Online stored value payment system
Preloaded value held in digital accounts.
5-mark Exam Answer
An online stored value payment system permits consumers to make instant, online payments to merchants and other individuals based on value stored in an online account. According to Laudon and Traver, PayPal is the most well-known example, available in 202 countries and 25 currencies.
- 1.Instant payments from a stored online balance
- 2.PayPal is the leading example
- 3.No card details shared between users
- 4.Supports C2C payments, even small amounts
- 5.Relatively high cost (2.9%–5.99% + fixed fee)
An online stored value payment system permits consumers to make instant, online payments to merchants and other individuals based on value stored in an online account. PayPal enables individuals and businesses with e-mail accounts to make and receive payments up to a specified limit, and builds on the existing financial infrastructure of the countries in which it operates.
You establish a PayPal account by specifying a credit, debit, or checking account you wish to have charged or paid when conducting online transactions. When you make a payment using PayPal, you e-mail the payment to the merchant's PayPal account; PayPal transfers the amount from your credit or checking account to the merchant's bank account.
The beauty of PayPal is that no personal credit information has to be shared among the users, and the service can be used by individuals to pay one another even in small amounts. This makes it suitable for C2C (consumer-to-consumer) payments as well as merchant payments.
However, one issue with PayPal is its relatively high cost. When using a credit card as the source of funds, the cost ranges from 2.9% to 5.99% of the amount plus a small fixed fee per transaction. Other examples include Pay with Amazon, Visa Checkout, and MasterPass.
With PayPal, a buyer funds their account from a bank account, then 'emails' a payment to a seller's PayPal account. The seller receives the funds instantly without the buyer sharing any card details.
Online stored value payment systems like PayPal enable instant, secure, peer-to-peer and merchant payments from a stored balance, with the trade-off of relatively high transaction costs.
The exam interface follows the university paper pattern: Section A & B carry 5-mark questions; Section C carries objective questions.