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How Alternative Payment Methods Are Transforming the Payments Industry

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The actual competitive business environment has opened doors for new opportunities. The Pay Later solution has gained a lot of popularity by eliminating the need for a credit card

A Divido study explains the need for more convenient option of paying, as, for instance, 17% of UK-based consumers stress on the availability of different finance options as the most important factor, with 36% admitting they would shop again at a retailer offering it. At the same time, retailers are seeing benefits such as increased customer loyalty and repeat purchases, increased basket conversions, and sales uplifts of up to 30% by implementing customer finance.

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Online payment may seem to be very easy and fast, but it consist of the confidential and security for the card info. In order to make sure that the process is work correctly, the merchant must connect to the network with the Issuing bank, processor, and others financial institution, so that the information that provided by the customer can be routed reliable and secure. As highly sensitive payment information, trust and confidence is an essential element of any payment transactions. This means that payment processing services should be provided by a wealth of experience in payment processing and security. Electronic commerce refers to the goods and services which exchange over the internet, commonly known as e-commerce. All major retail organization also have an online presence, however, e-commerce also apply between business to business (B2B) transactions. It can open to all interested parties, or even limited participants. For example like Amazon.com, the selling and buying transaction is completed electronically and interactively in real-time

Besides that, e-commerce system also associated with the service industry, such as online banking, transfer funds, or even pay the credit card bill. Along with the e-commerce continue to broaden, protection of individual treatment over the internet, and make your customers feel secure is the primary factors and necessary. In order to perform a secure and good service, internet security plays an important role to be enhancing in this situation. The objective is to establish rules and measure to use against attacks over the Internet. Internet information exchange on behalf of the invasion led to unsafe or high risk of fraud. For any expert in internet security will tell, e-commerce is actually much more secure than real world commerce. For example like when you leaved your credit card receipt in the shop, or accidentally give your credit card number to someone else, you are actually accepting the risk that the order which not order from you will appear on the next month’s credit card bill. However, when you enter a credit card number of e-commerce site, you are sent through a secure connection to a server access only to authorized personnel and protected against even the most determined intruders. Although some of the people believe that transactions over the internet are in fact safer than offline transactions, there are still a number of people believe that offline transactions are always better than online payment. For example like protecting the credit card detail, company need to prevent the card info from customer or the privacy of the customer found by a third party. Typically, this involves the company network security and how the company provide a strong and secure system on the internet.

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In today’s increasingly electronic world, the policy challenges seem more complex, much like consumers’ decisions of which payment methods to use. Newer payment instruments are used in larger, more technology-driven networks. Amazing numbers of transactions are processed over these networks each day. Personal information associated with the holder of the payment instrument, information needed to settle the transaction and protect against fraud and defaults, is stored in parts of the networks. Who stores the information? Who controls the technology? How are both safeguarded? These issues should concern policymakers. The losses of personal information by third-party payment processors in 2005 have highlighted this

Could we have a loss of confidence in these networks that makes consumers afraid to make payments processed over them? Are policymakers regulating or monitoring the networks to avoid such an outcome? These issues warrant attention. Policymakers also face the challenge of being prepared for sudden shifts in the demand for various payment instruments. For example, in the days before a hurricane is expected to hit an area, cash withdrawals rise as insurance against a loss of electricity that limits the ability to use other payment instruments. Central banks can anticipate that shift in demand. But in an economy where very little currency is used, will policymakers be sufficiently prepared for the demand for cash that might arise in the aftermath of a more major disaster? In an economy where few checks are used and processed, are we prepared to handle a major and sudden shift back to checks some day? The question of how consumers make payments and why they choose the payment methods they do has long intrigued scholars. While we are coming to know a lot more about how consumers make payments, we still know fairly little about why they choose the payment methods they do. With better data from the point of sale and better theoretical models of consumer payment decisions, future research holds the key to unlocking the answers. The existing literature on network effects and two-sided markets could be useful in addressing this challenge (for example, Farrell and Saloner 1985, Katz and Shapiro 1985, Schiff 2003). Like the empirical literature, however, the theoretical literature that incorporates frictions and generates a demand for payment instruments also misses answering the question of how or why consumers choose which payment instrument to use at the point of sale. Some papers take as given the set of payment instruments and assume the set is small, limited to one or two instruments (e.g., Schreft (1992(a), 1992(b)).

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Summing up, recently there has been a flood of innovation in payments

New methods including bank-based payments are convenient and typically have lower fees. This has been made possible in Europe by Open Banking, which created an opportunity to make bank-based payments a reality for all European customers. These payments settle faster and carry a lower risk of fraud and chargebacks (they use Strong Customer Authentication by default).

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Gross, David, and Nicholas S. Souleles. 2002. “Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data,” Quarterly Journal of Economics, vol. 117, pp. 149-186.

Katz, Michael L., and Carl Shapiro. 1985. “Network Externalities, Competition, and Compatibility,” American Economic Review, vol. 75(3), pp. 424-440.

Klee, Elizabeth. 2004. “Paper or Plastic? The Effect of Time on Check and Debit Card Use at Grocery Stores,” Board of Governors of the Federal
Reserve System, mimeo, November.

Schreft, Stacey. 1992b. “Welfare-Improving Credit Controls,” Journal of Monetary Economics, vol. 30, no. 1, pp. 57-72.

Stokey, Nancy. 1988. “Learning by Doing and the Introduction of New Goods,” Journal of Political Economy, vol. 98, no 4, pp. 701-717.

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