank behind the system, trust towards the company operational the system and technology behind the system, and convenience of the user interface, see also Guttmann (2003), Kalakota & Whinston (1997), Egger (2003). Figure 1. attempts to ornament the social context in which parties and factors could possibly influence user perception and experience with electronic payment systems. These parties and factors should be taken into consideration when exploring issues of user acceptance of online EPSs. They are either required for a prospering operation of a payment system (banks), its promotion (marketing organisations), or monitor and regulate its operation (government) . For example, the company operating the payment service will have to address users concerns about security, privacy and trust.Users can be influenced in their experience by other parties than the operator itself, e. g. the bank or financial institution that facilitates the payment transactions, see Figure 1. 1. Customers can be influenced by the user interface, or by other parties involved in the payment service, such as technical partners. Since e-commerce EPSs operate in the Internet environment, the reputation and movie of the system can be easy communicated to other users via online communities, creating yet another social impact on the system.Therefore, social influences, e. g. opinions and behaviour of other users, like family and friends, and reputation of banks and the parties involved, should be taken into account for user acceptance of EPSs. This argument can be supported by above-mentioned SIPM, (Salancik & Pfeffer, 1978). Issues such as trust, usability, applicability , security, and convertibility are super important because they can influence subsequent decisions of people whether to use a payment system or not.There are some(prenominal) obstacles to user acceptance of EPSs developers not only have to sell the service to potential users, they also have to convince the users to entrust their money to a third troupe institution, to rely on the payment system in their business and personal finance, and to use it frequently for convenience, reliability, specific applications, services and for a variety of other reasons. To achieve this high standard of user acceptance, the creators of a payment system should ache in mind user-related factors from the very beginning of the conception of the payment system.Designing for user acceptance of online electronic payment systems is thus the main issue put forward by research rund in this thesis. An open challenge bides for designers and developers of novel Internet-based payment systems to meet user expectations, requirements, preferences and needs in design and operation of the systems. Resolving these issues is critical for the development and operation of new payment systems and future growth of e-commerce. 1. 2. 1User factors in payment technology The importance of user-related factors can be demonstrated in the example of the notorious problem of security of information systems.There are thousands of security mechanisms, matched with a growing number of hacks and security breaches, (Flynn, 2001, p. 61). However, the nature of security issues is changing with the constant improvement of information technology. While security technology is becoming increasingly sophisticated and tamper-proof, experts in information security admit that user factors are the most important issues for security problems. The vast bulk of all security issues in IT environments is caused or assisted by users inside organisations, rather than hackers and other utsiders. earnest experts know many st ories about people exchanging their passwords, or IT managers attaching notes with logins and passwords to their monitors, or about hackers finding these notes in the trash. To avoid this kind of mistakes, experts are talking about enforcing security policies in organisations, to be able to address user-related factors in security, (Flynn, 2001). Therefore, security practices have embraced user-related factors. This example helps to illustrate the importance of user-related factors in the design and operation of information systems.The following example illustrates a failure of a payment system due to neglecting to focus on user and market needs. The Chipknip and Chipper smart card payment technologies, (Nannery, 1998), were introduced in the Netherlands in early 90s. Both systems were intended to provide a way of paying small amounts in everyday transactions, which people would normally pay with cash. However, these two systems competed with each other for some time, being incomp atible, so customers could not pay with the competitors card at certain shops, (BIS, 2001).Eventually, this created problems of interoperability and limited the user base for both systems. Another obstacle was that the card readers were installed in shops where people already had another method of payment debit cards, which worked very effectively and expeditiously and which were used by most people for all kinds of payments. In a way, Chipknip and Chipper duplicated the functions and applications of debit cards. On the other hand, the real need for Chipknip and Chipper for small payments at parking lots, vending, and public transport tickets machines was not met.A serious situation arose regarding the high costs of accepting Chipknip for merchants. As the result, the union of Small and Medium Enterprises in the Netherlands threatened to boycott Chipknip, (Het Financieele Dagblad, 2001). In this case, an important factor stimulating the development of EPSs was not met, namely the r educed operational and processing costs. Despite of a certain potential for uses acceptance of e- wrinkle technology (Van Hove, 2004), this situation is changing slowly.All these issues led to a low acceptance of Chipper and Chipknip technologies. Chipper International tryd to stop operations and support of Chipper in the Dutch market, (Libbenga, 2001 BIS, 2001) Chipper has fused with Chipknip, and composition some issues have been addressed, the evaluate applications for this smart-card technology are yet to come. The example above helps to illustrate the complexity of human and marketing factors in the context of payment systems and their crucial influence on the eventual success of a payment system.Therefore, for lucky design of electronic payment systems from the user perspective it is important to find out what user-related factors and systems aspects have the most direct impact on user acceptance and which of them can cause problems when neglected in design. 1. 3Research o bjectives 1. 4Research stretch 1. 4. 1 The role of electronic payments in customer e-commerce activities The process of paying is an essential part of customers online buying activities. These activities are well described by the Consumer Mercantile Activities Model, (Kalakota & Whinston, 1997).The model comprises prepurchase interaction, purchase consummation and postpurchase interaction phases. The payment activity takes place within the purchase consummation phase, Figure 1. 2. The purchase consummation phase specifies the work of information and documents associated with purchasing and negotiating with merchants for suitable terms, such as price, availability, and delivery dates and electronic payment mechanisms that integrate payment into the purchasing process, (Kalakota & Whinston, 1997). The buyer arrives to payment activities after citeing products of services to be purchased.The buyer and seller conduct then a mercantile transaction. In a mercantile transaction the buye r and the seller exchange information followed by the necessary payment. The payment methods they use should be mutually negotiated and agreed on (ibid). Therefore, in order to conduct a undefeated e-commerce mercantile transaction the buyer should at least be willing to use the payment method offered by merchants. From this viewpoint, user acceptance of e-commerce EPSs is critical for the completion of the purchase consummation phase and the whole purchasing process. It can be therefore bserved that the payment process and the user involvement in it are highly important for e-commerce activities. Scope of payment systems Business-to-consumer pay Systems This research is focus on user acceptance of new payment systems in consumer ecommerceenvironments. The main focus of the presented work is therefore Businessto- Consumer e-commerce EPSs, which are designed with the main purpose to facilitate payments for consumer e-commerce. Taking into account the B2B systems would have made th e scope too broad to handle within this research. Payment Systems designed for the WebCurrently, consumer e-commerce is done mainly via the WWW (Web) service of the Internet. The market for conducting e-commerce payments via wireless PDAs, mobile phones and other Internet services is still under development, (Bohle, 2001a), and therefore does not have a wide user basis and usage experience. Thus, in the scope are Web-oriented online e-commerce EPSs and Web e-commerce applications. Scope of payment tasks Because the scope of the defined business relations is Business-to-Consumer, the payment tasks in the focus of this thesis are related to consumer e-commerce and trade of goods and services.In these tasks there should be at least one 1) business party involved and 2) one physical person, who is conducting purchasing activities in an ecommerce environment. Scope of target activities These activities include those that are related to buying goods and services, and essentially represent consumer e-commerce. The scope of these activities is embracing a significant and, arguably, the most important part of the consumer e-commerce represented by B2C relations. Purchasing goods tangible, require conveyance, intermediated (by shipping companies). Purchasing information and software intangible, immediate, not intermediated (by shipping companies). Purchasing services intangible/tangible, not always immediate, can be intermediated (by service companies). The following activities are therefore excluded from the scope because they are not in line with the defined scope of electronic payment systems, namely B2C consumer ecommerce. Consumer-to-Consumer (C2C) money payments and exchange.C2C payments do not belong to B2C e-commerce, (Figure 1. 3), e. g. personal auctions payments, debt settlement. Specific payment applications, for instance, gambling or adult-content sites. In this context the sites place specific requirements on B2C relations and userrelated factors, e. g. on privacy. Related activities Additional activities that have to be explored are the influence of pre- and postpurchase interaction phases, according to Kalakota and Winston (1997) on the user experience with a payment system on the whole.It is very likely that correct introduction,application and follow up of payment products and services in retail e-commerce are important for user acceptance of EPSs, and therefore the pre- and post-purchase interaction phases cannot be reasonably handle when investigating the payment process. The user experience within these phases could affect their decision as to whether to use the e-commerce service at all, without even arriving at the payment process itself. Amount of money The minimum amount of money within the scope was chosen to be above 2.This means excluding small and micropayments. The nature of payment tasks in case of micropayments is contrary from higher amounts. For instance, users may wish to automate this kind of payments to avoid the need to snuff it a payment of 0. 01 every time, while with bigger amounts they are likely to have control over each transaction. Furthermore, different researches show that at this moment there is little market for services that support small and micropayments, (Bohle, 2001b). In the focus are therefore small to medium sized payments, e. g. from 2 to 1,000.The fastness payment limit is set to 1,000 to indicate that highest amount within the scope of this research. The suggested range of payment amounts is ordinary for the current status of the domain and is identical to range of payments with existing offline EPSs, like credit, debit and smart cards, (Lelieveldt, 2001 Bohle, 2001a). large payments can be expected to raise different user acceptance issues, because of more user attention to risks, security, efficiency and other aspects of transactions with such amounts, (Humphrey, 1995). 1. 4. 2 Approach and methodologyThis research employs practices of the multidiscip linary scientific field of Human- computer Interaction in order to research issues of user acceptance and user-related factors in online e-commerce electronic payment systems. Specifics of HCI research The nature of Human-Computer Interaction is such that it has to employ various scientific, research and design disciplines and cross borders between them for successful research. HCI is different from other disciplines in that it studies interaction between people and artificially created artefacts, and not an independent inhering phenomenon, like in other disciplines.This complex nature of HCI and its research finiss compel researchers to adopt both inductive and deductive approaches to science, as described in Mackay & Fayard (1997). In the deductive approach the purpose is to generate a set of hypothesis that can explain real world phenomena. The scientist proposes a theory about a phenomenon, and formulates a hypothesis to be tried and true in an experimental research. In or der to verify the hypothesis, an taste is conducted, and with the revision of its results the theory is re-examined and an updated hypothesis is created.This approach is employed by the experimental have of this thesis. The inductive model aims to construct the most precise description of the real world, as opposed to explanation. The scientist observes phenomena in the real world without having a preconception or theory of what they are looking for. Then the scientist attempts to create a model of the world that explains the phenomena. By returning to the real world the model can be validated and changed if there are contradictions between the model and the studied phenomena.The qualitative study in this thesis employ this approach for requirements elicitation and creation of the design recommendations. The research process applied in this thesis, aimed to gain validated design knowledge, can be described as an iterative circular or spiral movement. This process is scoop describ ed by Figure 1. 4, adapted from the work of Rauterberg (2000). This approach asserts to combine analytical strength of empirical validation methods (e. g. , observation, experiment, inquiry, etc. with the synthetic strength of system design. This triangle structure conceptualizes the three most important components of HCI research (1) the collection of design relevant knowledge, (2) the interactive system in different possible representation forms, and (3) the several possibilities to represent a user for (empirical) validation, (ibid). The following sections describe how using diverse research activities helped to combine these components in the research inform in this thesis. Outline of the thesis The plat in Figure 1. illustrates a combination of the research and design activities of this thesis. These activities included acquiring design knowledge on ecommerce EPSs, applying the knowledge to a commercial payment system designed by an industrial party, and empirical validation o f the design knowledge. Chapter 2 presents a survey of literature on EPSs, which was necessary for understanding EPSs. The issuance this survey is a classification and a set of characteristics of EPSs. The importance of the characteristics of EPSs had to be confirmed with potential users of EPSs.Chapter 3 describes an investigation into the importance of the characteristics of EPSs to end users by means of a survey of consumer attitudes towards EPSs. The user survey helped to identify what characteristics should be given more attention in the design of EPSs. However, the knowledge about the importance of the characteristics did not inform how they should be realised in design of EPSs. To acquire a deeper understanding of these issues, a qualitative research in the form of a diary study was conducted, Chapter 4.The diary study aimed to understand how EPSs are experienced and perceived by users in the context of actual use and how EPSs can be designed to meet users needs. As the outc ome of the diary study, implications for design of Internet-based payment systems have been derived and formulated as design recommendations. To ensure that the application of the design recommendations benefits user acceptance of EPSs, an experimental study was conducted, that is described in Chapter 5. This study helped to substantiate the validity of a subset of the design recommendations.It was hoped to find the ideal situation where it is possible to apply the hypothesised design knowledge to a real-life system, rather than testing them in the laboratory, in order to achieve high naturalism of the results. Due to the participation of industrial parties, this situation has become available. The experimental study involved two move 1) a real-life EPS was redesigned in accordance with the proposed DRs, 2) an experimental comparison of the redesigned system with the old one has indicated improvements of user attitudes in several aspects, thus demonstrating the validity of the des ign recommendations.Chapter 2 2. 1 Classification of payment systems 2. 1. 1 Introduction This chapter presents a framework for classification and characterising of electronic systems that facilitate paying in an e-commerce environment. This framework is an attempt to describe and to relate the wide variety of the payment systems, with more than 150 payment mechanisms invented worldwide. This chapter also presents a survey of literature on EPSs, which has been a necessary step for understanding payment systems. The outcome of this phase of the research is a classification and characterisation of electronic payment systems. . 1. 2 Primary classification of payment systems The heading classification of EPSs is based on the form of money representation and the principle of money transfer. Existing payment systems can be divided into two groups electronic cash mechanisms (or electronic currency) and credit-debit systems, (Medvinsky & Neuman, 1993). Electronic cash resembles received c ash, when parties exchange electronic tokens that represent value, just as banknotes and coins look on the nominal value of effected cash money.The credit-debit approach in the context of electronic payments means that money is represented by records in bank accounts, and this information is electronically transferred between parties over computer networks. Another terminological approach offered by Wayner (1997), based on the type of information that is exchanged, distinguishes between account-based and token-based systems, which, respectively, corresponds to credit-debit systems and electronic cash in the definition of Medvinsky and Neuman. A similar distinction is found in Camp et al. 1995), who distinguish between notational and token forms of money. A different view on classification of EPSs is offered in Asokan et al. (1997), where payment mechanisms are classified based on the temporal sequence of money flows between the payer and receiver of the payments. Various attempts of classification of payment systems are also describe in Kuttner and McAndrews (2001), and Schreft (2002). These references are accumulated into the classification of electronic payment systems, illustrated in Figure 2. , which was first reported in Abrazhevich (2001b). The figure illustrates the further classification of EPSs, described in the following sections. It provides examples of EPSs in each subcategory some of these systems are described further in the text. The figure illustrates if the systems are only divinatory developments, that were only tested as limited pilots, and that have never been implemented for the commercial use. Payment mediation services that aggregate various EPSs in one payment infrastructure are described in section 2. 1. 5. 2. . 3 Further classification of account-based systems In the group of account-based systems, one can distinguish between 1) generic online EPSs that use simple account-based model for serving Internet payments, 2) systems that use the debit and credit cards model, and 3) specialized payment systems that, for instance, were designed for trading content online such as music. Some researchers consider credit cards systems as a separate group of payment models, (Medvinsky and Neuman, 1993), others consider them to be a variant of the credit-debit type.This classification adopts the latter(prenominal) distinction. The basic principle of account-based systems is that the exchange of money between accounts is maintained by a payment service provider. Users can authorize charges against their EPS accounts, as they would do with usual bank accounts, though the ways of authorization are different for various systems. With the debit approach, the customer maintains a positive balance of the account and money is subtracted when a debit transaction is performed.With the credit approach, charges are posted against the customers account and the customer is billed for this amount afterward or subsequently pays the bala nce of the account to the payment service. One of the most widely used systems for electronic payments is the debit card, which as the name suggest, is a clear example of a debit system, (Evans & Schmalensee, 1999). Debit cards combine the service of Automatic Teller Machines (ATM) cards and cheques. When customers pay with a debit card, the money is mechanically deducted from their checking bank account.In contrast with the credit cards, the spent money comes from the bank account directly. Many banks issue a combined ATM/debit card that looks like a credit card and can be used in places where credit cards are accepted. In this case, when users pay with a debit card, the payment will still be processed as a debit transaction. Other payment mechanisms that use the credit-debit model are Yahoo PayDirect, Pay- Pal. com, and theoretical payment projects like NetBill (Sirbu and Tygar, 1995), and NetCheque (Medvinsky and Neuman, 1993).A special group of account-based instruments that are currently in wide use are credit card systems. A great part of trade on the Internet is done using credit cards and these payment systems should not be overlooked. The biggest advantage of this approach is that the customers, who have already received credit cards offline, can use them directly for online payments. This also results in high scalability, as no additional installations are necessary. Credit cards provide a large customer base for merchants who accept them, thus their applicability is quite high.There are critical security issues associated with the use of credit cards in an online environment. When using credit cards over open networks, encryption mechanisms, such as widely used Secure Socket Lauer (SSL), in principle can prevent a hacker or eavesdropper from intercepting the customers credit card number. There are some schemes that even hide card numbers from the merchant, providing protection against intercepting the card details from merchant databases or against fraud by the merchant. Nevertheless, these incidents happen regularly (Caunter, 2001 IFCC, 2003 Wales, 2003).It is important to note, however, that without some form of customer registration with a payment service or inviolable proofs of identity, credit cards can be very risky to pay with and can be easily abused. Even encrypted Internet credit card transactions do not include the owners signature, and anyone with knowledge of the customers credit card number and expiration date can create a payment order. An important aspect of credit card payments in the online world is referred to as card-not-present (CNP) transactions.CNP transactions are those where uncomplete the card, nor its holder are present at the point of sale, e. g. in orders by mail, telephone, fax or the Internet. The buyer does not have to demonstrate the physical presence of the card, or the card and the buyer do not have to be co-located. This imposes issues with card validation, security and fraud. CNP transac tions are widely used in mail order/telephone order purchasing (MOTO) which also do not require co-location of buyer and seller. To secure transactions of this type, credit card companies ask for additional information, such as name, address, etc. that can be used to verify their identity, for instance, if the ordered goods should be mailed to the billing address associated with the credit card. Other information often required is the additional 3-4 digits code, printed on the back side of the card and not present in the credit card number. Merchants ask the customer to read this code from the card in a card-not-present order. The merchant then asks for verification during the authorization process. The issuer (or credit card processor) validates the code and relays the decision to decline or okay the transaction to the merchant.Nevertheless, the MOTO transactions incorporate limited protection against credit card fraud. Credit card CNP transactions could sometimes employ even less identity verification information. Since no signature involved in CNP transactions, the buyers can opt out of any order, if they claim they did not agree with the purchase, (OMahony, Peirce, & Tewari, 1997). The charges for orders cancellation are borne by merchants in the form of the higher costs for processing of CNP transactions. In addition, merchants could be liable for the whole amount of the dispute order, (APACS, 2002).Furthermore, because online payments are administered as standard credit card charges, the costs are too high to make this method unsuitable for payments below 1 and hence inefficient. Credit card companies are constantly hard the minimum amount that can be paying to enable small payments, but charges for merchants still remain high. It should be also taken into account that cards are issued by banks and organisations, which after a screening, decide whether they can issue credit cards to certain customers.Customers with a low income, an imperfect credit hi story, major power not be eligible for a credit card. This may restrict the customer base to a certain degree and limit user and merchant acceptance of credit cards as a payment method. 2. 1. 4 Further classification of electronic cash systems Electronic cash is stored in a digital form and serves as a cash substitute for the Internet or other information systems. Electronic cash represents value in some form and can be spent with merchants, who stay put money in their own accounts or can spend it in other places.It can be represented by electronic bills and coins, certificates, packets of data, or electronic tokens in one form or another. When using electronic cash systems, customers purchase electronic digital tokens from the issuing company using a conventional payment system, e. g. credit cards, electronic checks, or even paper currency (for example, via a reverse self-acting teller machine which accepts cash, or when purchasing prepaid cards). Some of the systems allow conve rting electronic cash back into another form of money (Medvinsky and Neuman, 1993), which is very important for convertibility of the systems.Another distinction amongst electronic cash systems is between those that use smart cards for the storage of tokens and those where tokens reside only on users accounts and computer networks. The cause are often called electronic purses (e-purses), the latter are sometimes addressed as online cash or Web cash. Examples of e-purse electronic cash systems are CAFE project, (Boly et al. , 1994) and Mondex (Martin, 1994). Tokens in these systems exist and travel in the computer environment,for example, on a currency server or customers hard disk.Mondex is a smart card payment system that was designed to enable person-to-person as well as Internet payments, (Van Hove, 1999, p. 141). The card can be used to make small payments, store personal and application-specific information, and serve as a telephone card. Web cash representatives are E-cash, E- gold, Millicent (Glassman & Manasse, 1995), PayWord and MicroMint (Rivest & Shamir, 1996), and NetCash system (Medvinsky and Neuman, 1993). It has to be noted that these systems are mostly theoretical work and have not been implemented on the market. Systems that employ smart cards e. g. Chipknip, Chipper in the Netherlands, Proton in Belgium, and Visa Cash can be also placed in the category of electronic cash and also called e-purses, however, in representing money they hardly use tokens. In this case, the numerical data stored on the card is changed when a payment takes place. Judged by the principle of the operation and use they act like electronic purses. The value is stored on a card and if the card is lost, the money is gone, in a fashion similar to cash. It has to be noted that smart cards like Chipknip are not principally designed for Internet payments and are used mainly at point-of-sale terminals.There have been nevertheless pilot tests of facilitating paying over the Inte rnet with Belgian Proton smart card EPS, but the use of Proton on the Internet is now discontinued. An important development towards standardisation of e-purses is establishing Common Electronic Purse Specifications with the goal to define requirements needed to implement a globally interoperable electronic purse program, while maintaining full accountability, (see www. cepsco. org). CEPS, which were made available in skirt of 1999, outline overall system security and certification.Being established by the key parties in electronic purse cards, and supported by organisations from over 30 countries, CEPS paved the way for the creation of an open global electronic purse standard. For cardholders it means that they will be able to use their electronic purse cards domestically and internationally with the knowledge that the card will be accepted wherever the acceptance mark is displayed. Visa Cash is an example of CEPS implementation, (see www. visa. com). Prepaid card EPSs can be also included in the comparable category of electronic cash, because the principle of their work resembles the use of e-purses, such as Chipknip.Users can buy a prepaid card for a specified amount. Prepaid card systems are specifically designed for Internet payments. Users can pay with a prepaid card by entering on merchant sites the cards unique number, which corresponds to the cards nominal. The value of the card is decreased by the amount paid to the merchant. To better understand what issues that surround electronic payment systems, it makes certain sense to introduce a definition of payment mediation services, which use existing payment systems as mediators to provide extra services. 2. 1. 5 Payment mediation services vs. payment systemsTo further refine the focus of this research, we have to make one important distinction, which is between payment mediation services and payment systems. This distinction particularly makes sense in the context of electronic and Internet payment me chanisms. Payment mediating services have appeared as a response to the brand and inefficiency of current payment systems for the Internet. They extend the services of the existing systems and operate as mediators between merchant, payment systems and users. Their goal is to help merchants to accept as many payment systems users could possibly deprivation to use when paying over the Internet.In payment mediation services the existing payment infrastructure from many payments providers is aggregated to provide broader services, or to overcome shortcomings of the available payment options. Figure 2. 2 describes the relations between merchants, EPSs and payment mediation services. The remainder between payment mediation services and payment systems can be summarized in that a payment mediation service is as an intermediary between payer, business, and payment system, while there is no such middle tire for payment systems. The payment process in this case is transparent to the users of a site.A mediating service provider intercepts payments from users, processes them, and credits the account of the owner of the site when the authorization and transactions are completed. For example, there are numerous companies among mediating services providers that facilitate acceptance and processing of various credit cards. A special class of payment mediation services has emerged, that provides convenience for paying bills for businesses and end users. An example of payment mediation services is providing bill payments for end users and companies, for instance, utilities or telephone bills.Over a Web front-end provided by the billing systems, customers and companies can pay bills that are normally paid offline by paper cheques or bank transfers. Some systems even provide additional services such as automated accounting merged with online payment facilities. Syndication of payment services Another angle on payment mediating systems is viewing them as a form of syndication o f payment services in an online environment. The notion of syndication originates from the entertainment world, where it forms the fundamental organizing principle.With the advent of the new economy and the use of the power of Internet distribution, syndication can be recognised as an emerging model for e-commerce. In this context syndication would mean selling the same information to many different customers, who render and integrate it with other information in various value-adding ways and then redistribute it. According to this principle, businesses involved can play three or more roles originators who create original content syndicators, who collect and package digital information to meet specific customers needs and distributors who deliver digital content to customers, (Werbach, 2000).In the context of online payments, payment mediation services can be seen as syndicators of the original services offered by payment systems. Payment mediation services syndicate e-commerce EPSs , offering merchants the way to accept a variety of payment systems. Examples of payment mediation services A good fiction a payment mediation service is Bibit Billing Services (www. bibit. com). This Dutch company specializes in Internet payment and billing services. The service supported about 70 payment methods from 18 countries by 2004.When customers want to pay on a Web site of a Bibits client, they select one of the provided payment methods. The payment process goes as follows 1. A customer selects products on sale in a virtual(prenominal) shop. 2. For payment, the customer is then redirected to Bibit Payment Service. 3. Within Bibit Payment Service, the customer can select a payment system he or she would like to pay with, provided it is supported by Bibit. The customer makes the payment with the system of his or her choice. 4. After a successful payment, Bibit notifies the merchant that the order can be shipped and transfers the money to the merchant.The processing of the t ransactions, which is conducted entirely by Bibit, is therefore transparent to the customers of the site and the client company. The company business model, which utilizes a number of payment systems, relies on providing extra services to facilitate payments, and therefore it fits into the definition of a mediating system. It is interesting to note that the service allows the use of micropayments, by accumulating charges for products like news, articles, stock and research reports, online games and charging users on a subscription basis.Examples of other payment mediation services are Orbiscom (www. orbiscom. com), iBill (Ibill. com), PayTrust, (www. paytrust. com), DataCash (www. datacash. com), PayNet (www. paynet. ch). Systems that conceal real customers credit card numbers by providing them a unique temporary card number for each transaction have gained certain popularity among payment mediation services. The customers can then use this unique number in a normal credit card tran saction, and their real credit card will be charged.This temporary card number expires after every transaction and would not be approved for the subsequent use. The data of real credit cards of customers is not exposed to parties online in online transactions. In this case the payment mediation services are using credit cards infrastructure to provide extra security and anonymity (ABN-Amro e-wallet, O-Card by Orbiscom. com). By using these measures merchants expect to accept more secured payments without changing the way shoppers pay and without changing existing payment processes or infrastructure.The research summarized in this thesis is concerned mainly with payment systems and not with mediating solutions for existing payment infrastructure. Payment mediation services on the Internet emerged because of the absence of relevant payment solutions or have problems that prevent their successful use by merchants and users. Many of EPSs are probably transitory systems, unable to on th e whole solve problems that appear in the context of the Internet paying process, because the problems originate in the payment systems they use see discussion on PayPal. om in section 2. 4. While syndication of EPSs by payment mediation services provides in the end a better level of service than individual EPSs they use, it also places the payment mediation systems out of the scope of this research, which is exploring ways to design better individual EPSs. 2. 2 Identifying the characteristics of payment systems As detect in the example with Chipknip and Chipper in the previous chapter, there are a lot of factors that determine the success or failure of payment systems, and not all of them are of technical nature.As mentioned already, user acceptance depends on many issues, such as consumer choice, preferences, advertisement, a state of the market, etc. The discussion of diverse aspects of electronic payment systems can be found in many works on development and research of payment systems. Attempts to classify and describe the requirements and characteristics of payment systems such as security, reliability, convertibility, efficiency, traceability, and others can be found, among others, in the works of Medvinsky & Neuman (1995), Langdon et al. (2000), Lynch & Lundquist (1996), Wayner (1997).It has to be noted however, that these studies are mainly focused on technical aspects of electronic payment systems, which is not the only facet that is important in this field. Below the characteristics of payment systems are extended to account for user-related aspects of EPSs. These characteristics can be also used for assessment of payment systems, as described further. The list of characteristics of payment systems Anonymity, privacy This characteristic reflects the desire of users to protect their privacy, identity and personal information.In some transactions, the identities of the parties could be protected by anonymity. Anonymity suggests that it is not possible to discover someones identity or to monitor an individuals expending patterns. Where anonymity is important, the cost of tracking a transaction should outweigh the value of the information that can be obtained by doing so. As an illustration, when a customer pays with a debit card, the purchase is registered at the vendor and banks databases. It is possible to find out what amount was paid and what actually was purchased. Thus debit card payments are not anonymous.On the contrary, when one pays with cash at a shop or in a marketplace, no one can say by examining the cash that money came from the payer, as there is no direct information about this payers personality associated with the banknotes. Thus, cash is an anonymous payment system. Currently, the right of users to choose how their personal information is disclosed is viewed as privacy. There are privacy laws in several countries that limit usage of personal information by banks, authorities and other parties, including onlin e businesses and payment systems, like European privacy acts or similar directives, e. . European Commission Data Protection Directive. Applicability The added value of a payment mechanism is dependent upon how useful it is for buying something. Applicability (or acceptability, as it is often referred in literature, (Medvinsky & Neuman, 1995)) of a payment system is defined as the extent to which it is accepted for payments at points of sale, or at online e-commerce sites in this case. For instance, cash is accepted widely and virtually everywhere in the offline world and thus has a very high level of applicability.Debit cards and credit cards have a very high applicability, as one can pay with them in a variety of places. The applicability of a payment system may vary from country to country. For example, in Germany and in the Netherlands cheques are no longer common due to the steady growth of other payment methods. However, in the UK and the USA cheques are still quite a common m ethod of payment and the level of their applicability is quite high. Authorization type Authorization type is referred in the literature as the form of a control over the validity of transactions, (Lynch and Lundquist, 1996 Asokan et al. 1997). The authorization type can be offline or online. Offline authorization means that users of the system can exchange money while not connected to a network, without a third party mediating for the transaction. Paper cheques are an illustration of offli