Online stored value payment system
Preloaded value held in digital accounts.
Learning Objectives
- Define an online stored value payment system.
- Explain how PayPal works as a stored value system.
- Identify the advantages and cost issues of stored value systems.
- Distinguish stored value from digital cash and digital wallets.
Explanation
A stored value payment system lets you keep money in an online account (like PayPal) and pay merchants or other people instantly from that balance, without sharing card details each time.
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 is the most well-known and commonly used example. It enables individuals and businesses with e-mail accounts to make and receive payments up to a specified limit.
PayPal is available in 202 countries and 25 currencies around the world 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 PayPal 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 (depending on the type of transaction) plus a small fixed fee (typically $0.30) per transaction. Other stored value examples include Pay with Amazon, Visa Checkout, and MasterCard's MasterPass.
Key Points & Important Terms
Key Points
- •Stored value systems enable instant online payments from a stored balance.
- •PayPal is the most well-known example — available in 202 countries, 25 currencies.
- •No personal credit information needs to be shared between users.
- •Suitable for C2C (peer-to-peer) payments, even in small amounts.
- •Cost can be high: 2.9%–5.99% + fixed fee when funded by credit card.
- •Other examples: Pay with Amazon, Visa Checkout, MasterPass.
Important Terms
- Online stored value payment system
- A system that permits instant online payments based on value stored in an online account.
- PayPal
- The most well-known stored value system; enables payments via email in 202 countries and 25 currencies.
- Stored balance
- Preloaded value held in an online account that can be spent without exposing card details.
- C2C payment
- Consumer-to-consumer payment, enabled by stored value systems like PayPal.