Retail Electronic Money and Prepaid Payment Instruments
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Retail electronic money and prepaid payment instruments Jan Zika April 2005 Thesis (B.A.) Institute of Economic Studies Faculty of Social Sciences E-mail: [email protected] Charles University in Prague WWW: http://pay.czweb.org Czech Republic Abstract The thesis describes the concept of retail electronic money (also referred to as stored value), provides a brief evolutionary overview of prepaid electronic payment instruments, and tries to reconstruct the development process of the new payment methods. Four types of schemes that exist in the EU and the USA—multipurpose prepaid cards, prepaid dedicated accounts, person-to-person online payment services and mobile customer accounts—are described. Subsequently, an overview of current trends and future prospects is presented. In a more theoretical manner, the development of prepaid schemes is put into the broader perspective of the evolution of payment systems in general, and the process of innovation. Based on that, several conceptual barriers to their adoption are suggested. Finally, regulatory environments in the EU and the USA are described and compared. The thesis aims to analyze the current and potential trends and their implications for payment systems. 1 Abstrakt Práce popisuje koncept elektronických penz (nebo také pedplacené hodnoty), ve struném pehledu nastiuje evoluní vývoj pedplacených elektronických platebních instrument a snaží se zptn rekonstruovat vývojový proces nových zpsob placení. Identifikovány a popsány jsou tyi typy instrument, které existují v EU a v USA— víceúelové pedplacené karty, pedplacené úty použitelné pro platby registrovaným píjemcm z ad obchodník, internetové platební služby umožující obousmrné platby mezi uživateli a pedplacené zákaznické úty vedené u operátor mobilních telefon. Následuje shrnutí souasných trend a nástin budoucího výhledu pro jednotlivé typy instrument. Vývoj pedplacených platebních systém je dále zkoumán na teoretické úrovni z hlediska evoluního procesu platebních systému obecn a z hlediska procesu inovace. Na základ této analýzy je identifikováno nkolik stžejních bariér komplikujících pijetí nových platebních systém potenciálními uživateli. Práci uzavírá struný popis a srovnání základních aspekt regulatorního prostedí v EU a v USA. Cílem práce je analyzovat souasné a možné budoucí trendy v oblasti elektronických penz a pedplacených platebních instrument a jejich implikace pro platební systémy. 2 Contents Abstract............................................................................................................... 1 Abstrakt............................................................................................................... 2 Contents .............................................................................................................. 3 Tables .................................................................................................................. 7 Abbreviations...................................................................................................... 8 1 Introduction .............................................................................................. 10 2 Graphic outline......................................................................................... 14 3 Basic framework and definitions ............................................................ 15 3.1 Payment ................................................................................................................15 3.1.1 Definition of payment........................................................................................15 3.1.2 Means of payment .............................................................................................16 3.1.3 Payment instrument ...........................................................................................16 3.2 Electronic payment..............................................................................................17 3.2.1 Definition of electronic payment.......................................................................17 3.2.2 Wholesale and retail payment systems..............................................................17 3.2.3 Systemic threats stemming from distinctive features of e-payments ................18 3.3 Electronic money and stored value products ....................................................19 3.3.1 Definition of electronic money..........................................................................19 3.3.2 Multipurpose prepaid cards and network-based products .................................21 3.3.3 “Second wave” paradigm shift ..........................................................................22 3.3.4 Mobile payments ...............................................................................................24 3.3.4.1 Definition and classification of m-payment schemes ................................24 3.3.4.2 M-payment provider participation models.................................................25 3.3.4.3 Mobile authentication solutions.................................................................25 3.4 Traditional and new payment instruments .......................................................26 3 4 Selection criteria and corresponding payment instruments................ 28 4.1 Motivation behind the criteria selection ............................................................28 4.2 Selection criteria ..................................................................................................29 4.3 Corresponding instruments ................................................................................30 4.3.1 Multipurpose prepaid cards ...............................................................................31 4.3.1.1 Electronic purses........................................................................................31 4.3.1.2 Prepaid debit cards.....................................................................................32 4.3.2 Prepaid dedicated accounts................................................................................33 4.3.3 Person-to-person online payment services ........................................................35 4.3.4 Mobile customer accounts.................................................................................36 4.3.4.1 Mobile virtual accounts..............................................................................37 4.3.4.2 Prepaid airtime accounts ............................................................................38 5 Recent trends and future prospects....................................................... 41 5.1 Electronic purses..................................................................................................41 5.2 Prepaid debit cards..............................................................................................44 5.3 Prepaid dedicated accounts.................................................................................45 5.3.1 Vouchers as a transitory solution.......................................................................45 5.3.2 Micro-payments for digital content ...................................................................46 5.4 Person-to-person online payment services ........................................................48 5.4.1 Online auctions..................................................................................................49 5.4.2 Cross-border payments......................................................................................50 5.4.3 Potential barriers to growth of P2Ps..................................................................51 5.4.4 Future prospects of P2Ps ...................................................................................52 5.5 Mobile customer accounts...................................................................................52 5.5.1 M-payments’ value proposition.........................................................................53 5.5.2 M-commerce and prepaid principle...................................................................53 5.5.3 Dominant m-payment transaction models.........................................................54 5.5.4 Changing role of telecoms.................................................................................55 5.5.5 Common platforms and standards in m-payment..............................................56 5.5.6 Current m-payment applications .......................................................................57 5.5.7 Future prospects of m-payments........................................................................57 4 6 Transition to innovative payment instruments...................................... 60 6.1 Innovative features of e-money in the perspective of payment systems evolution................................................................................................................60 6.2 “Gloomy scenery”................................................................................................62 6.3 Barriers to adoption of innovative payment instruments ................................64 6.3.1 Network effect ...................................................................................................64 6.3.2 Effect of convenience goods..............................................................................65 6.3.3 Comfort factor ...................................................................................................66 6.3.4 Effect of discontinuous innovations ..................................................................66