Institute forProspective Technological StudiesDirectorate General Joint Research CentreEuropean Commission

The Potential ofServer-based Internet Payment Systems– An attempt to assess the future of Internet payments –

Background Paper No. 3Electronic Payment Systems Observatory (ePSO)

July 2001

K. Böhle

EUR 19935 EN

IPTS, World Trade CenTel: +34

ter, C/ Inca Garcilaso, s/n, E-41092, Seville, Spain 954488281, Fax: +34 954488208URL : http://epso.jrc.es/

European Commission

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Report EUR 19935 EN

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AbstractThis assessment of the future of Internet payments concentrates on the potential of server-

based Internet payment systems. The central server-based approach is seen as a relevant

future trend and "paradigm shift" in the development of Internet Payment systems. The

analysis therefore goes beyond the mere observation of a "second generation" of Internet

payment systems (such as prepaid scratch cards, "private currencies", P2P systems, and

3D-SET).

The assessment is problem-oriented. To analyse the Internet payment problem and to

understand the medium term development of Internet payment systems, the Internet

payment problem is defined and its main parameters are distinguished. These parameters

or criteria constitute the tool later used to assess the advancements and drawbacks of

server-based Internet payment systems. To better understand the recent trend towards

server-based payment systems, an evolutionary approach to the development of Internet

payment system is also taken.

The analysis reveals the remarkable potential of server-based payment services. From the

customers' and merchants' point of view, the new approach is an important step forward

with respect to ease of use, minimising the requirements for local software. It can also be

seen as a major step towards a common user experience. Server-based payment services

have the potential to integrate different payment systems and to provide further added

value services, e.g. EBPP. The server based approach has also strengths when it comes to

payments without a bank account, P2P payments, micro-payments, anonymous payments,

and it is a must for mobile phone payments. A range of intriguing questions needs further

consideration, for example:

� The new approach strengthens the strategic position of payment service providers.Will this help to facilitate cross border payments?

� Will the new approach, defined by access to a central server, slow down the progressof payment schemes that rely on smart cards and PKI infrastructure?

� Do "virtual accounts" (sometimes combined with prepaid cards) meet the criteria anddemand for true "electronic cash"?

� How can regulators cope with the speed of technological change, the intricate“technicalities”, and the contingency of emerging payment systems like "prepaidcards/prepaid accounts"?

Contents

1 INTRODUCTION....................................................................................... 11.1 Role of the background paper.............................................................. 11.2 The future of Internet payment systems .............................................. 2

2 THE INTERNET PAYMENT PROBLEM................................................... 32.1 Common misconceptions .................................................................... 32.2 THE REAL PROBLEMS ...................................................................... 4

3 THE DEVELOPMENT OF INTERNET PAYMENT SYSTEMS ................ 73.1 Pre-history ........................................................................................... 73.2 Pioneer phase...................................................................................... 93.3 "Roll back forward" ............................................................................ 103.4 Internet payment systems – the second wave ................................... 11

4 THE "SECOND WAVE": A PARADIGM SHIFT ..................................... 12

5 ASSESSMENT OF ACHIEVEMENTS AND DRAWBACKS................... 185.1 Convenience...................................................................................... 185.2 Trust and security .............................................................................. 195.3 Special groups and special payment situations ................................. 195.4 Competition ....................................................................................... 205.5 Reduction of available payment options (electronic cash) ................. 215.6 "Technicalities" as a regulatory problem............................................ 21

BIBLIOGRAPHY ........................................................................................... 23

1

1 INTRODUCTION

1.1 ROLE OF THE BACKGROUND PAPERThis third background paper is about the future of Internet payment systems. This topic

was suggested and approved at the first Steering Group Meeting of 21 November 2000.

The future of Internet payment systems has already been the focus of two issues of the

ePSO-Newsletter (ePSO-N 05 and ePSO-N 06) supporting the preparation of this

background paper. As with all the background papers, the draft version has been sent to

the Steering Group for review. Comments received from the Steering Group, and

members of the ePSO-Forum have been considered for the present version. Remarks by

Benjamin Hanssens (ECB), Amir Herzberg (NewGenPay) and Arnd Weber (ITAS) have

been especially helpful.

Our assessment of the future of Internet payments concentrates on the potential of server-

based Internet payment systems. Obviously there is a new generation of Internet payment

systems: prepaid scratch cards (e.g. InternetCash, paysafecard), loyalty and incentive

schemes (e.g. beenz), P2P systems (e.g. PayPal), micro(billing) solutions (e.g. kiosque or

NET 900), 3D-SET credit card payments, and also the range of mobile payment solutions

aimed at the Internet belong to this new generation. We hold that these payment systems

are visible expressions of a major underlying trend towards a centralised server-based

approach rather than just a number of unrelated new payment methods. Assuming that

this trend exists, we can start scrutinising its implications and consequences. What are the

shortcomings and disadvantages of this development?

Our analysis suggests that the new approach provides some clear benefits, especially in

terms of convenience for users, adequacy with respect to many payment types and

situations, and harmonisation at the level of payment infrastructure. The trend towards

server-based systems also raises new and intriguing questions:

As the new approach strengthens the strategic position of payment service providers, will

this help to facilitate cross border payments?

Will the new approach defined by access to a central server slow down the progress of

payment schemes that rely on smart cards and PKI infrastructure?

Do "virtual accounts" (combined sometimes with prepaid cards) meet the criteria and

demand for true "electronic cash"?

How should regulators cope with the speed of technological change, the intricate

“technicalities”, and the contingency of emerging payment systems?

2

1.2 THE FUTURE OF INTERNET PAYMENT SYSTEMSUp until now, there has been very little discussion of electronic retail payment systems

outside practitioner circles. Even ground breaking innovations like the move from

payment of wages in cash to giro transfers, the introduction of credit cards, the emergence

of international payment networks, or the spread of ATMs went without major public

debate. More attention has been paid to the introduction of electronic payment systems at

Point of Sale, and especially the development of electronic purses.1 This cannot be

compared, however, to the hype produced by every announcement of a new Internet

payment method or pilot. To judge from the list maintained by Michael Peirce (2001) and

the ePSO-database of e-payment systems (2001), there are about 150 different schemes.

Of course, their status and state of deployment vary considerably. The excitement they

generate, however, has not yet yielded many in-depth studies on the subject for two

reasons. Firstly the apparent pace and dynamics of development seem to make it too early

for retrospective studies and, secondly, the future is hard to predict, discouraging

prospective studies.

Our attempt at understanding the medium term development of Internet payment systems

is problem-oriented. Consequently we start (in section 2) defining the Internet payment

problem and distinguishing its main parameters. These parameters or criteria also

constitute the tool we later use to assess the advancements and drawbacks of new

payment systems.

To better understand the recent trend towards server-based payment systems, a look at the

short history of Internet payment systems is helpful (section 3). Instead of calling it

"history", it would be better and more precise to talk of "re-construction" of the

development process. It helps to be aware of:

- early pointers to the server-based approach,- the number of payment options available (what they share, where they differ),- the competition between payment service providers, and- the disappearance or weakening of certain payment options when a winner, i.e. a

dominant approach, catches on.

We propose a model of four consecutive stages. In the most recent stage we address the

second wave of Internet payment systems.

1 For the wide e-purse literature see Leo van Hove's bibliography available as searchable database at the

ePSO website http://epso.jrc.es/.

3

In section 4 we further analyse the "second wave" and argue that it represents a "paradigm

shift", comprising front-end and back-end innovations – changing fundamentally the way

payments on the Internet are made. Finally, in section 5, the new server-based approach is

assessed, focussing on the advancements it brings, remaining requirements, and new

questions posed.

2 THE INTERNET PAYMENT PROBLEM

2.1 COMMON MISCONCEPTIONSAn assessment of the Internet payment problem must start by identifying the

misconceptions behind common assertions, before focussing on the real problems.

First: It is sometimes believed that Internet payment systems could evolve independently

from the overall retail payments sector. This is not true. Their development is not

autonomous, and remains linked to the general development of retail payment system.

The development of Internet payment systems is often based on existing electronic

payment systems, and vice versa.2

Second: It is often stated that e-commerce requires Internet-specific payment systems.

This is not generally true. Internet payment systems are not required as long as the

Internet is used as just another order channel for distance selling of physical goods in

addition to mail order and telephone order (MO/TO). Surveys asking customers and

merchants what payment methods they prefer for purchases on the Internet reflect and

confirm this. The results are always the same: the traditional non-electronic payment

systems are the most popular. If electronic payment systems are chosen, traditional

methods from the real world (credit card, debit card) are the most frequently used. Two

recent studies, one based on a survey of e-tailers (Berlecon Research 2001), the other on a

survey of Internet users of which 90% had already bought something via Internet

(Stroborn 2001), prove the above statement. Although both studies were conducted in the

German market, their general results should apply to other European countries too.

The case is slightly different if we consider cross-border trade of tangible goods. Cash on

delivery, paying via credit transfer or using a credit card are possible, but costs involved

and problems of dispute resolution and consumer refund make cross-border trade often

less attractive. In addition not all national payment instruments, e.g. debit card payments

or e-purses, are internationally viable yet due to a lack of standardisation and

2 It is only a matter of time before Internet technology migrates to the real POS (eg as "soft POS") or,

equally, before the retail payment networks migrate to the Internet.

4

interoperability. There might therefore be a niche for new Internet payment systems. All

in all however the demand for new international payment methods should not be

overestimated. On the one hand cross-border trade is only a minor fraction of retail

commerce, and on the other hand in many cases, B2C e-commerce cross border is not

sound, either from an ecological point of view or with respect to transaction costs. Most

retailers, trying to serve an international customer base, will also establish a distribution

network (including stores and accounts at different national banks) thus converting

international trade to local trade.

Third: It is often stated that e-commerce for intangible goods and services requires

Internet-specific payment systems. We would agree. The delivery of digital goods all over

the world in real-time, sophisticated ways to make use of all types of remote databases

and electronic services, and copyright management problems require adequate payment

mechanisms. Nevertheless even this part of e-commerce has never been absolutely

impossible on the Internet using standard payment instruments like credit cards.

Fourth: It is often stated that security is a fundamental problem for Internet trade. This is

true. If the partners involved, however, are willing to accept the risks or are not aware of

them, then unsecured e-commerce is possible. It must therefore be underlined that

adequately secured payment instruments (with e.g. security equivalents for “card present”

or "hand-written signature") are desirable, but not an indispensable condition for e-

commerce. Indeed, even today payment data is frequently sent over the net without any

security measures or using just SSL. It is however questionable whether this unsecured

type of e-commerce is sustainable as risks and fraud develop.

2.2 THE REAL PROBLEMSIf the real problems are not of the "to pay or not to pay" variety, what are they? Precisely

because Internet payment systems are not indispensable, what matters is the quality of

service. There is a need for considerable improvements especially when paying for digital

goods and services. It is not a general, but a qualified need composed of many different

parameters. To map the most important parameters we offer a set of criteria that can later

serve as a matrix to assess advancements and bottlenecks of Internet payment systems.

These criteria are presented in Diagram 1 below.

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Diagram 1: Criteria defining problem areas / quality of payment services

The scheme offered proposes first a basic distinction between payments for digital goods

and services on the one hand and physical goods on the other hand – for the reasons

explained above. In more detailed studies further subdivisions of goods and services

would make sense.

Next we propose two general criteria, convenience and trust. Both criteria can be

represented on a scale from high to low, i.e. payment systems that are very convenient to

use through to those that involve extreme effort, and those attracting a high level of trust

through to those where high risks are involved. Of course, both criteria are composed of

many factors.

A ‘convenient’ payment system, for example, includes factors such as ease of registration,

download, installation, configuration, user-friendly interface, fitting into and taking up

common habits, a hotline for user requests etc.

Factors affecting ‘trust’ are associated firstly with technical procedures (e.g. algorithms,

protocols), and social procedures (e.g. the distribution of liabilities, data protection,

domestic payments / crossborder payments

B2C payments / P2P payments

recorded payments /anonymous payments

groups with bank account(credit card) / groupswithout bank account(credit card)

established B2C relation /spontaneous purchases

physical goods / digital goods

convenience/ effort of use trust (incl. security, privacy)/ risks

higher value payments /micropayments

Internet-Payments

6

guarantees, seals of approval), and secondly with assessments of parties and actors

involved (e.g. trusting your certification authority, trusting an adult content provider, a

bank from an off-shore country, etc).

It has to be underlined that trust is crucial for e-commerce on open networks because of

the specifically risky situation:

- open networks have as yet no built in security architecture,

- the merchant is not present,

- the customer is not present,

- the payment card is not present,

- the goods to be purchased are not present (only as representations), and

- delivery of goods and payment are not synchronised.

The next two criteria on the left-hand side of the diagram indicate specific social relations

relevant to e-commerce: between customer and merchant, and between customer and

bank. Is there already an established relationship to rely on when an online-transaction

takes place? Where there is none, more specific and difficult situations arise, i.e. mainly

where payments for spontaneous ("pay as you go") and/or anonymous purchases are

made. To a certain extent, they reflect the need for an equivalent of cash in the virtual

world.

On the right hand side are three pairs of criteria defining payment types. The payment

type has an influence on the choice of appropriate (and available) payment methods.

There are cases where recorded payments are needed and welcome and others where

anonymous payments are preferred. The choice of payment method also depends on the

amount of money to be paid. The two extremes on a scale of payment values, i.e. high

value payments and micro-payments, are particularly problematic. Very high payments

require additional trust and may also require a trustee as intermediary, micro-payments

may need efficient payment mechanisms either of the prepaid type, where amounts are

"tickered" down or of the (micro)billing type, where aggregation comes first and payment

later.3

Comparing domestic and cross border payments, the latter are more challenging, because

not all national payment systems are applicable and trust is, generally speaking, reduced.

3 There seems to be consensus that transaction based micropayment systems (pay now) are not the way to

go and that there are a range of business models for small value products circumventing the micro-payment problem relying on indirect revenue streams or subscription models. The need for micropaymentsystems is debated for instance in Riehm and Böhle 1999 and Clay 2000.

7

Global Internet commerce and European integration, however, increase the importance of

resolving problems with cross border payments in the B2C sector.

This leads to the distinction made between B2C payments and P2P payments. P2P

facilities gained momentum with online auctions, and, as such, they alleviated the

payment problem in a specific segment of e-commerce. P2P schemes, however, also

allow for money transfers from person A to person B – thus competing, for example, with

credit transfers or checks. P2P Internet payment systems may also have some relevance

for the cross-border credit transfer issue still relying on costly funds transfer systems

established by banks.4

In short: this set of criteria helps to structure and define problem areas and to assess the

state of Internet payment solutions.5

3 THE DEVELOPMENT OF INTERNET PAYMENT SYSTEMS SO FAR

This section looks at the past to better understand current trends. We distinguish four

phases in our reconstruction of the development process: (1) pre-history, (2) pioneer

phase, (3) "roll back forward" (banking sector initiatives) including the incipient death of

first generation Internet payment systems, and (4) the current second wave of Internet

payment systems.6

3.1 PRE-HISTORYBefore the Internet really took off, several developments in the e-payments field had

already taken place - all relevant to later Internet payment systems. We let the pre-history

end in 1992, when the World Wide Web became a success and the number of IP-Servers

exceeded one million.

Since the 1980s, different types of electronic payment systems have been developed. The

principal rationale has been to replace, at least in part, the use of cash and paper-based

payment instruments, which were regarded as too costly. We saw the emergence of e-

payment systems at Point of Sale like, for example, the so-called "electronic cash" system

in Germany, combining debit card and PIN (Klein 1997).

4 One might compare the challenge of credit transfer via the banking networks by P2P systems with the

early days of Internet-telephony, when microphone and soundcard of the PC replaced the phone and theInternet served as a voice channel – attractive for long distance calls cross border.

5 The problem areas can be further determined combining different criteria. Take for example a non-accountholder, who wants to purchase a low value good at a merchant's site from abroad, never ever havingbought something from this merchant before. What payment method could he or she use today? Think ofsomeone with a bank account, an established relationship between merchant and customer in one country,would he or she find it difficult to pay for an item of, let's say, 30 Euro by credit or debit card?

6 The description till 1998 is based on an earlier attempt to outline the genesis of Internet payment systemsby Böhle and Riehm (1998, pp 105-128).

8

More or less at the same time "cash like" payment methods, with value circulating from

chipcard to chipcard or via electronic networks, were conceptualised and tested. The

pioneering work of David Chaum (that later materialised in the European CAFE project

and in the eCash product) and the Mondex approach have to be mentioned here. The 80’s

saw the development of a third innovation path with the single purpose stored value smart

card, which gradually replaced the previous magnetic stripe card of the 70’s. The idea of

prepaid stored value for a single purpose was later generalised, leading to electronic

purses. Danmønt, launched in 1992, was the first nationally rolled out stored value card of

this type in the world. These e-purses were just another payment instrument at Point of

Sale competing with access products and cash. Unlike the more cash oriented approaches,

however, it was impossible with these e-purses to perform value transactions from purse

to purse.

The 80’s also saw the advent of videotex services (e.g. Minitel, Btx), more commonly

known as consumer online services, in Europe. Within these services home banking

flourished (including payments) and some even argued that home banking was a "killer

application" for these services. As these services evolved, (micro)billing systems became

part of it.

To sum up: At the time when the World Wide Web was first recognised as a major

opportunity for e-commerce, there were already five different approaches to e-payments

in place: POS systems, e-cash (software-based and hardware-based), prepaid single

purpose cards, e-purses, and (micro)billing. The challenge ahead was to make them fit for

the Internet, in other words: to adjust the methods once developed for proprietary

networks and closed user groups to insecure open networks. It must also be kept in mind

that the development of the 80's brought about specialised payment intermediaries

operating the e-payment systems. These collection systems integrated into consumer

online services can perhaps be considered as the closest forerunners to the server based

approach.. Table 1 lists some significant events of the first phase in chronological order.

9

Table 1: Selected events in the pre-history of Internet payment systemsTime Event1976 – 1992 Pre-history1976 Diffie and Hellmann's seminal work on public key cryptography1978 First prepaid telephone card (magnetic stripe) in Belgium1982 Chaum published seminal work on "blind signatures" for untraceable payments1983 Launch of videotex services (e.g. Minitel in France and Btx in Germany)1983 First prepaid telephone smartcard introduced in France "Telecarte"1984 Minitel incorporates kiosque, a microbilling scheme1986 National roll out of the GIE Carte Bancaire smartcard for debit and credit1987 Btx-homebanking takes off after ZKA standardisation in Germany1989 Foundation of DigiCash in The Netherlands1991 Development of Mondex starts at NatWest in the United Kingdom1992 Launch of Danmønt e-purse in Denmark

3.2 PIONEER PHASEDuring the pioneer phase of Internet payments, credit card information and bank account

numbers were sent via the Internet without any security precautions. Since then, this habit

has not completely vanished, although secure alternatives have gained ground. As early

as 1994, the security of Internet payments was increased by the SSL-standard to levels

comparable with those of MO/TO-procedures. The first secure payment method tested in

the so called "cyberbuck" trial was the token approach by DigiCash in 1994.

"Cyberbucks" were not issued by a bank and this type of "private Internet currency" had

obvious appeal for the first generation of Internet users. Also in 1994, two further start-

ups entered the market: First Virtual Holding and CyberCash Inc. Acting as

intermediaries between customers, merchants and the established credit card networks,

their role as Internet payment providers was similar to the role of the established POS

payment service providers (especially in the case of CyberCash).

From the banking sector's point of view, this phase could also be termed "the phase of

irritation". E-purse schemes not issued by banks emerged throughout Europe, the

Digicash trial showed up the danger of these "private currencies", Mondex was exciting

because of its peer-to-peer functionality, and the established intermediaries found

themselves threatened by start-ups. However, once the irritation had faded and the

challenge was accepted, we see banking sector initiatives dominating the next phase.

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Table 2: Selected events of the pioneer phase

Time Event1993-1995 Pioneer phase1994 First Virtual founded1994 SSL developed by Netscape1994 Public trials with token e-money, i.e. "cyberbucks" of DigiCash1994 CyberCash founded1995 Mondex pilot starts in Swindon

3.3 "ROLL BACK FORWARD"While the pioneer phase showed a loss of control of the payment business by the banking

sector, the subsequent phase sees it regaining control (roll back) through new initiatives

(forward). An important step in this direction was the credit card companies’ development

of SET and their attempt to push it through (relying on "fat-wallets"). At the same time

national banking industries made some effort to make their traditional payment

instruments fit for use on the Internet and to take over the schemes of the start-up

companies. When reconstructing the past in the light of the present, the adoption of the

"fat wallet approach" from the pioneers appears as a double edged sword.

The banking sector initiatives were complemented by regulatory measures concerned

with e-money. In Germany, e-money business was explicitly declared ‘banking business’

as early as 1997. The European Commission, however, put forward a more liberal

approach a year later, proposing Electronic Money Institutions with fewer requirements.

SET has been developed to satisfy different purposes; the main one being an attempt to

fight fraud by authentication of all parties involved. Thus it is a paradigmatic component

of secure e-commerce. At the same time it was an attempt to control the complete

transaction chain and to return to "business as usual", i.e. by ruling out SSL and new

independent payment intermediaries.

As indicated above, in some countries national credit institutions have adopted the

innovative payment systems of the pioneering start-ups. In the long run, however, this

approach has not turned out to be very successful. The death of first generation Internet

payment systems had already begun in 1998, when the FirstVirtual service was

discontinued and DigiCash went bankrupt. At the same time, efforts to bring direct debits,

home banking and also e-purses to the Internet were increased.

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Table 3: Selected events of the "role back forward" phase

Time Event1995-1998 Roll back forward1995 Mark Twain Bank offers eCash (DigiCash)1996 First SET-transaction (30.12.1996)1997 Foundation of SETCo by major credit card organisations1997 Internet payments using e-purses in Belgium (Banksys C-ZAM/PC

readers/Proton)1998 Issuing of e-money regulated as banking business in Germany

(Kreditwesengesetz)1998 Draft proposal of EMI-directive1998 First Virtual discontinued (July)1998 eCash bankruptcy (Chapter 11) (November)

3.4 INTERNET PAYMENT SYSTEMS – THE SECOND WAVEAt the end of the last millennium there were still no success stories to be told. The scant

success of e-money schemes – in the real and virtual world – and the gradual death of the

most innovative Internet payment schemes were debated at many conferences. The

incumbent access products were used more frequently than new schemes. Attempts to

make them safer by authentication technologies, however, did not catch on as anticipated

either.

More recently however, analysts (Brown et al. 2000, Birch 2001) have seen light at the

end of the tunnel. Internet payment systems, such "prepaid virtual accounts" (e.g.

InternetCash) or P2P payment methods (e.g. PayPal) are expected to take-off. These new

schemes obviously target niche markets: online auctions, groups without bank accounts or

credit cards (especially younger people) and the adult-content market (i.e. pornography),

where anonymous payments without any records are welcome. In the case of money

transfers from individual A to individual B for private purposes (money gifts, pocket-

money, lending money to a friend) the attractiveness of the new schemes may depend on

available alternatives (e.g. credit transfers), but P2P functionality clearly fills a gap.

Further interesting payment innovations are those systems that allow for metering (e.g.

Firstgate's click & buy). Here payments are made, for example, per usage time, per click,

per byte. This attempt at introducing the "pay per" principle was also present in some

earlier micro-payment schemes, but now a previous software download is not always

required. In more general terms, this approach can be regarded as a step towards adjusting

payment solutions to the requirements of digital goods and services, which are consumed

quite differently from physical goods. It is also important to note that the "pay per"

principle is also present with mobile payments. A good example is Jalda, which allows

charging according to the amount of information downloaded, time online, number of

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mouse clicks, number of searches, level of search, number of data files (such as articles),

and airtime (see Dahlström 2001).

So far we have only considered new payment methods "beyond the credit card" (Brown et

al. 2000). However, credit card payments on the Internet have also evolved. The first

"thin wallet" for SET which came to the market in 1999, and the 3D-SET approach

promoted since the end of 2000, come to mind. Further developments have already been

announced.7

This "new wave" advances systems innovation and, more importantly, renews

competition between incumbent actors and new entrants to the payment services market.

Today credit card companies claim to cover – depending on country – between 70% and

93% of all Internet payments leaving the rest for other Internet payment methods. This

ratio may change. New competitors can easily be detected if the perspective is broadened

to the whole range of financial applications. Mobile telecommunications and transport are

"the sectors creating real alternatives to 'traditional' bank-issued schemes" (Birch 2001).8

Table 4: Selected events of the "second wave"Time Event1999-2001 Internet payment systems – the second wave1999 Thin SET wallet by GlobeSet1999 P2P payment schemes emerge, e.g. PayPal1999 Virtual accounts emerge, e.g. virtual cash+ of Banesto1999 Publication of CEPS-Specifications (March)1999 Foundation of CEPSCo (November)2000 CyberCash payment system stops operation in Germany (December)2000 EMI-directive published2000 3D-SET promoted by Visa and Eurocard/MasterCard2001 CyberCash bankruptcy (Chapter 11), 2.3.2001

4 THE "SECOND WAVE": A PARADIGM SHIFT

Past experience would lead us to expect these schemes to fail just as their predecessors

did. However, such a view is premature. It overlooks the particular strengths of the new

systems. The "second wave" of Internet payment systems clearly indicates a more

thorough orientation towards the demands and needs of consumer groups, requirements of

special application areas, and the particular characteristics of digital goods and services.

The paradigm shift is composed of "front-end" and "back-end" innovations.9 At the front-

7 See Lafferty 2000, Caldwell 2001, and Lelieveldt 2001 for new developments announced by Visa and

Mastercard including VPAS, 3D-secure, SPA UCAF.8 Find the m-payment issue extensively discussed in the ePSO background paper No. 2 by Malte Krueger

(Krueger 2001).9 The term "paradigm shift" was introduced first by Thomas S. Kuhn (1962) to characterise scientific

revolutions.

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end, customers and merchants are liberated from complex payment software. Software

requirements are reduced to a minimum and substituted by access to a central server. The

central server or "payment host" takes over communication with customers and merchants

during the transaction phase, and authorises, clears and settles payments when required.

Typically, the central server can also be assessed during the pre- or post-payment phases

to check, for example, the payment history or the balance and to prepare for future

transactions.

The back-end innovation is related to the potential of a central payment server to host

many payment schemes and to offer added value, e.g. EBPP functionality.10 In terms of

user interface design, this "architecture" (see diagram 2) promises to unify the user

experience and to reduce the cognitive work – just as card payments in the real world or

access to mail-server accounts in the virtual world follow similar routines.

10 To give a concrete example: P.S.K. (Österreichische Postsparkasse) offers an EBPP solution "bezahlen.at"

– basically a combination of billing and a direct debiting mandate. With regard to Internet payments itworks as follows: Clicking on the shopping basket of an e-merchant leads to the production of a bill. Thecustomer accepts the bill presented and the payment can immediately take place. To pay this way, a Javaapplet is sent from the payment server to the user's screen and the user types in her name and a password.Furthermore, the fact that all bills generated are stored on the server for later access by customers, offer anadditional service to consumers.

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Diagram 2: Internet payment scheme with payment host as intermediary

Legend: In this model the basic steps are:1/ Click on the "pay" button at the merchant site choosing the preferred

payment method, leading to2/ automatic push through to the Payment Host, granting3/ customer access after authentication (PIN, password). Once approved,4/ the payment host takes over communication with customers, merchants and

payment networks if required, till the payment part of the transaction iscompleted.

5/ Customers access their account at the server independent of actual transaction.

What we called "liberation from complex payment software" in the paragraph above

needs some further explanation to avoid misunderstandings.11 Without doubt "fat

wallets", i.e. complex payment software installed at the payer's local PC, were

inconvenient. One answer was to make the wallet software "thin". This line can be further

developed till the payment software comes just as another browser plug-in.

Another question is what has to be regarded as the most advantageous interplay between

local computer functions and central server functions. In the typical server-based

approach there is hardly any function left for local software. It can be argued, however,

that the digital signing of payment orders for example should be done at the users' device

11 In the ePSO-Forum Amir Herzberg commented on an earlier version of this paper arguing we would

overestimate server based wallets and underestimate local wallets. See Forum's archive for May and June2001 at http://www.jrc.es/archives/epso-forum.html (access free, registration required).

Authorisation / Clearing / Settlement

A1 A2 A3 … An

Payment Host

Customer Merchant

Payment Systems

[1]

[2][3]

[4a]

[4b]

[5]

15

and should not be delegated to a central server. Similarly, it would be nice to have local

bookkeeping functions and to avoid troubles with unavailable central servers. As the

preferences of consumers are hard to guess, the idea of offering a server-based payment

system with a local e-wallet as an option seems to be a flexible answer (e.g.

NewGenPay). The future of local e-wallets may therefore depend to a large extent on the

added value it can provide. An interesting case in point is the combination of e-wallet and

copyright management functions as in the case of the Magex wallet (BIS 2000). It might

well be therefore that local e-wallets will revive, but at present the general trend towards

server-based payment systems (and not only server based wallets) seems to prevail.12

The paradigm shift is evident looking at recent SET developments. Today it is frankly

admitted that the "thick wallet approach" has by and large failed, and in Europe VISA and

Eurocard are committed to pushing through the implementation of 3D-SET (see Box 1 on

next page for further explanation). Credit card companies provide server-based wallets for

cardholders and server-based POS for merchants.

12 This conclusion is contrary to an interesting IBM white paper of 1999 still claiming that personal wallets

"hold out the best mix of features, privacy and cost effectiveness for a wide range of applications"(IBM1999, 5). In this paper site wallets, remote wallets, distributed wallets and personal wallets are compared.

16

Box 1: The 3D-SET model (information by VISA)

"What is 3D SET? In effect, 3D SET is a major evolution of the original distributedstructure of SET as the Three Domain Model continues to use SET as theinteroperability protocol. The innate flexibility of the system allows portability fromone PC to another, WAP mobile phones and digital TV. It has been extensively testedand is already available as a full production system - certified server based wallets andPOS solutions exist today and are available from multiple vendors. … Visa hasdeveloped 3D SET so that the Issuing and Acquiring banks keep the certificates onbehalf of the cardholders and merchants in encrypted form in a secure serverenvironment. This means that cardholders do not need to store or protect certificateson their own equipment and merchants can easily participate in 3D SET."Source: http://www.visa.com/pd/eu_shop/merchants/3d_set/main.html

http://www.visa.com/pd/eu_shop/merchants/faqs/main.html#3

There are obvious advantages to this new approach:

� mobility for the customer,

� independence of operating system, and

� device independence.

However, the most important advantage of a central server approach is possibly its ease of

maintenance, making upgrades of SET much more simple. Proponents of 3D-SET regard

the server-based wallet approach as the "right balance between security and ease of use"

for the time being (Schürer 2001). The future of 3D-SET is outside the scope of this

paper, but it seems clear that further developments will follow.13

13 In the SET discussion list ,"set-discuss", the issue of how the server-based wallet approach might change

SET was raised. It was stated that server-based wallets would no longer require a certificate for eachcardholder. If the issuing bank issues just one certificate declaring the cardholder as its customer andguaranteeing the payment, that is enough. The archive of the list "set-discuss" is accessible withoutregistration; for this particular topic see http://lists.commerce.net/archives/set-discuss/200008/.

17

Competitors of SET at the level of payment infrastructure, for example Jalda, use the

same centralised approach. The same is true if we look at another "competitor" of SET,

namely SSL. Interesting attempts have been made to overcome the limitations of SSL

and to integrate it smoothly into the payment process based on a server-based approach.

To give but one example: Commerzbank in Germany opted for SSL, re-defining the role

of CyberCash (note: the company, not the system) as a payment hosting service for

customers, merchants and banks (POSH service). Merchants are enabled to process all

major credit cards based on SSL. At the same time, the payment host adds further

functionality, allowing for a) direct debiting, b) pre-authorisation of payments (choice of

debiting later), and c) a provision to pay money back to the customer later if necessary. It

must be added that credit card companies are also prepared for non-SET transactions,

introducing for example "virtual card numbers" for e-commerce (Pache 2001). All in all,

as SET gets easier and easier, so SSL processing and other non-SET credit card

processing systems get more and more sophisticated.

The paradigm shift observed, however, is not restricted to credit card payments:

� Payment instruments, previously paper-based and requiring a hand-written signature,

can now be incorporated. A server-based approach to direct debits relying on 3D-SET

is one option.

� The Finnish Internet payment system "electronic giro" (see Salste 2001) shows that

credit transfers can also follow the same procedural logic.

� Internet payment systems based on so called "prepaid virtual accounts" suitable for

micropayments and P2P, must also be regarded as a type of server-based payment

method, following the same access logic. They can be added to the portfolio of

payment methods managed by a central payment host.14

The paradigm shift also embraces m-payments. Indeed, it can be argued that the trend

towards central server based systems is especially suitable for m-payments because

memory restrictions of wireless devices exclude large software downloads.

In other words, all these payment methods can be structured in the same way, with a

payment host between customers and merchants on the one hand and the banking

networks on the other. The user experience is that of a common WWW front-end:

initiating the payment process by a click and accessing the central server by a password

14 The "prepaid account" path of payment innovation has not only been followed by start-up companies

looking at niche markets, but also by credit card companies. In March 2001 eg Eurocard announced topilot P2P payments (Pache 2001).

18

and/or PIN (like the access to popular central mail services like hotmail or freemail).

Regarding the back-end, the experience is close to the one users might have with the

established POS-systems in the real world. Once access to the network is established, all

procedures take place in the background hidden to the users. That is to say, the new

approach combines WWW user-interface and traditional electronic payment

infrastructure. The integration of this type of front-end and back-end for Internet

payments is the essence of the paradigm shift predicated.

5 ASSESSMENT OF ACHIEVEMENTS AND DRAWBACKS

The potential of the server-based approach can now be assessed by applying the criteria

introduced before. In addition we draw the attention to competition issues, and close with

a comment on technicalities as a regulatory problem.

5.1 CONVENIENCE5.1.1 Ease of use

From the customers' and merchants' point of view, the new approach is an important step

forward with respect to ease of use, minimising the requirements for local software. As

server-based payment services have the potential to integrate different payment systems,

merchants have the choice of offering the range of payment systems they want at their

shops, dealing with only one payment service provider.

5.1.2 Adequacy for paying for intangible goods

The new approach could also fulfil requirements of paying for digital goods and services

(e.g. by metering time, bytes, clicks, searches etc.).

5.1.3 Step towards a common user experience (standardisation)

More generally, the server-based approach can also be seen as a major step towards a

common user experience, i.e. standardisation. More and more payment systems

implement the same procedural logic, leading to a new standard, just as browser-software

and e-mail programs came to resemble each other by way of assimilation. This does not

exclude special features, terms and conditions of particular systems.

5.1.4 Potential beyond payments

It must be added that the central server approach is open to additional services generating

added value. One can, for instance, think of EBPP as an additional service enhancing

convenience. One might also see the payment host service as part of an enhanced Internet

19

banking approach, capable of integration into e-commerce procedures and of handling all

payment methods asked for.

5.2 TRUST AND SECURITY5.2.1 Payment Service Providers could make the trust gap smaller

Buying and paying have to be conceptualised as integrated by nature. If the payment is

disassociated from the purchase, users feel uncomfortable. There are many responses to

this basic merchant and consumer need. While payment guarantee, plus

repudiation/dispute handling, is essential for the merchant, getting money back and

having control over when payments take place is essential for customers. There are

different ways of achieving this: seals of approval, offering payments with a consumer

friendly legal framework (like direct debits in Germany), trusted third party models

(escrow) etc. Second wave payment systems do not address this issue as such; however,

central payment service providers are able to act as trusted third parties, offering a more

complete service as regards security, thereby reducing the lack of trust inherent in retail e-

commerce.

5.2.2 Central server approach vs. smart card and PKI based approaches

Although in the medium term smart cards and PKI will be part of the unifying central

server approach as they foster and ease authentication, in the short term both approaches

to security are, to a certain extent, in competition. This is partly because the server-based-

approach arose as a consequence of the poor start made by systems requiring digital

signatures and certificates of all parties involved (e.g. SET). The central server approach

releases the user from the burden of dealing with digital signatures and certificates. This

however has a price: the principles of PKI, assuming multilateral and decentralised

security efforts, are indirectly weakened. Though both requirements can be reconciled in

the medium term when smart cards become ubiquitous, this is a security issue that should

be investigated.

5.3 SPECIAL GROUPS AND SPECIAL PAYMENT SITUATIONS

5.3.1 Groups without bank accounts and anonymous payments

"Virtual accounts", especially the scratch card approach, seem to offer a solution to the

Internet payment problems of groups without bank accounts and credit cards and the

problem of anonymous payments at the same time. This is true up to a point and might be

regarded as an advancement although it is as yet too early to talk of success. Nevertheless

it has to be noted that e-purses, in principle, offer a solution to the same problems,

20

especially so-called "white cards". It may be, therefore, that scratch card schemes fill the

gap only temporarily.

5.3.2 Micro-payments

It is promising to see prepaid and post paid systems (micro-billing) based on the server

approach. We should add, however, that the availability of micropayment solutions does

not automatically signal success. The "micropayment problem", as we see it, is

paradoxically not a payment problem, but first of all a problem of content. Above all,

free content on the Internet is the major enemy of micro-payments. For example, when

(Micro)Billing, which worked (more or less) well within consumer online services,

migrated to the Internet, they had to struggle hard for success. Information offered for

free is so rich that it is hard to offer "premium content" for a few Euro cents. The market

for digital products and services worth paying for may also be held back by the lack of

adequate Copyright Management Systems (CRMS). In both cases – content for free or no

content at all – micro-payments are obsolete.

5.3.3 Cross border payments

The position of emerging payment hosts as new intermediaries in the overall payment

system must be assessed. These intermediaries may be more or less close to the banking

world. They might be start-ups, but more often they seem to be the established e-payment

processors (or a combination of both). Their role is especially interesting with respect to

international payments. One might expect that this new degree of centralisation could

favour interoperable cross-border payment solutions. It is an open question: could these

payment service providers cooperate internationally and thus ease cross border payments?

One may also ask what potential internationally operating payment service providers (like

Bibit, iPIN, Earthport) have for increasing the chances of more efficient cross-border

payments of different types soon?

5.4 COMPETITION5.4.1 Infrastructure competition and co-operation

It is especially interesting to see the long standing competition between SSL and SET

reformulated as "enhanced SSL" vs. "eased SET". We would assume that, in the medium

term, both schemes will converge and become almost "browser-only solutions", hard to

distinguish from the users' point of view. Competitive new approaches to payment

infrastructure are also emerging which try to satisfy the needs of m-payments and special

21

requirements for payments of digital goods and services. Infrastructure competition is

new and worth further consideration from the point of view of quality of service.

5.4.2 Central server approach vs. e-purses

In the short term the central server approach may also be seen as a surrogate for smart

card based payment systems like e-purses. To a certain extent, the success of "prepaid

cards/virtual accounts" has to do with the lack of success of e-purses for Internet

payments. This, for once, is due to poor smart card reader distribution. The central server

approach, however, also questions the rationale for off-line products like e-purses. E-

purses were supposed to be cheaper than "access products" because they didn't require

online-authorisation.15 However, this may not hold in an online environment.

5.5 REDUCTION OF AVAILABLE PAYMENT OPTIONS (ELECTRONICCASH)

If the central server approach becomes dominant, it would be to the detriment of concepts

like "electronic cash", "e-purses", "software-wallets" specifically, and, more generally, to

all approaches where the individual is the bearer, owner and immediate spender of

money. The question is whether "prepaid cards/virtual accounts" have become the

appropriate representation of cash in the virtual world. As shown above, "prepaid

cards/virtual accounts" have many of the characteristics of cash: anonymity,

micropayment ability, P2P payments (in some cases), and they are not discriminatory, i.e.

they don’t exclude special groups from their use. Problems with these schemes may result

from their poor security (e.g.as reported for PayPal by Cave 2001), and it can be argued

that they still do not meet the circulation criteria in the way that true cash does. Therefore

a vision assessment of "electronic cash" might be advisable.

5.6 "TECHNICALITIES" AS A REGULATORY PROBLEMDiscussion of the status of payment systems relying on "virtual accounts" in banking law

has yet to produce clear results. They could arguably be classified as either e-money

business or deposit taking. This controversy may reveal shortcomings in any legislation

that tries to keep up with cutting edge technology. What was common practice when the

legal text was written may be outdated by the time it is implemented, and new technical

forms not covered by its wording (e.g. "virtual accounts") could have emerged. In

addition, the sophisticated technicalities of the electronic payment systems may be rather

difficult, ambiguous and contingent. For example, one could even interpret the token-

15 It is a common argument that e-purses are more successful (if ever) where communication costs are high

and vice versa (see OECD 1999, p. 108, Mester 2000, p. 13).

22

based electronic cash system invented by David Chaum as an example of the "virtual

account" approach. Interestingly, the inventor himself admits this ambiguity: "It's more a

matter of how you want to interpret the technical system than there really being a clear

distinction between an electronic form of money itself compared to just an electronic

banking system"(Chaum 1999).

As a consequence, regulators may want to concentrate more on the basic business scheme

involved (in this case probably around the term "prepaid"). Nevertheless, the technical

details remain important, for instance in connection with fraud prevention, money

laundering and other risks.

23

BIBLIOGRAPHYBerlecon ResearchKassieren im Ecommerce - Eine Analyse relevanter Zahlungssysteme aus Händlersicht (Getting yourbills paid in e-commerce). Berlin: Berlecon Research 2001; extracts athttp://www.berlecon.de/studien/zahlungssysteme/en/index.html[Study analysing the merchant side of Internet payments. It underlines the role of those paymentinstruments most heavily used in the traditional MO/TO sector for e-tailers too.]

Birch, DavidThe Future of Retail Payment Systems (Interview by Knud Böhle). ePSO-Newsletter No. 5 (February2001). http://epso.jrc.es/newsletter/vol05/7.html[Stresses the role of non-banks in the telecommunication and transport sector for e-paymentinnovations today. Holds that we will see harmonisation at the infrastructure level, i.e. securityinfrastructure based on technologies such as smartcards and PKI, leading to intensified competition atthe product level.]

BIS (Bank for International Settlements)Committee on Payment and Settlement Systems (CPSS): Survey of Electronic Money Developments,Bank for International Settlements, Basel, Switzerland, May 2000:http://www.bis.org/publ/cpss38.htm.[The report provides information on electronic money schemes in 68 countries; the Magex wallet ismentioned in the part about the United Kingdom.]

Böhle, KnudOn Hype, Sacred Cows, Data Holes, and How to Cope with them. ePSO-Newsletter No. 4 (January2001). http://epso.jrc.es/newsletter/vol04/6.html[To assess the dynamics in the field of Internet payments, it is suggested to strengthen the collectionand production of reliable data, to assess visions of actors, to look at the development of retail paymentsystems from an evolutionary perspective and to pay attention to the long-term change of the paymentinfrastructure.]

Böhle, KnudAccess is king: about the bright future of server-based e-payment systems. ePSO-Newsletter No. 6(March 2001) [6&2] http://epso.jrc.es/newsletter/vol06/2.html[Presents some of the basic ideas about server-based Internet payment systems being further elaboratedin this background paper.]

Böhle, KnudCashWorld Conference report. Seville, February 2001(compuscript). Freely available from the ePSO-Forum archive of February 2001; registration required. http://www.jrc.es/archives/epso-forum.html[Contains information on fraud prevention by credit card companies, on new payment systems enteringthe German market and the influence of "payment culture" on internet payment systems.]

Böhle, Knud; Krueger, Malte; Herrmann, Christoph, Carat, Gerard, Maghiros, IoannisElectronic Payment Systems – Strategic and Technical Issues. Background Paper No. 1. ElectronicPayment Systems Observatory (ePSO), December 2000, Seville 2000.http://epso.jrc.es/Docs/Backgrnd-1.pdf [In the context of this paper chapter II "Payment systemstransformations – a more general framework" is of interest.]

Böhle, Knud; Riehm, UlrichBlütenträume - Über Zahlungssysteminnovationen und Internet-Handel in Deutschland. Karlsruhe:Forschungszentrum Karlsruhe. Wissenschaftliche Berichte, FZKA 6161 (Dezember 1998) 1998.http://www.itas.fzk.de/deu/itaslit/lit98.htm#ID713 [Study on electronic payment systems and B2C e-commerce in Germany for the Federal Ministry for Research; in the context of this paper chapter 8, pp.103-120, about the genesis of internet-payment systems is relevant.]

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Brown, Duncan; Kasica, Christina; Bassanese, PaolaSecond Generation of E-Payments: E-Business Beyond the Credit Card. An Ovum Report. August2000. Extracts available athttp://www.ovum.com/cgi-bin/showpage.asp?doc=/research/epy/overview/default.htm[Already the extracts of this £ 2.500 study give a clear idea of the "new breed of internet paymentsystems". The importance of "Payment Service Providers" is underlined. An additional text of 5February 2001 ("E-payment - that'll do nicely") contains a summary of the main arguments, available athttp://www.ovum.com/cgi-bin/showPage.asp?doc=/research/epy/findings/epy2.htm.]

Bucci, PieroInternet Payment Systems in Italy. ePSO-Newsletter No. 5 (February 2001).http://epso.jrc.es/newsletter/vol05/4.html[Description of the present situation of the Italian market concerning internet payment systemstouching upon SSL, SET, SET Light, Mover smartcard, virtual prepaid card numbers.]

Caldwell, KayeePayments: Is the Credit Card System Failing eCommerce? Is a Solution in Sight? CommerceNetNewsletter, “The Public Policy Report,” Vol. 3, No.5 May 2001.http://www.commerce.net/research/public-policy/2k1/pp3.5-1IsCCsystemfailingec.pdf [Review of Internet payment systems beyond credit cards with authentication in the US; with referenceto credit card payments Visa Payer Authentication (VPAS) and plans of Mastercard's to adopt 3D-SETare mentioned.]

Cave, DamienLosing faith in PayPal. Salon 21st

http://www.salon.com/tech/feature/2001/02/23/pay_pal/[Reasoning about the P2P system PayPal in terms of risk management, anti-fraud techniques,regulation and trust.]

Chaum, DavidTranscript of the telephone conversation with Jens-Ingo Brodesser from Moving Art, Friday, the 19thMarch 1999 (distributed first via mailing list e-money).[Interview with the founder of DigiCash and inventor of eCash after declaration of chapter 11bankruptcy of his company.]

Dahlström, ErikThe Jalda Payment Method. ePSO-Newsletter No. 5 (February 2001).http://epso.jrc.es/newsletter/vol05/5.html[Description of Jalda developed by EHPT and the Telia PayIT payment service using it; includescomparison between Jalda and SET.]

ePSO database on e-paymentshttp://epso.jrc.es/paysys.html[This database provides information on electronic payment systems, related projects and initiatives.]

IBMInternet Wallet Choices and Answers. A White Paper for Business and Technical Managers.International Business Machines Corporation. Hawthorne 1999 www.bankinfo.com/ecomm/wallet.pdf[In this paper site wallets, remote wallets, distributed wallets and personal wallets are explained andcompared in technical and business terms.]

IIRC@shWorld. 5. IIR-Kongress Zahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt amMain: IIR 2001.[Conference on electronic payment systems covering especially the German and Austrian situation.]

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Klein, StephanHürdenlauf electronic cash. Die Entstehung eines elektronischen kartengestützten Zahlungssystems alssozialer Prozess. Mölln 1997.[Detailed study about the social process underlying the emergence of a new Point of Sale paymentsystem "electronic cash" in Germany.]

Kranz, MichaelNeuer Markt für virtuelle Produkte: Mit dem Micropayment NET900 wird das Internet zum direktenDistributionskanal. In: IIR: C@shWorld. 5. IIR-Kongress Zahlungssysteme im eBusiness., 6.-8.2.2001.Proceedings. Frankfurt am Main: IIR 2001.[Report of a microbilling provider in Germany about recent system developments and the rather greatdifficulty (in comparison with consumer online services) to find content that needs a micropaymentsystem to be paid for.]

Kuhn, Thomas S.The Structure of Scientific Revolution. Chicago 1962.[Ground-breaking work on the process of change in science substituting the idea of linear progress bythe concept of "paradigm shift".]

LaffertyVISA USA Working On 3D Secure Protocol. Lafferty Publications, Nov 15 2000 retrieved athttp://www.epaynews.com/ March 2001.[About Visa USA announcing a 3D Secure Protocol. Comments on this by Jon Prideaux of VisaEurope are quoted.]

Lelieveldt, SimonNew payment authentication methods for use on the Internet. ePSO-Newsletter No. 8 (July 2001)[8&3]. http://epso.jrc.es/newsletter/vol08/3.html[Some information about Mastercard's SPA and UCAF, a similar approach by Maestro, and Visa's 3D-secure.]

Meridian ResearchTop 10 Strategic IT initiatives in e-Payment Services for the New Millennium. Special Brief. February,2000 http://www.meridien-research.com/ (guest subscription for download required).[Among the 10 points are predictions that wireless payments, non-credit card payment mechanisms andelectronic wallets will have a future.]

Mester, Loretta J.The Changing Nature of the Payment System: Should New Players Mean New Rules? Federal ReserveBank of Philadelphia. Business review March/April 2000, pp. 3-26.[Analysis of the changing retail payment system in the US including e-payment innovations andinternet payments.]

OECDOECD Information Technology Outlook 2000: ICTs, E-commerce and the Information Economy,March 2000.[The Outlook contains four chapters about technological and policy issues surrounding electronicsettlement of payments.]

Peirce, MichaelPayment mechanisms designed for the Internet: http://ganges.cs.tcd.ie/mepeirce/Project/oninternet.html(electronic only, last web-site update 2001).

Rader, Michael; Riehm, UlrichPayments by mobile phone more convenient than e-wallets? ePSO-Newsletter No. 2 (October 2000).http://epso.jrc.es/newsletter/vol02/2-1.html[The authors make the point that mobile phones provide a user interface for payments that is moreconvenient than e-wallets.]

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Pache, ArneDie Kreditwirtschaft als Trust Broker in Online Medien. In: IIR: C@shWorld. 5. IIR-KongressZahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt am Main: IIR 2001.[Contribution presents activities and plans of Eurocard in Europe regarding fraud prevention, 3D-SET,non-SET payments and P2P.]

Riehm, Ulrich; Böhle, KnudGeschäftsmodelle für den Handel mit niedrigpreisigen Gütern im Internet. In: Thießen, F. (Ed.):Bezahlsysteme im Internet. Frankfurt am Main: Knapp 1999, pp. 194-206 [The article focuses on indirect income models for providers of digital goods and services on theInternet.]

Sachs JürgenBill Presentment, Debitorenoptimierung und Risikomanagement mit bezahlen.at. In: IIR: C@shWorld.5. IIR-Kongress Zahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt am Main: IIR2001.[Presentation of an EBPP solution ("bezahlen.at") to be used also for retail e-commerce therebyenhancing the payment service by an electronic billing feature.]

Salste, TuomasInternet Payment Systems in Finland. ePSO-Newsletter No. 5 (February 2001).http://epso.jrc.es/newsletter/vol05/3.html[The situation in Finland is characterised by the prominent role of online bank transfer as internetpayment system followed by credit card payments.]

Schürer, TiloSichere Kreditkartenzahlungen im Internet – die Sicht eines Issuers. In: IIR: C@shWorld. 5. IIR-Kongress Zahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt am Main: IIR 2001.[Lists advantages of 3D-SET for customers, merchants and payment providers, and claims 3D-SET toestablish the right balance between convenience and security at present.]

Shirky, ClayThe Case Against Micropayments. openp2p.com (19.12.2000)http://www.openp2p.com/pub/a/p2p/2000/12/19/micropayments.html[Main arguments of the author are about the lack of demand for transaction-based micropaymentschemes in general and the cognitive overhead they involve in particular.]

Stroborn, KarstenOnline-Umfrage: So will der Kunde im Internet bezahlen. In: IIR: C@shWorld. 5. IIR-KongressZahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt am Main: IIR 2001.[The survey underlines the role of traditional payment methods even for experienced internet users andsavvy online-shoppers. Results of study online at http://www.iww.uni-karlsruhe.de/IZV4/ (in German).]