Introduction

For the most part, existing payment mechanisms such as cash, credit cards, debit cards, checking accounts, and stored value accounts have been able to be adapted to the online environment, albeit with some significant limitations that have led to efforts to develop alternatives. In addition, new types of purchasing relationships, such as between individuals online, and new technologies, such as the development of the mobile platform, have also created both a need and an opportunity for the development of new payment systems.

In the United States, online payments represent a market of almost $600 billion, and institutions and business firms that can handle this volume of transactions (mostly the large banking and credit firms) generally extract 2%–3% of the transactions in the form of fees, or about $18 billion a year in revenue. Given the size of the market, competition for online payments is spirited, and new forms of online payment are expected to attract a substantial part of this growth.

The primary form of online payment in the United States is still the existing credit and debit card system. Alternative payment methods such as PayPal continue to make inroads into traditional payment methods, and mobile payments are also expected to grow significantly. However, none of these alternative payment methods have become substitutes for bank and credit cards; instead, they provide consumers with alternative methods of accessing their existing bank and credit accounts.

In other parts of the world, e-commerce payments can be very different depending on traditions and infrastructure. Credit cards are not nearly as dominant a form of online payment as they are in the United States. Merchants operating in Europe, Asia, or Latin America need to develop different payment systems for each region.