Second generation micropayment systems: lessons learned

In the next years the market for low value products such as online music and videos and the role of micropayment systems for selling such products are expected to grow substantially. The first generation micropayment systems appeared around 1994,
of 15
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
Related Documents
  Second generation micropayment systems:lessons learned Róbert Párhonyi, Lambert J.M. Nieuwenhuis, Aiko Pras University of Twente, Faculty of Electrical Engineering, Mathematics and Computer ScienceP.O. Box 217, 7500AE Enschede, The Netherlands {parhonyi, l.j.m.nieuwenhuis, pras} Abstract: In the next years the market for low value products such as online music andvideos and the role of micropayment systems for selling such products areexpected to grow substantially. The first generation micropayment systemsappeared around 1994, with systems such as eCash, MilliCent and CyberCoin.These systems were unable to gain market share, however, and disappearedslowly in the late 1990s. The second generation micropayment systemsappeared around 1999-2000, and are still operational. In this paper we presentan overview of first and second generation micropayment systems, and comparetheir key characteristics to determine their success or failure. This paperexplains why the first generation systems failed and concludes that second gen-eration systems have a better chance for success than their predecessors. Keywords: micropayments; micropayment system; state of the art of micropayment sys-tems; online payments; electronic payment system; e-commerce 1INTRODUCTION Market research companies expect that sales of low value products such asonline music and videos will grow in the years to come (Leong 2003). The rev-enues will mostly add up from individual product payments rather thansubscriptions (Ulph Jennings 2003). Reports of Online Publishers Associationshow that the share of content subscriptions dropped from 89% in 2003 to84,6% in 2004. Among the individual content payments, the share of micro-payments increased from 7,4% in 2003 to 17,9% in 2004. Almost US$50million was paid with micropayment systems in 2004 (OPA 2004 and 2005).Hence, micropayment systems usage increases.In the short history of micropayment systems two generations are distin-guished (Böhle 2002). The first generation of micropayment systems beganaround 1994 1  and lasted until the end of the 1990’s. The developers of thesesystems primarily aimed at the introduction of the electronic form of cash 1. Actually, work on topics closely related to micropayments had already started in the1980’s. David Chaum published later his work on untraceable electronic cash (Chaum 1990).  (called e-cash, e-coins, digital cash or tokens) on the Internet. They focussedon the generation of e-coins or tokens, secure, anonymous and untraceableexchange of them, validation and fraud avoidance. Others developed account-based systems transferring money from customer accounts into merchantaccounts similarly to banking systems. Nevertheless, all first generation sys-tems failed one after the other, stopped after a public trial or remained at atheoretical description level.The second generation (or current) micropayment systems emerged in1999-2000. These systems are almost without exceptions account-based.In this paper, we discuss the chance that the second generation system willbecome more successful than their predecessors and to what extent do thesesystems solve or avoid problems causing the failure of the first generation sys-tems. We show that most failure causes are avoided in the second generation,and conclude that these systems have a much better chance to be successfulthan their predecessors.We define first the characteristics of micropayment systems and present anoverview of both generation systems to indicate the differences between them.Afterwards, based on the key characteristics that determine the success of micropayment systems, we discuss why the first generation failed and analyzethe chance for success of the second generation systems.The structure of this paper is as follows. Section 2 defines the characteris-tics of micropayment systems. Section 3 and Section 4 presents the overviewsof the first and second generation systems, respectively. Section 5 discussesdifferences and analyses the chances for the second generation micropaymentsystems. Section 6 presents the conclusions. 2CHARACTERISTICS OF MICROPAYMENT SYSTEMS Models presented in literature define a number of characteristics, mostlyclassified in different groups: user and technology related characteristics(Abrazhevich 2001), economical and technical characteristics (Weber 1998).A list of characteristics is presented in (Kniberg 2002). In this paper, we distin-guish technical and non-technical characteristics. 2.1Technical characteristics The technical characteristics describe the internal structure and functional-ity of micropayment systems. The following characteristics are considered:  Token-based   or account-based   specifies the medium of valueexchange. Token-based systems use tokens or e-coins, which providebuying power. In general, customers “buy” tokens from a broker to  pay the merchants. Afterwards, merchants send the received tokens tothe broker that “pays” the merchants. In account-based systems cus-tomers and merchants have accounts at a broker or bank, and custom-ers authorize the broker to transfer money to merchant accounts.   Ease of use  or convenience  relates to both subscription to and usage of a system for both new and experienced users, and typically relates tothe user interfaces and underlying hardware and software systems.   Anonymity  is relevant only to customers. We distinguish between ano-nymity with respect to the merchants and the micropayment systemoperators (MPSOs). Merchants are never anonymous.  Scalability  specifies whether a micropayment system is able to copewith increasing payment volume and user base without significant per-formance degradation.  Validation  determines whether a payment system is able to processpayments with or without online contact with a third party (e.g., brokeror MPSO). Online validation means that such a party is involved foreach payment. Semi-online means that a party is involved, but not foreach payment. Offline validation means that payments can be madewithout a third party (e.g., cash payments).  Security  prevents and detects attacks on a payment systems and fraudattempts, and protects sensible payment information. It is neededbecause attacks and attempts for misusing a payment system to com-mit fraud on the Internet are common (Abrazhevich 2004). Security isto a certain extent a subjective concept, and felt differently by eachuser. Users often interpret security as an equivalent for guarantee: cus-tomers feel secure if they receive the paid products, while merchantsfeel secure if they get the money for the delivered products. The mainsecurity concerns are the non-repudiation, authentication and authori-zation, data integrity, and confidentiality (MPF 2002).   Interoperability  allows users of one payment system to pay or get paidby users of another system. Standardization defines a set of criteria orrules that assure the interoperability and compatibility of micropay-ment systems. Interoperability also means the convertibility of curren-cies. A currency is convertible if it is also accepted by other systems. 2.2Non-technical characteristics The non-technical characteristics are related to aspects such as the econom-ics and usability of micropayment systems, so they are visible and perceptiblefor the customers and merchants (users). The following characteristics areconsidered:   Trust   defines users’ confidence with respect to the trustworthiness of the micropayment system and its operator. Trust can be developed if users know that the MPSO is bearing most of the risks. Security tech-niques increase the trust users feel. Trust is considered a pre-conditionfor a blooming e-commerce (Böhle 2000).  Coverage  expresses the percentage (or number) of merchants and cus-tomers that can use the payment system. In literature the terms accept-ability and penetration are synonyms of coverage (Weber 1998,Abrazhevich 2001, Kniberg 2002).  Privacy  relates to the protection of personal and payment information.A payment system provides privacy protection depending on the typeof information.  Pre-paid   or  post-paid   determines how customers use a payment sys-tem. Pre-paid systems require customers to transfer money to the sys-tem before they can initiate micropayments. Post-paid systemsauthorizes customers to initiate micropayments up front and pay later.   Range of payments and multicurrency support   specify the minimumand maximum payment values supported by a system, and whether asystem supports multiple currencies or not. 31 ST  GENERATION MICROPAYMENT SYSTEMS This section presents an overview of the first generation micropayment sys-tems based on the characteristics defined in Section 2. Detailed informationabout these systems can be found in (O’Mahony 1997, Weber 1998). Token-based and account-based Motivated by the overwhelming popularity of cash in the retail commerce,most first generation systems were token-based. These systems would haveliked to introduce e-cash with the main attributes of cash: widespread accept-ability, guaranteed payment, no transaction fees and anonymity (O’Mahony1997). Examples of such systems are Millicent (developed by Digital Equip-ment Corporation in 1995), ECash (developed by DigiCash in 1996),MicroMint and PayWord (developed by R. Rivest and A. Shamir in 1995-96),SubScrip (developed by Newcastle University, Australia in 1996), NetCash(developed at the University of Southern California in 1996), and i KP (devel-oped by IBM in 1997). We also found a few account-based systems: Mondex(developed by MasterCard in 1995), CyberCoin (developed by CyberCash 1996), Mini-Pay (developed by A. Herzberg and IBM in 1997).  Ease of use First generation systems werevery inconvenient for users, whowere forced to use cumbersomeinterfaces and difficult wallet ande-coin management operations. Itwas almost impossible to use thesesystems without thorough techni-cal knowledge of technologies suchas RSA encryption, digital signa-tures, transport protocols, hostnames, mint and withdraw e-coins,etc. In some cases also specialhardware was needed, e.g., Mondexrequired contact chip cards and spe-cial card readers or a speciallyadapted mobile phone. Figure 1. illustrates the interface of the Millicent walletrevealing all details: two panels for wallet information, two for the vendor (i.e.,merchant) and broker (i.e., currency issuer) policies, and finally two panels forthe customer’s activity information.Figure 2. shows that dedicatedsoftware was required and more-over, knowledge about transportprotocols is needed to use ECash. Figure 3. illustrates the list of coins in ECash (in German). Thefirst column specifies the quantity,the second the value, the third thetotal value, and the fourth the expi-ration date of e-coins. Unspent e-coins needed to be returned back to the minting server before their expirationdate and had to be replaced with new e-coins. Additionally, payments took along time to complete. Especially, for micropayments, the time and effortrequired from many ECash users was too much (Drehmann 2002). AlsoCyberCash had a very high latency: 15-20 seconds/transaction (Weber 1998).Lack of portability was anotherinconvenient usage issue. Becausemost systems required wallet soft-ware to be installed by customers,the customers could only use thepayment systems from the com-puter on which the wallet wasinstalled and where the tokens werestored. Figure 1. Millicent wallet screen shot Figure 2. ECash wallet screen shot Figure 3. List of ECash coins
Similar documents
View more...
Related Search
We Need Your Support
Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

Thanks to everyone for your continued support.

No, Thanks