Institute for

Prospective Technological Studies

Directorate General Joint Research Centre
European Commission

Payment Culture Matters

A comparative EU-US perspective on Internet payments

Background Paper No. 4

Electronic Payment Systems Observatory (ePSO)

August 2001
Knud Bhle and Malte Krueger

EUR 19936 EN

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European Commission
Joint Research Centre (DG JRC)
Institute for Prospective Technological Studies

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Report EUR 19936 EN

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Abstract
This paper presents a cross-country comparison of Internet payment systems. It compares
countries within the European Union, and the EU with the United States.
The key concept of our approach is that of "payment culture", which consists basically of
the payment behaviour of payers and payees and the regulatory framework (political and
legal).
Findings of the comparison among EU countries:
1. There are clearly distinguishable payment cultures within Europe. Some of the
payment options important in one group of countries are hardly used in others. The
choice of Internet payment methods in a particular country largely depends on the
payment habits at the real point of sale. There are also striking differences at the level
of co-operation between banks, due to the degree of fragmentation of the banking
sector and the decentralisation of payment processing. In some countries one player or
a very limited number of players appear as the main drivers of payment systems
innovation. These and further factors such as industry strengths, homebanking affinity
of consumers, videotex tradition, strong mobile phone inclination, help to explain
which Internet payment systems are on offer and chosen.
2. There are also common trends within the EU to be observed, for instance: the gradual
death of "thick wallet" based payment systems and a trend towards a server-based
approach, the rapid spread of "virtual dedicated accounts" (including scratch cards)
and mobile payments and the overall relatively strong smart card orientation.
Common trends can be also based on neighbourhood and shared cultural patterns
which explain, for example, the common giro orientation in Internet payments in the
Scandinavian countries or why US payment methods often enter Europe via the UK.
3. When it comes to cross-border payments, credit cards are crucial. However, other
payment methods like prepaid dedicated accounts or payments via mobile phone can
be applied for the same purpose (though only to a limited extent so far). To a certain
extent, cross-border interoperability of e-purses, mobile payments, prepaid dedicated
accounts, and even of bonus point schemes follow the same line: successful
companies export their approach (technology/method) and this can serve as a starting
point for cross-border interoperability (eg Proton for purses, Paysafecard for prepaid
dedicated accounts, Paybox for mobile payments, and Webmiles for loyalty).

Findings of the comparison of EU countries with the United States

1. Somewhat surprisingly, there are interesting similarities between the EU and the US.
The United States is far from being a fully integrated payment area and the federal
structure is very pronounced with many particular regulations at state level. It is also
too simplistic to regard the US as a liberal laissez-faire state as new e-payment
products like e-money automatically fall under a number of laws and rules. In
addition, the National Conference of Commissioners on Uniform State Laws agreed
in July 2000 on a proposal for a "Uniform Money Services Act" (UMSA), which aims
to provide a uniform framework for the regulation of the different money service
businesses, including e-money, and to harmonise the regulation of these services
across the states.
2. In contrast to the EU, the US approach to regulation focuses more on transactions
(like payments) than on institutions (like banks). The US also seems to favour a
"light-handed" approach when evaluating the trade-off between security and
innovation. US authorities are clearly more concerned about not stifling innovation
and less concerned about providing a "level playing field". As regards the integration
of the payment area, the US seems to be less concerned about full integration of
payment systems and full interoperability than the EU.
Open questions
Still a range of intriguing questions and issues needs further considerations, eg.
G

There is a pervasive lack of data on Internet transactions and the way people pay on the
Internet. What initiatives should be taken to raise awareness?

What can the US teach us about the problem of integrating national payment systems to
provide a single European payment area?

Does the strong role of payment culture impede fast integration of payment systems?

How adequate is regulation that focuses on institutions, and what are the implications for
innovation?

To what extent can traditional payment methods satisfy the demand for Internet
payments? To what extent are Internet transactions different and do they require different
methods of payment?

Is Europe lagging behind in the area of EBPP and P2P? Is the US lagging behind Europe
when it comes to smart cards?

CONTENTS

1 INTRODUCTION ....................................................................................... 1
1.1
Role of the Background Paper............................................................. 1
1.2
Why Payment Culture Matters ............................................................. 2
2 PAYMENT CULTURE IN EUROPE AND THE US.................................... 4
2.1
Cheque Countries Versus Giro Countries............................................ 4
2.2
The Legal Framework for Electronic Money Products ......................... 8
2.3
The Role of E-commerce in Europe and the US................................ 11
3

INTERNET PAYMENTS: INTRODUCING A FLEXIBLE AND

PRAGMATIC TYPOLOGY ...................................................................... 14
3.1
A Typology of Internet Payments....................................................... 14
3.2
Some Caveats ................................................................................... 19
4 INTERNET PAYMENT SYSTEMS IN THE EUROPEAN UNION............ 19
4.1
The Use of Access Products on the Internet...................................... 19
4.2
The Use of Credit Cards on the Internet ............................................ 21
4.3
Virtual accounts/wallets ..................................................................... 24
4.4
Prepaid Products ............................................................................... 25
4.5
Money Surrogates.............................................................................. 27
4.6
(Micro)billing....................................................................................... 27
4.7
Mobile Payments ............................................................................... 27
4.8
Summary of Findings on Internet Payments in the EU ...................... 28
5 INTERNET PAYMENT SYSTEMS IN THE US........................................ 31
5.1
The Use of Access Products on the Internet...................................... 31
5.2
The Use of Credit Cards on the Internet ............................................ 33
5.3
Virtual Wallets/Virtual Accounts ......................................................... 34
5.4
Prepaid Value Products ..................................................................... 35
5.5
Money Surrogates.............................................................................. 37
5.6
Microbilling ......................................................................................... 38
5.7
Mobile Payments ............................................................................... 38
5.8
EBPP/IBPP ........................................................................................ 38
5.9
Some trends ...................................................................................... 39
6 POLICY ISSUES ..................................................................................... 42
6.1
The Need for Statistics....................................................................... 42
6.2
Cross-border Internet Payments in the EU ........................................ 42
6.3
Lessons from the EU - US Comparison ............................................. 43
BIBLIOGRAPHY ........................................................................................... 46
APPENDIX: INTERNET PAYMENT SYSTEMS COUNTRY BY COUNTRY ......... 51

1
1.1

INTRODUCTION
ROLE OF THE BACKGROUND PAPER

This fourth ePSO background paper is about the state of Internet payment systems in the
European Union and in the United States of America. We have taken a comparative
approach based on two specific comparisons. On the one hand, we compare the state of
Internet Payment Systems in EU countries, and on the other, Internet Payment Systems
within the EU as a unit (of differences) with those in the US. This comparative analysis is
based on a stock take of Internet payment systems in EU countries and the US.
The conceptual focus of our analysis is "payment culture". Our claim is that "payment
cultures" must be taken into account in order to give an interpretation of forces and
factors that have an impact on the diffusion of Internet payment systems. When we talk of
"payment culture", we have three things in mind: the range of payment methods provided
by competing actors, the usage patterns of payers and payees with respect to these
payment methods, and the regulatory (political and legal) framework conditioning the
actions.
We believe that this approach is required for three reasons. Firstly, the state of Internet
payments in Europe can not be assessed adequately if the situation in each of the
countries and the differences between them are not known. Secondly, Internet payment
systems have to be seen in the context of the single European payment area. The potential
of Internet payment systems for cross-border payments within the EU is crucial here.
Thirdly, e-commerce and Internet payments are, in principle, global phenomena that do
not respect territorial borders. New payment methods, and companies propagating and
implementing them, can come from anywhere, providing the EU with opportunities and
risks in the field of Internet payment systems at a global level. Therefore European
developments can not be assessed without taking into account the situation and trends in
(at least) the world's largest market economy (and vice versa).
All parts of the paper have been slightly revised for this final version following the
discussion in the Steering Group. We would like to thank all experts who provided
valuable information improving the present background paper. We tried to make the
proposed typology of Internet payment systems more precise, extended the part on the
US, and updated and enhanced the country reports presented in the appendix. Some

statistical data has been updated or added, but the lack of reliable data remains a major
challenge for studies of this type.
This paper begins (chapter two), with a comparison of highly aggregated data on retail
payment instruments, interpreted in the context of inner EU differences, comparing the
EU with the US. In a second step we compare the legal regulations of e-money products
in the EU with the regulations in the US. We show that the preconception that e-money is
unregulated in the US is far from true. Finally we compare data on e-commerce in Europe
and the US.
Chapter three introduces a flexible and pragmatic typology of Internet payment
instruments. This typology helps us later classify and order our observations with respect
to particular countries and make them comparable. On this basis, information on each of
the EU countries is collected and the specific situation in each country is described. This
information can be found in the Annex.
The fourth chapter presents a comparative analysis of Internet payments in the EU on the
basis of information on each country. The comparison itself is structured along the lines
of the typology: access products, credit card payments, virtual wallets/accounts, prepaid
products, money surrogates, (micro)billing, and mobile payment forms. In conclusion 10
points are highlighted with a focus on cross-border Internet payments in Europe.
The fifth chapter presents the US situation along the lines of the same typology and
highlights the issues that arise from the EU US comparison.
In the final chapter six we point at major policy issues derived from the comparison of
payment cultures.
We add an appendix offering a short description of the actual state of Internet payment
systems in each of the EU member states.
1.2

WHY PAYMENT CULTURE MATTERS

For a long time banking and payment systems have been developed along national lines,
leading to specific "payment cultures". The most visible expression of a payment culture
can be seen in the differentiation of payment instruments and their usage figures. The
periodical statistics of ECB (blue book) and BIS (red book) present this picture at a high
level of aggregation. Even at this level, differences between giro countries, cheque

countries or between countries still relying almost entirely on cash for retail payments and
those with a high degree of electronic and/or cashless means of payment become
apparent. General trends also become clear, such as "movement away from cash towards
electronic non-cash payments; growth in card payments; trend towards greater use of
direct debit transfers" (BIS 1999, p. 11).
The next level of differentiation, however, is not addressed by these studies. They contain
very little information about what the payment instruments are typically used for, or in
what circumstances. There is, for example, no specific identification of B2B, B2C and
P2P payments, nor is there any distinction between Point of Sale payments and recurring
payments like, for instance, utility payments. Moreover, there is no distinction between
payment methods used at the real POS and the virtual POS.
It would be useful to have a further break down of the many payment methods aggregated
as POS payments and virtual POS payment systems, not to mention an explanation of
merchants and customers preferences in terms of criteria such as availability,
convenience, costs, risk, resistance to change, etc. This leads on to the question of
payment culture.
"Payment culture" is of particular interest and relevance when change is afoot. At present
there are two major challenges to the incumbent national payment cultures: the European
Monetary Union, and (global) electronic commerce. Although one can be confident that
in the long run the most efficient payment systems with the lowest transaction costs will
become common place, payment culture matters as a filter, as a yardstick for innovation
and sometimes as a catalyst. With respect to the take up of Internet Payment systems, the
influence of the national payment culture should not be underestimated.
Although an analysis of all relevant aspects of the concept "payment culture" is outside
the scope of this paper, we would like to mention some aspects of the concept. Politically,
the organisation of a state, the economic policy tradition or the way de-regulation is put
forward (e.g. at the level of clearing houses and payment processors), and last, but not
least, the way consumer protection is put in place are all of importance. Where actors are
concerned, the role of non-bank actors is of particular importance for a payment culture;
for example, the postal services (in many countries the first to provide giro payments),
merchants issuing payment cards, credit card organisations providing a line of credit to
consumers (the only ones in some countries), telecom operators offering e-purses,
transport companies shifting to cashless means of payment etc. Of course, merchants
3

and customers experiences and expectations matter: take, for example, the importance of
a payment guarantee for merchants, or low or zero risk for customers as important factors
when deciding whether or not to accept a payment method. There are other experiences
related to payment culture such as inflation, a weak currency or a high crime rate that also
influence the choice of payment methods.
To sum up: Payment culture can be defined in pragmatic terms by the usage patterns of
payers and payees with regard to the range of payment methods provided by competing
actors in a given regulatory (political and legal) framework with respect to a territory (a
state, a region etc.).
2

PAYMENT CULTURE IN EUROPE AND THE US

2.1

CHEQUE COUNTRIES VERSUS GIRO COUNTRIES

A comparison of payment cultures in Europe and the US faces the problem that European
payment cultures are fairly heterogeneous. Thus, generalisations are often tricky. Keeping
this in mind, we will nevertheless try to gain some insights from comparison of
developments in Europe and the US. First we look at the use of payment products in the
two regions and then at the legal framework.
As payment systems within Europe have developed largely along national lines, it is not
surprising that there are big differences between them. One of the most striking features is
the varying extent of cheque usage in retail payments. For, instance, in Finland cheques
represent only 0.2 percent of total cashless payments, whereas in Ireland they represent
41.5 percent. This difference is often used to distinguish between cheque countries
(shaded grey in Table 1) and giro countries (BIS 1999). However, within Europe these
differences are slowly diminishing, as the percentage of payments by cheque gradually
declines in all countries. A particularly rapid decline can be observed in the UK, where
cheque payments fell from 48.5 per cent in 1991 to 29 per cent in 1999. Another notable
difference is in the percentage of payments by card. In some countries this is as high as 50
per cent, while in others it is still below 10 per cent.1 These differences reflect partly
different uses of cashless payment methods and partly the differences in cash usage.
Finally, it is interesting to note that within the group of giro countries there are large
1

For Greece and Luxembourg this share is well above 50% but may include credit transfers. In the case of
Germany, the inclusion of the offline debit scheme ELV would raise the share of card payments in
Germany to about 8% and lower the share of debits. See table 1 for further explanations.

differences with respect to the relative shares of direct debits and credits transfers. One
possible explanation for this is that intensive use of direct debits is promoted by strong
safeguards for customers and by easy access to bank overdrafts. Both factors may vary
within the EU.
Table 1: Cashless Payment Instruments in the EU and the US*
1999

Cheques

Cards

Credit transfers

Direct debits

E-money**

Belgium

5.8

28.9

51.9

10.2

3.26

Denmark

7.9

49.4

26

15.7

1.01

Germany

5.2***

50.5

40.2

0.14

13

76

n.a.

11

n.a.

Greece
Spain

10.7

24.3

14.5

50.5

0.1

France

44

23.9

17.8

14.4

n.a.

Ireland

41.5

20.4

20.1

14.4

n.a.

Italy

27.6

19.4

41.6

11.5

0.02

Luxembourg

0.4

90.8

n.a.

8.4

1.04

Netherlands

28.6

41.5

28.9

n.a.

Austria

10.5

57.8

29.4

0.28

Portugal

33.9

46.9

6.3

11.8

0.6

Finland

0.2

36.7

58.8

4.4

0.06

Sweden

0.3

24

67.2

0.49

United Kingdom

29

34.6

17.6

18.9

n.a.

EU Average

14.8

34.6

36.3

18.5

0.7

Euro zone

15.6

30.5

36.1

20.4

0.69

U.S.A.

68.6

26.6

3.2

1.7

n.a.

Legend: Grey fields: European cheque countries. * In per cent of the volume of all cashless payments; **
card based e-money; ***: excludes ELV, i.e. card-supported offline debits at the point of sale (without
payment guarantee) inclusion of ELV would increase the number to about 8%); unweighted averages,
excluding Greece and Luxembourg. Source: ECB (2000a), ECB (2001), BIS (2001) and own calculations.

As well as differences, there are also some noticeable similarities (Bhle et al. 1999).
Recurring payments seem to be channelled through the giro network in almost all EU
countries. Within each country, there is either a uniform debit network, or if there are
many networks they are interoperable (the same is true to a somewhat lesser extent for
the ATM networks). Thus, within countries, a card holder can use almost any ATM or
POS terminal. Finally, in most countries, banks work fairly close together to design and
implement new payment products.
Given the heterogeneity of European retail payment systems, it is not always meaningful
to calculate EU-averages and compare them with US figures. For instance, with respect to
cheque usage some European countries are fairly close to the US whereas others are
completely different. However, even those European countries that use cheques fairly

extensively (France, Ireland, Italy, Portugal and the UK) trail far behind the US when it
comes to relative cheque usage. Thus, it does not seem unwarranted to treat the US as a
cheque region and the EU as a whole as a giro region.
The high usage of paper checks suggests that the US have a comparatively old-fashioned
paper-based retail payment system whereas in Europe newer, electronic payment methods
have been gaining ground. Such an across-the-board verdict, however, is not warranted.
As a closer look at the figures shows, there are not only large differences between the US
and Europe but also striking similarities.
The numbers in Table 2 do, indeed, confirm the much more intensive use of giro
payments (credits and debits) in European countries. Not even 5 per cent of all US
cashless payments are giro payments. Of the EU countries for which data on credit
transfers and direct debits are available, the country with the lowest share (Portugal) has
18.1 per cent and the average share for the European Union is about 55 per cent (in 1999).
Table 2: Card Usage at the POS
Country

EFTPOS terminals
per 1 mio
inhabitants

EFTPOS transactions per

inhabitant

Average value of
EFTPOS
transaction

Cards with a
credit/debit function
per 1000
inhabitants

Belgium

9767

38.60

55.70

1308

France*

13529

41.30

48.70

567

Germany**

3658

5.20

84.40

1297

Italy

7542

8.10

79.30

565

Netherlands

9186

26.00

48.60

1527

Sweden

9155

26.00

68.00

799

United Kingdom

11765

EU7 Average

9229

24.20

64.12

1085

United States

8604

27.60

43.00

2793

1529

Source: BIS (2001); *: 1998; **:excludes ELV (see Table 1).

However, Table 2 also shows striking similarities in card payments in 1999. In the US
26.60 per cent of all transactions are card-transactions. For the EU the (unweighted)
average share of card-payments is 27.1 per cent (due to data problems Greece and
Luxembourg were excluded). Within Europe, Germany is an exception. However, the
numbers for Germany do not include ELV payments (see Table 1 for explanations). If
these were included, the share of card payments would be about 8 per cent.2 To sum up,

This example highlights the fact that the figures for different countries collected by the BIS or the ECB are
not always comparable.

there are large differences between European countries and there is no indication of the
US lagging behind in terms of card payments. This view is confirmed by the statistics on
EFTPOS transactions. Both the number of terminals per 1 million inhabitants and the
number of transactions per inhabitant are very similar in the US and Europe. The number
of cards, however, is much higher in the US. On average, there is almost one debit card
per head and there are almost two credit cards per head in circulation. The high card
circulation goes hand in hand with lower average values for EFTPOS transactions.
Traditionally, in the US most card payments have been made with credit cards whereas in
Europe debit cards are used much more often (see Tables 3 and 4). However, a look at the
composition of card payments also shows that debit payments at the POS are rising fast in
the US. Thus, it seems likely that debit payments will overtake credit card payments in
the future.
Table 3: US and UK Debit and Credit Card Payments
1995
US Card Payment Volume

1996

1997

1998

1999

16,512.6

18,599.2

20,791.0

23,255.4

26,333.6

debit volume

1,598.9

2,469.4

3,912.5

5,730.7

7,505.8

credit volume

14,913.7

16,129.8

16,878.5

17,524.7

18,827.8

UK Card Payment Volume

1,912

2,295

2,631

2,960

3,406

debit volume

1,004

1,270

1,503

1,736

2,062

credit volume

908

1,025

1,128

1,224

1,344

Source BIS (2001); volume in millions.

Table 4 Europay International Debit and Credit Card Volume in 2000

Gross Transactions Volume

Debit volume

Credit volume

8,204.8

2,987.1

Volume in millions. Source: Europay International News (2001).

When interpreting the numbers presented above, one should take into account that the
differences outlined are probably more relevant for remote payments than at the real point
of sale. In most EU countries, remote payments are channelled through the giro system.
Even in the European cheque countries recurring payments are usually made by
credits/debits. This constitutes a marked difference in comparison to the US where remote
payments are mainly made by cheque or credit card. Giro payments (ACH payments) are
gaining ground but the US still trails far behind the EU. In Europe, the share of direct
debits and credits (over 58%) is almost as high as the share of cheque payments in the US
(over 68%). This is an important aspect to remember when it comes to Internet payments.

In the real world, small payments in particular are still generally made in cash. This is
true for the US as well as for the EU (see Table 5). In both regions we also see card
payments gaining ground.
Table 5: Retail Payments: The Share of Cash and Non-cash Transactions
% of Retail transactions
Cash

Non-cash

U.S.

75

25

Europe

76-86

14-24

Japan

90

10

Source: Federal Reserve System (1998). Numbers probably refer to the early 1990s (no date given).There are
no precise statistics of the number of cash payments and different authors have arrived at different estimates.
Thus, in the case of the US there are also estimates of 44.7% for 1990 and 53% for 1997 (Mester 2000).
Therefore, these numbers should be interpreted with caution.

Finally, when comparing the US and the EU, it should be pointed out that the image of
the US as a homogenous market, comparable to a single European country, is somewhat
misleading. The US has two systems for large-value transfers (Fedwire and Chips) and
four central processors for ACH (Automated Clearing House or giro) transactions.
Cheque processing is in the hands of about 150 Cheque Clearing Houses. Different
(regional) online debit schemes are not interoperable, the only national debit schemes
being the offline debits of MasterCard and Visa. Similarly, there are regional as well as
national ATM networks. While there is more integration than within Europe, there are
also many developments along geographical lines.
2.2

THE LEGAL FRAMEWORK FOR ELECTRONIC MONEY PRODUCTS

A comprehensive study of the relevant legal framework for e-payments in EU member

states and the US is beyond the scope of this paper. We will look instead at regulations
related to electronic money as these are often perceived as marking a major difference
between the EU and the US.
2.2.1 The EMI Directive
When e-money schemes emerged in the 1990s, central banks had to decide how to cope
with this new payment instrument. Many European central banks, motivated by a desire
to control the production of electronic money themselves, were quick to ask for swift and
wide-ranging regulation (see EMI 1994 and ECB 1998). The EU Commission favoured a
more liberal approach but the final version of the EMI Directive includes most of the
ECBs suggestions.
8

The EMI Directive creates a new legal concept: the "Electronic Money Institution" (EMI
Directive (a)).3 The aim is to enable non-banks to issue e-money without having to
become a bank. The first draft published by the Commission was clearly motivated by a
desire to foster competition and innovation. However, critics - in particular the ECB
saw the first draft as too liberal and demanded stricter regulation. In the end, a
compromise was found. It remains to be seen, however, whether the status of an EMI will
appear attractive to potential market entrants. At the moment, it does seem likely that
issuing e-money may become a banking-only business in the EU. However, before the
final impact of the EMI Directive can be assessed, it has to be translated into national law.
2.2.2 US Payment Regulation
In contrast to many European central banks, the Fed took a fairly relaxed view on emoney, arguing that early regulation might stifle innovation. This difference of attitude
between the Fed and the ECB has sometimes led to the general judgement that payments
are heavily regulated in Europe whereas regulators in the US supposedly intervene very
little. However, such a view is mistaken. A closer look at payment regulation in the US
shows that there are many layers, coming from federal agencies as well as from the
states.4
The Federal Reserve System is responsible for the safety and validity of the payment
system. It achieves this by prudent supervision of banks and the imposition of controls on
those wishing to use the Federal Reserves settlement services ("Fedwire"). These two
tasks do not automatically extend to non-bank issuers of e-money. "Under current U.S.
law, stored-value cards, smart cards, and e-wallets are being viewed as liabilities but not
deposits, thus allowing non-banks to issue these instruments" (Mester 2000, 16). This is a
very important point. The decision to classify these items as "liabilities" rather than
"deposits" makes it possible for non-banks to issue the corresponding payment products.
Regulation E: The Feds "Regulation E" includes provisions to protect consumers.
Regulation E implements the Electronic Funds Transfer Act and applies not just to banks
but also to non-banks offering electronic payment services (Mester 2000, 16). However,
the areas to which Regulation E applies often remain open to dispute (Vartanian 2000).

The EMI Directive is discussed in ePSO newsletter No. 7 (De Geest 2001, Godsschalk 2001, Lelieveldt
2001, Vereecken 2001) and the forthcoming ePSO Background Paper No 5 (Krueger 2001).
In addition to those regulations discussed in the text, there may be relevant regulations in areas such as
privacy, access and anti-trust (Mester 2000, 16).

State Money Transmitter Laws: Non-banks that offer payment services are subject to a
number of regulations. In 44 States the issue of physical stores of value is regulated
(reserve requirements, capital requirements, licensing, etc. (Mester 2000, 16)). As nonbanks have found it very difficult to comply with laws that vary from State to State on a
nation-wide basis, State regulators now attempt to create a uniform legal framework (see
below).
State Banking Laws: If a payment service provider offers an e-payment product that is
linked to an account he may be regarded as engaging in the business of banking. For
instance, when Florida State University issued smart cards this was regarded as engaging
in banking business by the state authorities (Vartanian 2000).
The Federal Deposit Insurance Corporation (FDIC): E-money may or may not be
regarded as a deposit depending on "where the money actually is". If it is a deposit, it is
insured and falls under federal banking regulation (Vartanian 2000).
Anti-Money Laundering Regulations: The demand of the citizens and companies may
clash with the requirements of law enforcement agencies especially when it comes to
anonymous e-money products. In particular, such products may make it more difficult to
monitor money laundering (Vartanian 2000).
Proposed Changes: In July 2000 the National Conference of Commissioners on Uniform
State Laws agreed on a proposal for a "Uniform Money Services Act" (UMSA).5 The aim
of the UMSA is to provide a uniform framework for the regulation of the different
"Money Service Businesses" (MSBs) and to harmonise the regulation of MSBs across the
states. The UMSA has a number of interesting features. The UMSA treats issuing emoney as a "Money Service Business" like traditional money transmission services (i.e.
wire transfers) or sales of payment instruments (i.e. travellers checks). Thus, issuers of emoney (the e-money service providers) are treated like other non-banks that have
traditionally been active in the payment business. The UMSA does not mandate
redeemability. In fact, the authors are quite aware of the different schemes that issue nonredeemable value points. (They even cautiously propose to exempt local exchange
initiatives.) Permissible investments cover a much wider range of assets than the E-money
Directive. The UMSA does not include any consumer protection provisions.

We thank Anita Ramasastry, Associate Director, Center for Law, Commerce & Technology, and
rapporteur for the Uniform Money Services Act, for the most valuable information kindly provided.

10

2.2.3 Discussion
European regulators made e-money regulation part of the banking regulation. This has
historical as well as theoretical reasons. First, the chosen strategy reflects the European
tradition to view payments as a business that should be mostly confined to banks. This
tradition may be explained by the fact that, in the past, there was a strong government
participation in the provision of payment services in Europe (Lelieveldt 1997). When
private banks took over the operation of these systems, the state (usually the central bank)
took over the task of supervision. This framework has simply been extended to e-money.
Apart from historical reasons there is also a second, more theoretical, reason to make the
issuance of e-money a banking business. E-money is viewed very much as a
revolutionary new medium of exchange, a new type of money. For various reasons
issuing money has been confined to banks in the past and there did not seem to be any
reason to treat e-money issuance differently.
The view that e-money is not regulated in the US is not correct. In the US, payment
regulations focus mainly on particular payment services rather than on banking
institutions as they do in most EU countries. The large number of regulatory and
supervisory agencies applying a wide range of rules and laws is partly due to the fact that
they are often confined to clearly defined purposes (Lelieveldt 1997). However, there are
many different regulatory bodies at the state level and at the federal level. As in the EU,
legislators have started to harmonise and streamline regulation. The visible outcome is the
UMSA. However, unlike EU regulators, US regulators seem inclined to view e-money as
just another payment service, that has more in common with travellers checks, wire
transfers and loyalty coupons than with cash. They do not focus so much on the
theoretical concept "e-money" but rather on the much less revolutionary payment
products that are implemented in the real world. Furthermore, the UMSA does not just
cover e-money but also many other payment services as well.
2.3

THE ROLE OF E-COMMERCE IN EUROPE AND THE US

Before focussing on the different payment cultures in Europe and the US it is useful to
look at the different patterns of Internet usage and e-commerce. After all, Internet
payment systems are developed with the view that e-commerce creates the demand for
new payment methods.

11

Table 6: Average Internet Usage At Home (July 2000)

Europe

U.S.

Number of Sessions per Month

12

18

Number of Unique Sites Visited

16

10

Page Views per Month

474

709

Page Views per Surfing Session

40

38

Time Spent per Month

5:19:39

9:40:53

Time Spent During Surfing Session

0:27:24

0:31:32

Duration of a Page viewed

0:00:41

0:00:50

Average Click Rate for Top Banners

0.30

0.51

Active Internet Universe

24,057,226

88,192,511

Current Internet Universe Estimate

49,688,076

143,958,588

Source: Nielsen//NetRatings quoted in ebizchronicle.com (2001)

Available statistics show that Internet usage is much more developed in the US than in
Europe. There are more Americans connected to the web and Americans are more active
on the web. They surf more often than Europeans and they spend more time and money
on the Internet.
Table 7: The Number of Internet Hosts and Secure Servers
Finland

France

Germany Spain

UK

USA

Japan

Internet hosts per 1000

inhabitants (Jan 00)

148.1

29.8

34

22.8

60.3

141.5

25.8

Secure servers per 1 mio

inhabitants (Jan. 00)

47.8

15.9

29.5

14.3

47.4

147.7

12.9

Source: OECD (2000).

A look at the supply side confirms the picture. US firms and citizens are also more active
when it comes to providing content on the net. The number of hosts and secure servers
per 1000 inhabitants is much higher than in the EU. Higher Internet usage on the demand
and supply side also translates into more buying and selling over the Internet. In July
2000 there were around 5.6 million active Internet shoppers in Europe and 43.4 in the US.
Table 8: Internet Activity by Category (July 2000)
Category Name

Region

Shopping

Europe

Shopping

U.S.

Finance/Insurance/Investment

Europe

Finance/Insurance/Investment

U.S.

Unique
Audience

Reach %
(Active)

Time per
Person

5,643,000

23.46

0:08:29

43,435,000

49.25

0:08:28

4,716,000

19.60

0:20:52

26,415,000

29.95

0:14:13

Source: Nielsen//NetRatings quoted in ebizchronicle.com (2001)

12

The estimated value of online retail sales in the US was USD 33.10 billion in 1999 and
USD 61.09 billion in 2000. B2C e-commerce in 9 European countries (D, DK, F, FIN, E,
I, IRL, S, UK) was about EUR 15 billion.
Table 9: US Online Retail Sales
Revenues (US$ billions)

Category

Market Penetration (%)

1998

1999

2000*

1998

1999

2000*

14.47

33.10

61.09

0.7

1.4

2.4

P2P auctions

1.40

3.10

6.00

NA

2.8

4.9

Computer hw/sw

4.20

6.60

9.20

14.0

17.6

23.4

Financial brokerage

3.41

6.40

11.10

9.2

14.6

28.9

Travel

2.76

7.10

14.60

1.2

2.8

5.4

Total
of which:

*: projected; hw/sw: hardware/software.

A comparison of e-commerce in the EU and the US shows that there is more demand for
Internet payments in the US. Thus, we might expect more activities related to Internet
payments in the US. Nevertheless, one should not forget that e-commerce is not the only
form of remote retail transactions. The mail-order business has had to deal with distant
customers for a long time and find ways to get payment. In Europe as well as in the US,
the value of mail orders is higher than the value of e-commerce. In 1999, estimated online
retail sales in 9 European countries amounted to EUR 16 billion (see table 10). In
comparison, mail order sales in these countries amounted to almost EUR 45 billion. In the
US, the same can be observed. Whereas online retail sales had a value of around USD 33
billion in 1999 (USD 61 billion in 2000), mail order business was about USD 83 billion in
1997 (more up-to-date figures are not available).
Table 10: B2C E-commerce and Mail Order Trade in Europe in 1999
UK

FIN

SW

DK

IRL

EU9

US

e-commerce

5.3

3.6

3.4

1.1

0.8

0.7

0.7

0.4

0.1

16.1

33.1

mail-order

12.4

20.9

7.7

0.8

0.7

0.9

0.6

0.6

0.1

44.7

83.4*

In EUR billion. Source: European Mail Order Trade Association (1999), U.S. Census Bureau (2001), tables
1285 and 1290 and EcaTT (2000). *: 1997.

The fact that traditional means of payment functioned reasonably well for mail order and
telephone business suggests that it is not e-commerce per se that has triggered the wave of
new innovative payment mechanisms that can be used to make remote payments. After
all, the Internet is in many cases only an additional distribution channel. The real change
with respect to old distribution models comes with the emergence of digital goods! The
sale of these goods may well require new forms of payment.
13

3.1

INTERNET PAYMENTS: INTRODUCING A FLEXIBLE AND PRAGMATIC

TYPOLOGY
A TYPOLOGY OF INTERNET PAYMENTS

Apparently, there are lots of so called "Internet payment systems" in the world. The
ePSO-database of e-payment systems focussing on B2C payment methods in Europe
already lists about 80 schemes (ePSO inventory). Of course, their status and state of
deployment vary considerably. As we will detail further below, the importance and
acceptance of these payment schemes also varies considerably between payment cultures.
We introduce a classification of these systems as a tool that helps to compare differences
within Europe, and difference between the European Union and the United States, The
proposed typology of payment methods presented in Table 11 starts from the common
understanding of "payment instruments".
Table 11: Typology of Internet payment systems
Typology of Internet Payment Systems
Type

Subtypes
Credit transfer

Access products

Electronic checks
Debit card payments

Credit card payments

Differences are mainly about the approach to secure credit card payments (SET,
3D-SET, ) and are not regarded as subtypes of the payment type.

Virtual
wallets/accounts

Work somehow like traditional access products B2C and P2P, but remain a
chained payment instrument dependent on traditional payment instruments
Single purpose schemes

Prepaid value products

Chip based

E-money according to
2000/46/EC
(multi-purpose schemes)

Software wallet

Prepaid dedicated accounts

Money surrogates

e.g. e-loyalty points or incentive point schemes that involve three parties

(Micro)Billing

Building on existing billing relationship or requiring a new one

Mobile

Still no payment instrument in it's own right, but a new device to carry out a
whole range of e-payment methods (eg using operator's phone bill, prepaid
account/prepaid card, direct debits and/or credit card payments).

14

3.1.1 Access Products

We start from the notion of "access products". Access products are payment instruments
enabling access to bank accounts and transfer of funds from bank account of A to the
bank account of B (and vice versa). Credit transfers, direct debits and cheques are the
most important examples of this. Using the timing of the actual payment as the criterion,
these instruments can be termed as "pay now" (from the payer's point of view). Although
they started as paper-based forms they can all be adapted to electronic environments. In
particular, payment cards have been important in reshaping and modifying the traditional
payment instruments (think, for example, of bank cards for ATM access; or cheque
guarantee cards or debit cards). Problems arise when these payment forms are used on the
Internet. Security and authentication features such as "card present" or "hand-written
signature", decisive in the real world, are lacking. Methods integrating digital signatures
and/or smart cards are part of the answer.
3.1.2 Credit Cards and Charge Cards
Although credit card payments are still closely related to the bank account (sometimes
included in the group of access products) we treat them separately. We regard them as a
"chained payment instrument" (Brown et al. 2000), i.e. as an intermediary payment
service. In the case of the credit card, the service of the financial intermediary offered to
the payer is to aggregate payments before debiting the bank account. This implies a line
of credit (implicitly with charge cards, explicitly with credit cards providing revolving
credit). This payment method meets the "pay later" criteria. The concept of "chained
payments" is especially useful because it allows us to understand payment processes
containing more than one step and more than one payment service provider. At the same
time, it allows us to better understand the relation of banks and non-banks in the provision
of Internet payment methods. Moving credit card payments to the Internet creates the
same security concerns as mentioned above for access products in general. Therefore it
comes as no surprise that credit card payments and the traditional access products can
(but need not) share the same security infrastructure.
3.1.3 Virtual Wallets/Accounts
On the Internet, some payment service providers are using a central server based wallet to
facilitate traditional forms of payment such as credit transfers, debits and credit card
payments. These payment services can be addressed as "virtual wallets". CyberCash was
an early example of such a system. In many cases, the virtual wallet is combined with a
15

"virtual account". Basically, virtual accounts fulfil the same functions as normal banking
accounts, i.e. to transfer value from one virtual account to another or from a virtual
account to a bank account or credit card account. Again, CyberCash provides an early
example of such a virtual account (CyberCoin).
These transfers can be used for P2P payments and for payments in the B2C segment of
retail e-commerce. What distinguishes virtual accounts from traditional accounts is the
fact that (a) they may be offered by non-banks and near-banks, (b) they are apparently
Internet-based (using e-mail and access to a server connected to the Internet) and (c) they
ultimately rely on traditional accounts for feeding the virtual account or for clearing and
settlement purposes. In this sense virtual accounts are also chained payment instruments.
Potential strengths might be seen in areas where traditional bank accounts are generally
weak such as integration into online-shopping processes (especially online auctions), or
online P2P payments, including cross-border facilities. In some cases, groups without
regular bank accounts may also have access to these virtual accounts.
In most systems the virtual wallet and the virtual account functionality are combined.
Therefore, we analyse them jointly under the heading "virtual wallet/account". Prepaid
value products, however, defined in the next section, are treated a separate category.
3.1.4 Prepaid Value Products
The next class of payment instruments, generally regarded as an important payment
innovation, is made up of "prepaid value products". The underlying construction can be
characterised as follows: Prepaid value products are purchased (or loaded) in exchange
for money, providing the issuer with an interest free credit. In return, the payees claim is
redirected against the issuer. As the issuer has received in advance the amount of money
covering all claims he is able to guarantee the payment. From a systematic point of view,
prepaid products are again chained payment methods. While the question with all paylater methods is which payment instrument is used to clear and settle the aggregated
payments, the question with prepaid methods is which payment method is used to load
monetary value (e.g. cash, credit card, debit card, cheque, money order). Prepaid stored
value products include at least three subcategories:
1. Single (or limited) purpose schemes where issuer and service provider (acceptance points)
are the same (as with telephony, both for card telephones and mobile phones). Although
these payment schemes are excluded from the scope of the EMI Directive as they are not

16

regarded as e-money, they nevertheless constitute a specific payment instrument the

potential of which for the Internet is still not clear.
2. Electronic money schemes as defined by the EMI-directive. It is commonly understood
that chip-based schemes (i.e. e-purses) and software-based schemes (i.e. stored value in
software wallets at local PCs) are covered.
3. Prepaid dedicated accounts differ considerably in the way the pre-payment is effected,
e.g. by purchase of a scratch card, loading from a bank account or funding via a credit
card account. So called "gift currencies" and schemes like Visa Buxx fall also under this
type.6 The main application area is the virtual Point of Sale (and sometimes also the
traditional POS). These accounts can have no negative balance, they cannot be used for
P2P transactions, and payments are made independent of an existing bank account or
credit card account. A major difference between the "virtual wallets/accounts" discussed
above and pre-paid instruments is that "dedicated" prepaid value only leaves the system
via purchases with registered merchants.

In the case of prepaid cards, balances often have an expiry date and prepaid cards can
usually be purchased with cash. Thus, they allow for anonymous shopping. This is also
very different from the "virtual accounts" as described in 3.1.3.

As long as a) the

functionality of these prepaid accounts is limited and dedicated to B2C payments, b) the
liability of payments is with the issuer, and c) the issuers of the schemes don't lend their
deposits as credits at risk, then EMI status for these issuers seems more appropriate than
bank status.
Regarding this subtype it is however not yet clear if it is covered by the EMI directive or
has to be considered as deposit taking activity and therefore regarded as genuine banking
business in legal terms. In the US, value held in such accounts are regarded as "liabilities"
of the issuer and not as "deposits". Therefore, they can be offered by non-banks.
3.1.5 Money Surrogates
The notion of "currency" has to be rejected with regard to loyalty points and/or incentive
point schemes. We propose here the term "money surrogates" to cover different value
point schemes such as e-vouchers, e-bonus points, e-coupons, e-miles, e-rewards, eairtime etc. Typically these schemes are operated by non-banks and the value-points are

17

distributed by merchants (not purchased by customers!) under certain conditions before

consumers can spend them. It is a heterogeneous and innovative field that deserves
special attention. As the purpose of "loyalty points" is to make sure users return to a shop
or use a service again, it seems unlikely that e-loyalty points will develop towards
generally accepted e-money (cf. Dawsen et al. 2001, p. 59-63). The more universally the
bonus-points are accepted the more currency-like they become. At the same time,
however, merchants participating in such a scheme will find it harder to differentiate
themselves from competitors and to lock customers in. By their very nature these schemes
are therefore "limited". Nevertheless in legal terms, multi-branch e-loyalty schemes may
fall under the EMI directive as argued by Vereecken (2000) and criticised by Godschalk
(2001a and 2001b). Although the legal dimension might be difficult to grasp, it is not so
difficult to identify this type of scheme in the market.
3.1.6 (Micro)Billing
The next type is referred to as (Micro)Billing. The "Micro" in brackets distinguishes this
payment system from Electronic Bill Presentment and Payment Services, although there
is an overlap. (Micro)Billing is like credit card payment a "chained payment method".
Again the financial intermediary, a telco, an ISP, a bank or a special "biller" aggregates
payments before they are cleared, either by debiting the bank account of the customer or
using another intermediate payment service (e.g. of a credit card company). This method
again implies a line of credit comparable to a credit card of the charge card type. In this
sense it is another "pay later" payment method. The billing service can be related to an
existing billing-relationship as with a phone company, ISP, portal, shopping mall or it
may be newly established for the subscribers of the service.
3.1.7 Mobile Payment Methods
Finally we cover mobile payment methods, although we are aware that mobile phones are
not payment instruments as such. Mobile forms of payment combine a new device, the
mobile phone, and a new communication channel, the cellular phone network, to replicate
existing payment methods. Mobile phone payment methods are applicable, in principle, in
the real and in the virtual world. There are at least three important ways of linking the
mobile phone to a payment method:

Their distinguishing feature is that a third party (eg parents, friends) loads the virtual account so that the
beneficiary can purchase gifts at selected shops or dispose of the purchasing power represented by the
account. To label these schemes "new currencies" is misleading.

18

G
G
G

by billing on the mobile phone bill,

by deducting from prepaid accounts/prepaid cards, and
by enabling the use of traditional payment instruments such as credit card payments
and direct debits.

In other words, mobile phones can be used for all types of payment instruments. When we
established our classification scheme, we had the choice of either linking mobile payment
methods to the payment instruments involved or regarding them as a category in their
own right. We have decided to cluster mobile phone payment methods in one category, in
order to provide an overview of the remarkable activities in this field.
3.2

SOME CAVEATS

The typology is designed in order to allow for a systematic overview of Internet payment
systems in the EU and the US in the following chapters. A country by country overview
can be found in the Appendix.
As every classification system has its limits, there will be payment schemes that cross
categories, and others that fall outside of the system. For example, when we talk here of
Internet payment systems we refer to those in the B2C and P2P sector (but not B2B) and
we include only those transactions initiated online and exclude methods such as cash on
delivery or prepayments by cheque.
Obviously there are payment systems that fall into more than one category (e.g. solutions
enabling secured direct debits and credit card payments) and consequently appear in more
than one cell. There are also cases where it is hard to decide if a scheme is of a prepaid
type or should be better addressed as virtual wallet/account.

4
4.1

INTERNET PAYMENT SYSTEMS IN THE EUROPEAN UNION

THE USE OF ACCESS PRODUCTS ON THE INTERNET

It seems the use of giro payment instruments, especially debit cards and credit transfers,
for Internet payments has been underestimated at least in public debate. The
information available indicates that in at least 9 of the 15 European countries covered in
this paper, access products are of importance for Internet purchases. In at least two of
them they are even the most popular way of initiating payments on the Internet. Finland is
a striking example of the use of credit transfers ("electronic giro"). As online-banking is
19

most popular in Finland and not more than four banks hold almost all accounts of
consumers and merchants, bank transfers are a natural candidate for Internet payments.
The challenge was to integrate smoothly one online-banking functionality, namely "credit
transfer", with the online shopping process. This has been done successfully, though etailers have had to open accounts at all the banks involved. This last condition shows the
limits of this approach. Maybe an intermediary service acting as payment gateway could
overcome these limitations. This path is followed by "fun communications" in Germany
attempting to establish itself as home banking gateway for all German home bankers and
e-tailers. It is too early to tell of success or failure of this approach.
In Germany, direct debits initiated on the Internet are probably the most convenient way
for German customers to pay domestically on the Internet. However, other countries like
Austria, Belgium, Denmark, France, Netherlands, Sweden or the UK offer direct debits
on the Internet as well.
It would be interesting to know both the relative importance of debit card payments in
these countries and what security measures are in place in different countries. Due to lack
of data we can only make a general statement. The security problem with debit card
payments and with credit card payments is probably analogous in as much as there are
non-secured transfers of account information and debit mandate over the net, and
transfers via SSL (sometimes with additional security measures put in place at the
merchant side). However, to some extent, even more secure systems are used. There are
cases in Europe where the SET or 3D-SET security infrastructure is used for direct debits.
In some countries, e.g. Denmark, France, the Netherlands and Belgium, we even find chip
secured debit card payments.
We would also like to stress the following two points:
G

A secure infrastructure for card payments does not need to distinguish between credit
card payments and debit card payments. Especially in those countries in which the
major card processors process debit and credit card payments alike this point is
obvious.

At present, payments with access products face a number of obstacles. The use of
credit transfers for e-commerce is restricted by the absence of a real time inter bank
settlement system for retail payments. This hurdle has been overcome only in cases in
which the banking system is not too fragmented and online banking is popular. In
addition, both, credit transfers and direct debits are basically national solutions
precluding, for now, international payments.

20

This leads to the question of whether there is the potential and an incentive for these
payment instruments to be extended to cross-border payments. Improvements in this
direction may depend on advancements in the field of banking standards like, for
example, IBAN (International Bank Account Number) and also HBCI (Home Banking
Computer Interface) and the improvement of pan-European clearing and settlement for
retail payments.7 The incentive to move into this direction might be that individual
European banks or banking groups could then compete with credit card organisations in
the European market for cross-border payments.
4.2

THE USE OF CREDIT CARDS ON THE INTERNET

No doubt, credit cards are the most important payment system on the Internet.
Representatives of credit card organisations in the US claim a share of Internet payments
in the order of 90% (e.g. the Executive Vice President e-Visa U.S; Gustafson, 2000),
while European representatives claim some 70%. (e.g., Pache 2001 of Eurokartensysteme). When interpreting such figures, two factors have to be taken into account.
Firstly, the average 70% share achieved across the EU does not hold for all countries.
Secondly, if payment methods that are not-initiated-on-the-Internet (like pre-payments by
credit transfers, cash on delivery or bill payments after receiving the physical goods) are
taken into account, the relative importance of the credit card decreases. Figures from
Lafferty presented in Table 12 show quite nicely the regional differences, indicating that
even in the US alternatives to the credit card are of importance.
Table 12: Credit Card Use for Online Purchases by Region
1999

USA

Iberia &
Latin
America

Western
Europe

Non US
English
speaking

Asian
Tigers

Rest of
World

Credit card / online

purchases

78 %

47 %

42 %

75 %

48 %

37 %

Source: Lafferty Publications; available from ePayNews (retrieved June 2001).

Comparative figures of Gartner research presented in Table 13 next page underline the
large differences among some EU countries and in comparison with the US.

The general issue of cross-border credit transfers has been dealt with recently in a study by STOA
(Scientific and Technological Options Assessment) for the European Parliament (see STOA 2001). It is
not focused on e-commerce, but takes card based Internet payment instruments into account.

21

Table 13: Usage of Internet payment Systems in four Countries

July 2000

England

France

Germany

US

Credit card online

81%

61%

20%

88%

Cash on delivery

--

10%

16%

--

Billing existing account

4%

4%

14%

2%

Phone/fax in credit card

4%

--

--

5%

Other*

11%

25%

50%

5%

*: of which France 12% check, Germany 19% direct debit and US 4% checks and 1% debit online (PINless). Source Gartner quoted in Rountree (2001)

Looking at Germany, perhaps the "worst case" for credit card companies, a representative
survey carried out in 2000 on behalf of a banking association in Germany (Bundesverband Deutscher Banken), provides further details: About 50% of German Internet users
have already paid for goods or services. Of these, 42% paid after receiving the goods and
a bill; 20% paid on delivery with cash, 19% authorised a direct debit, 16% used their
credit card, 2% had paid in advance and 1% used other methods (BdB 2000, p.14). This
puts credit card payments in fourth place overall and second as regards the online initiated
payments. The traditional way to pay for MOTO orders (payment after receiving the
goods) and the wish to use the preferred POS instrument (direct debits in this case) also
on the Internet (including the right to repudiate payment) may explain the profile of this
particular payment culture.
There is also some evidence that cash on delivery and/or payments after receiving a bill
are first choice in Sweden, Netherlands and Portugal (cf. Stiftung Warentest 1999, p.35).
There are other EU countries too, where credit cards are not the first choice for online
initiated payments. In Finland, for example, the "electronic giro" dominates (Salste 2001).
Although credit cards are not the preferred payment instrument anywhere, their
outstanding role for cross-border payments in all EU-countries is evident (cf. again
Stiftung Warentest 1999, p.35).
The position of credit card payments in the range of Internet payment systems is not only
a question of quantity but also of quality in terms of convenience and security. There is a
high proportion of disputes in the Internet segment and correspondingly a high rate of
chargebacks. To tackle this problem new rules and regulations in combination with new
security and authentication technologies have been implemented. Measures taken by both
major credit card organisations are more or less the same in Europe; for example, the use
of card verification code (CVV2, CVC2), flagging Internet transactions by ECI
(Electronic Commerce Indicator), penalties against merchants with excessive charge22

backs, and, in the case of Visa Europe, a "liability shift" towards the issuing bank to
become effective 1 June 2001.
At the technical level, the promotion of SET and "virtual credit cards" (or pseudo credit
card numbers) is a visible step towards reducing risks of fraud, repudiation and charge
backs. In some countries SET was promoted more than in others. SET was never of
practical relevance in the US, and the same seems to be true for the UK. As German
figures of more than one million SET transactions in 2000 show, SET was slightly more
successful in other European countries. Without doubt card processors and technology
providers made considerable efforts to make SET happen, while the role of banks was
more ambiguous, maybe because of chargeback liability shifting from merchants to the
issuing bank in the case of SET.
In some countries, a "fat wallet approach" to SET was followed (like the CyberCash
wallet in Germany, I-Pay wallet in the Netherlands or TelePay wallet in Italy). In other
countries smart card secured SET was promoted, as in Belgium by Banksys and in France
by a consortium supporting CyberCOMM (cf. Bourreau and Bounie 2001). Today, it is
admitted that the "thick wallet approach" has by and large failed and the chip-based
enhancement of SET seems to be less successful than expected by its promoters.
CyberCOMM has apparently been wound down (cf. FIWG 2001).8
At present 3D-SET is promoted in Europe by both major card organisations to ease the
costs of participation in SET for merchants and their customers. 3D-SET is clearly an
instance of the "server-based approach". Again major payment processors in Europe have
taken up the challenge, coming up with solutions such as Banxafe in Belgium initiated by
Banksys, TelePay light by SBB in Italy or a server-based version of I-Pay announced by
Interpay in the Netherlands.
3D-SET seems to be only an intermediate step, however. There is no doubt that credit
card organisations in the US have developed an alternative to 3D-SET, informally called
sometimes 3D-SSL. While 3D-SET requires the customer to obtain a SET-certificate, 3DSSL simply combines SSL and the central server approach. This does not exclude
additional security measures like the use of smart cards for authentication. There is some
evidence that at least some banks in Europe favour already a 3D-SSL approach (e.g.
8

It is also worth noting that smart card secured credit card payments need not be SET compliant. As early
as 1998, Barclaycard was testing credit card payments with EMV cards for use on Internet. The underlying
protocol developed by Europay International is called SCPP (Smart Card Payment Protocol).

23

Commerzbank Germany, or Barclays in the UK). One might also argue that "virtual credit
cards" and "pseudo credit card numbers" are in a sense also "light" alternatives to SET
and 3D-SET.9
4.3

VIRTUAL ACCOUNTS/WALLETS

Virtual accounts enabling P2P and B2C payments are anchored in online-auctions and
private money transfers. The trend was first set in the US with PayPal and other
competitors such as Yahoo with PayDirect. These services combine e-mail payments and
remote access to a virtual account at a payment server. As claimed in a CELENT report,
in the US, online auctions are still the major application field for payments based on
virtual accounts (55%). However, payments at small businesses (plus online gambling
plus online pornography) contribute already 25% of the payment transactions followed by
P2P with a mere 15%. The remaining 5% are international payments. Experts assume that
these payments will compete heavily with credit card payments (see Celent 2001). PayPal
is currently available in eighteen European countries: Austria, Belgium, Denmark,
Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands,
Norway, Portugal, Spain, Sweden, Switzerland, and United Kingdom. In four of these
countries disbursements (not loading) directly via bank accounts are enabled (in the UK,
France, Germany, and the Netherlands). The reaction of the credit card companies is to
add P2P functionality to their credit card accounts or in other words to turn the credit card
account into a virtual account. In Europe a pilot service by Eurocard/Mastercard called
"Deposit Transaction Service" has been announced.
Apparently US firms are more active in this field than European banks. While in the US
many schemes are in the market, with a 90% market share for PayPal, virtual accounts are
not yet very common in Europe. On the one hand, it is possible that available P2P
mechanisms like online credit transfers via home-banking or even P2P functionality of
mobile payment systems may reduce the immediate need for virtual accounts in the EU,
on the other hand online auctions are of greater importance in the US and this might be
the main reason for the "invention" of a suitable payment mechanism of this kind.
Nevertheless these services should not be underestimated as they may stimulate
enhancements of credit card services as well as of online-banking services. The potential
of these services, especially PayPal, for cross-border payments is especially interesting.
9

For more details on new authentication mechanisms for credit-card payments over the Internet, Visa (3D
secure), Mastercard (Secure Payment Application), see (Lelieveldt 2001).

24

4.4

PREPAID PRODUCTS

E-money requiring software wallets to be downloaded, installed and managed by the end
customer have by and large failed in Europe (e.g. CyberCoin, Barclaycoin, eCash,
Kleline). The alternative of using chip-based e-money schemes, commonly referred to as
e-purses, has made some progress since 1998.10 At that time only the Finnish e-purse
Avant and the Belgium Proton card were used for purchases on the Internet. Three years
later, 8 out of 17 schemes claim they are used for Internet payments and a further 5
schemes are either piloting their use on the Internet or about to start (see Table 14 below).
Table14: E-purses in the EU and the US April 2001
Country Scheme

Country

Scheme

AU

Quick (pilot)

IT

MiniPay

BE

Proton

LUX

MiniCash

DK

*Danmnt

NL

Chipknip/Chipper

FIN

Avant

FR

Mo neo

PT
Modeus

Porta Moedas Multibanco

*Mondex SE

*CashCard

*PayCard ES

Monedero 4B

GER

GeldKarte

GR

UK

*Mondex (pilot)

IRE

[two pilots closed down]

US

VisaCash,

Euro 6000

Legend: Schemes in bold claim to be used for Internet payments. Schemes announcing their use on Internet
or being in a pilot stage are marked with an asterisk. The data provided by DG Market based on a
questionnaire asking e-purse providers if it is "possible to pay over the Internet with the scheme" are
included, although we can not exclude that someone has understood the word "possible" in the sense of
"technically feasible". The schemes participating in the Ducato project are highlighted (cyan/darker grey),
the schemes participating in the PACE project (Purse Application for Cross-border use in Euro) PACE are in
yellow/lighter grey. As both projects are about cross-border interoperability they bear a potential for Internet
payments cross-border too, although at present Internet payments are beyond the scope of both projects.
Source: DG Internal Market 2000; BIS 2000; EBCS 2000; ECB 2001, personal communications to ePSO.

Having said this, we have to add that the Internet is not yet the panacea that creates a
business case for e-purses. Anecdotal evidence with respect to the earliest Internet
enabled e-purses tells us that, by December 1999, less than 40 Internet merchants were
accepting the Proton card. With respect to the Avant card in Finland, we have been
assured that there is only one (!) merchant accepting it on the Internet (cf. Van Hove
2000, personal communication with Tuomas Salste).
Unfortunately, there is no data available on e-purse usage on the Internet. But data
published by the ECB (see Table 15) can be used to make a "guesstimate". We select
those countries where e-purses are used on the Internet, and assume that Internet
payments make up a share of 1% (readers are free to use other percentages). On this basis,
10

In 1998 a stock take of available Internet payment systems, including e-purses, was carried out as part of
an IPTS/ESTO project (cf. Bhle et al.1998, p. 126).
25

we calculate that there are 2,800 e-purse transactions per day in the Euro zone,
transferring a value of 12,480 Euro. This amounts to approximately a million transactions
and a total value of ca. 4.5 million Euro for the year 1999. The calculation for the Euro
zone is also valid for the EU as a whole, given that the Danish e-purse is not used on the
Internet at all and Mondex in the UK is restricted to some testing.11
Table 15: E-money and Internet transactions in the Euro Area 1999

Country

Purse/
population
%

e-purses

Transaction
volume per
day

Transaction
value per
day in EUR

Internet
transactions
per day as
1% of POS

Internet
transaction
volume as
1% of POS
in EUR

AU

4.800.000

60

6.000

32.000

BE

7.000.000

69

149.000

563.000

1490

5.630

FIN

500.000

10

1.000

2.000

10

20

580

1.970

10

30

FR
GER
IRE
IT
LUX

20.000

300

300

60.000.000

73

58.000

197.000

n.a.

n.a.

n.a.

n.a.

30.000

0,1

1.000

3.000

300.000

60

1.600

6.000

NL

20.000.000

128%

*60.000

*450.000

600

4.500

PT

3.400.000

34

14.000

17.000

140

170

8.100.000

20

6.000

16.000

60

160

> 296.900

1292.300
2.890

12.480

ES
Euro area

104.150.000

Internet
US

100.000

n.a.

Legend: * The transaction data for the Netherlands have to be fictitious as the real data are not provided. As
the average amount per transaction of 7,5 Euro is available we have calculated the transaction value based on
this and the assumed number of transaction per day. For our calculation a guess is needed, because otherwise
the use of e-money would be underestimated. Source: ECB Monthly Bulletin, November 2000 (ECB 2000
b) relying on BIS 2001 and national data.

In our view this leads to the conclusion that there is as yet no real demand for e-purses as
an Internet payment option. The fact that cross border payments on the Internet are
beyond the scope of both the PACE project (see PACE, reference to a record about the
project in the Cordis database) and the Ducato project (Proton World International 2001)
underlines this. Cross-border use of e-purses on the Internet might attract more attention
if e-purses allowed for P2P payments). So far, the option of cross-border P2P payments
on the Internet has not been widely discussed (cf. however DG Internal Market 2000, and
STOA 2001).

11

Those interested in more detailed analysis of e-purse developments in general are referred to Van Hove
(1999) and Van Hove (2000).

26

Schemes that have been classified as "prepaid dedicated accounts" such as paysafecard,
Virtual cash plus, SplashPlastic, SmartCreds are alternatives to e-purses because they
have similar cash-like properties: they do not necessarily require a bank account or a
credit card and they also provide for anonymous payments. It is too early to assess
whether the teenage market and the market for "adult content" may create sufficient
demand for these schemes to be successful. Prepaid cards also have drawbacks that
should be kept in mind: high physical card costs, distribution costs, retailer commission,
and limited interoperability (cf. Jones 2001). It will be interesting to see, however,
whether their cross-border potential strengthens their appeal. The use of "paysafecard"
allowing for purchases in Austria and Germany might be regarded as an example of the
first step in this direction.
4.5

MONEY SURROGATES

Multi-party loyalty point and incentive point schemes are reportedly available at least in
Germany, France, the UK and Spain. An interesting aspect of these schemes is their
cross-border potential, a case in point being the agreement between I-point (UK) and
Webmiles (DE) to share their network.
4.6

(MICRO)BILLING

Some countries like France, Germany and the United Kingdom have had considerable
experiences of (Micro)Billing because of the consumer online services offering integrated
payment solutions. This experience seems to translate into an inclination to accept
(Micro)Billing on the Internet too. The trend to integrate premium-rate phone calls as a
payment vehicle, however, seems to be more general.
4.7

MOBILE PAYMENTS

Mobile phone payments are generally envisaged as a payment method at the real and the
virtual point of sale. At this stage the development process is still in the early phase. This
phase is characterised by a wealth of different approaches at the level of device (dual slot
phones, dual chip phones, simple GSM phone), at the level of payment instruments
supported (credit cards, debit cards, direct debits, prepaid accounts and prepaid cards) and
at the level of business constellation (parties involved, brand names, division of functions
etc.). The market is obviously highly competitive. In Spain, for example, there were no
fewer than six competing schemes in April 2001. Though there has been some
27

consolidation since then due to the intervention of the "court in defence of competition"
(Tribunal de Defensa de la Competencia), there are still at least three major competitors:
Movilapago, Visamvil and Paybox. As major companies try to establish a presence in
many countries, this could also be regarded as a starting point for cross-border mobile
payments B2C and P2P. Paybox is present in Germany, Austria, Sweden and Spain is an
interesting case in point.
4.8

SUMMARY OF FINDINGS ON INTERNET PAYMENTS IN THE EU

The picture of Internet payments in the EU drawn above can be summarised in the ten
points listed below. Table 16 gives an overview of payment systems available in EU
Europe and aggregates the findings of the country reports in the Appendix.
1. There are different payment cultures in Europe worth identifying. Some of the
payment options present in one group of countries are hardly present in other
countries. However some differences pointed at may also be due to a lack of data or to
be more precise to an uneven level of information with respect to different countries.
2. The preference of payment instruments chosen at the real POS clearly influences the
preferred payment method at the virtual POS. Credit card payments are important
everywhere. But, in many countries, online giro payments are more significant than
expected.
3. There are striking differences regarding payment cultures among the larger EU
economies, for example: the debit orientation in Germany, the absence of SET in the
UK, or the determining smart card tradition of French banks leading to solutions like
CyberCOMM or dual slot mobile phones.
4. National culture is also visible in some countries where one player or a small group of
players seem to be the main drivers of payment innovations (e.g. Banksys in Belgium,
SSB in Italy or PBS in Denmark). This contrasts with other countries that have a more
fragmented payment system and possibly more competition.
5. The cross-border aspect of payment culture also becomes visible when neighbouring
and culturally related countries choose the same approach: e.g. Germany and Austria
(bezahlen.at; paysafecard; Paybox); France, Belgium and Netherlands (chip secured
debit card payments), the Scandinavian preference for giro payments, or the UK and

28

US attitude towards SET. Common cultural patterns can also explain why US
schemes entering Europe do so normally via the UK.
6. Despite differences there are also common trends like the gradual death of thick
wallet based payment systems and a trend towards a server-based approach, and the
rapid spread of "prepaid dedicated accounts".
7. The European smart card orientation in payments shows in the number of e-purses
that allow Internet usage and smart debit cards used to secure giro payments.
8. Credit card payments are crucial when it comes to cross-border payments, but other
payment methods like prepaid dedicated accounts, virtual accounts, loyalty schemes,
or payments via mobile phone can be used for the same purpose, albeit still in a very
limited way. Cross border capabilities emerge in this case with the international
deployment of particular systems. To a certain extent cross-border interoperability of
e-purses followed the same line of common technology implemented in different
countries (with Proton technology being dominant in the Ducato project and
GeldKarte technology in the PACE project). There is also a potential for giro
payments to be used cross border, but it appears this will need more preparation time.
9. Globalisation is already taking place. Technology providers already have to think
globally and payment service providers too. For years new payment schemes have
been imported from the US (e.g. eCash, CyberCash, beenz, PayPal).
10. Last but not least, interesting payment solutions have been developed in Europe that
could turn out to be "best practice". However, the inward-orientation in most
countries prevents suppliers and customers looking across borders to find the best
solution. Few people probably know about bezahlen.at, an Austria approach that
combines bill presentation and direct debit, or the Magex or CopyLock purse in the
UK that combines copyright management and payment.

29

Table 16: Electronic Internet-Payment Methods in EU countries

Electronic Internet-Payment Methods in the European Union / June 2001
Type

Brand/solutions

Credit transfers

electronic giro [SF], *fun [DE]

Solo e-payment [SF]

Bezahlen.at [AU, *DE];

BACS [UK]
[CyberCash] [DE],
CyberCOMM [F],
Dankort PBS [DK],
I-Pay [NL]
SET, 3D-SET [AU,BE, DE, I, DK,
F, IRE, NL, ES]
SET facil [ES],
SET light [AU, I]

Leonia [SF],
Maestro pilot [AU],
Switch [UK],
Virtual Cash [ES],
Visa debit [UK]

Electronic checks
Access
products
Debit card payments

Credit card payments

[Barclaycoin] [UK],
[CyberCash] [DE],
Earthport [UK],
[Klebox/K-wallet] [F, SE],
Mover card [I]

Virtual e-wallet/accounts

Banxsafe [BE],
Clikpay [IRE],
CyberCOMM [F],
I-Pay[NL],
Telepay light [I]
Nochex [UK],
[*Odysseo] [F],
PayHound [UK],
Safedoor [UK],
Smart Creds [UK]

Single purpose

WebCard [AU]

E-money
2000/46/EC

Avant [SF],
*Danmnt [DK],
*Cash [SE],
Chipknip/[Chipper] [NL],
GeldKarte [DE],
Euro 6000 [ES],
MiniPay/PayOnWeb [I],
*Mondex [F],
[Mondex] [UK],
[Clickpay] [DK],
CopyLock (p) [UK]
[eCash] [AU, DE, SF]

Monedero 4B [ES],
*Moneo [F],
Quick [AU],
*PayCard [DE],
Porta Moedas Multibanco [P],
Proton [BE],
[SmartAxis] [UK],
VisaCash [ES, *UK]

*Cartafacile[I],
*Commerzbank virtual card [DE],
Cybertarjeta [ES],
*Kalibra [I],
*WebC@rd [DK],
*MicroMoney [DE],
MonetaOnline [I]

Nexgo Kleingeldbrse [DE],

OmniPay card [I],
Paysafecard [AU, DE],
[Roots] [UK],
Virtual cash plus [ES],
Smart Creds [UK]
SplashPlastic [UK]

Money surrogates

[Beenz][F, UK],
bonus.net [DE],
IncentivCash[UK],
I-Points[UK],
Maximiles[F]

MyPoints [UK]
Payback [DE],
webmiles [DE],
Zakis [ES]

(Micro)Billing

0900 Interconnect [NL],

[BT Array] [UK],
Chargeitdigital [UK]
Firstgate click&buy [DE],
Infin Micropayments [DE],
Kiosque [F]

Net900 [DE],
NET 900 Kontopass [DE],
Post/Torget[SE],
Qpass [ES],
switchpoint [NL],
X-Press-Pay [DE]

Mobile Payment Systems

banko.max [AU],
Banxsafe [BE],
EasyBuy [I],
EMPS (p) [SF, I, SE],
*Genion M-Payment [DE],
GiSMo [SE,UK],
*iCash SE],
*Mint [SE],
*Mobilbank (p) [DE],
[Mobilix] [DK],
Movilpago [ES],
Omnipay Onphone [I],
Orange Mobile Payment [DK]

Pagomobile [I],
Paiement CB sur mobile [F],
Paybox [AU, DE, SE, ES],
*Payitmobil [DE],
Payline 300 [F],
Phonepaid [UK]
Sonera Mobile Pay (p) [SF],
* Sonofon [DK],
Streetcash [DE],
Telia Payit (p) [SE],
Visamvil [ES]

Smart card
based

Prepaid
products
Software
wallet

Prepaid dedicated accounts

Magex (p) [UK],

[MoneyPenny] [SF]

Legend: [ ] contains country code, [scheme] = scheme discontinued; * announcement.

30

5
5.1

INTERNET PAYMENT SYSTEMS IN THE US12

THE USE OF ACCESS PRODUCTS ON THE INTERNET13

In the US, electronic access products are little used for Internet payments. So far, the
debit cards used have almost exclusively been the "offline" debit cards of Visa and
MasterCard. Payment on the Internet is made exactly as in the case of credit cards.
Customers provide the merchant with the debit card number and the merchant passes on
the payment information to the acquirer who will pay the merchant. The only difference is
that the offline debit card is linked to the customers deposit account and not to the credit
card account. The payment is called "offline" even though it is part of an online
transaction with an Internet merchant because there is no online authorisation of the
payment. The share of offline debit is a mere 1 per cent of Internet payments (see table
12). However, 50 per cent of all Internet merchants accept debit cards.14 This fact and the
growing use of debit cards at the real POS may also translate into more active use of debit
cards on the web.
New rules for ACH-usage (see Grant 2000) have been introduced to promote the use of
online debits. Although the use of ACH/giro payments in the US lags behind Europe there
is a determined effort of NACHA to implement debit payment systems for e-commerce.
On 16 March 2001 new rules for Internet-initiated ACH payments became effective
(http://internetcouncil.nacha.org). In order to reduce the potential for fraud and breaches
of privacy these new rules include extensive responsibilities for merchants offering ACH
debits.15 Banks, in turn, have to monitor compliance of merchants using the system.
Currently, about 10,000 companies are initiating Internet ACH payments.
To integrate public key technology within debit networks for Internet transactions,
NACHA

introduced

an

"Internet

Secure

ATM

Payments"

(ISAP)

pilot

(http://internetcouncil.nacha.org). Financial institutions provide customers with the

necessary hardware (chip card and reader) and software. Customers are enabled to
12

A valuable source of information on US Internet payment systems is the E-commerce Guide web site (see
bibliography). A brief overview can be found in Angwin (2000) and Tumin (2001).
13
A brief overview can be found in Caldwell (2001).
14
Some large retailers have filed a law suite against Visa and MasterCard because they are not happy with
the fees charged for offline debits and the fact that credit card contracts oblige them also to accept offline
debits. See Lazarony (1998).
15
Merchants have to install fraud detection systems, systems for verification of routing numbers, they have to
establish secure Internet sessions and they have to conduct annual audits of data protection mechanisms.

generate digital signatures which are stored on a smart card (software-based solutions are
also be possible). The digital signature replaces the PIN number to authenticate the
customer. The pilot was successfully completed in April 2001.
NACHA is also contemplating ACH credit transfers for Internet purchases in which
consumers direct financial institutions to send payments to merchants ("ACTION"
project; see http://www.project-action.org/). In the process the merchant is linked to the
consumers bank and receives payment confirmation from the bank. These ideas build on
home-banking/EBPP models.
NACHA is not the only institution developing debit solutions for the web. The New
Jersey based NYCE EFT network has developed an online debit system called SafeDebit
(http://www.safedebit.com) that replaces the chip with a CD based security software. The
advantage of using a CD is evident. The solution does not require smart card readers but
can rely on the large number of CD-ROM drives.
The role of payment culture is nicely illustrated by the development of electronic cheques
in the US. The wide usage of paper cheques in the US has prompted market players and
the government to develop analogous electronic concepts for the real and virtual POS. In
the real world, a number of different models of cheque electronification are used (see Star
2000). In the virtual world, BillPoint (http://www.billpoint.com, owned by eBay and
Wells Fargo) provides an electronic cheque payment service that is mainly targeted at the
P2P market. So far, BillPoints electronic cheque solution seems to be available only for
eBay customers. Registered sellers can accept electronic cheque payments from anyone
with a US cheque account (who must provide some additional identification, i.e. social
security number, driver license or birth date). The debit to the payers account will be
made through an automated clearing house transaction.
"eCheck" is an electronic cheque system that is, at least for now, targeted towards the
B2B segment (http://www.echeck.org). It was developed by the Financial Services
Technology Consortium (FSTC) and is sponsored by the US Treasury. The Treasury has
piloted its use in paying Department of Defence contractors with eChecks. eCheck sets
high standards in terms of authentication and security. It is based on PKI and uses smart
cards that contain the private signature keys. eChecks are covered by cheque law and
provide consumers with the protection of Regulation Z. After the successful completion
of the pilot the FSTC has spun off two firms, Xign and Clarion to market solutions based

32

on the eCheck technology. The organisation of the project has been taken over by
CommerceNet.
5.2

THE USE OF CREDIT CARDS ON THE INTERNET

In the US, the Number One means of payment on the Internet is the credit card.
According to Gartner data (see table 13) 93 per cent of online consumer purchases
involve a credit card payment. In 88 per cent of the cases the credit card number is
transmitted online and in 5 per cent it is transmitted via phone or fax. If anything, these
numbers still understate the significance of credit cards on the web because whenever an
Internet purchase is billed to a virtual account, the account is probably funded with a
credit card.
In the US, SET has never really been an issue. Equally, it is unlikely that 3D-SET will be
used in the US. Meanwhile, credit card companies have introduced new measures to
increase the safety and convenience of credit card use on the Internet. Amex, MasterCard
and Visa have introduced Card Verification Codes that are printed on the card and can be
used as additional authentication device in card-not-present situations (Gartner 2001).
"Virtual credit cards" have been introduced by Discover and Mastercard. Virtual credit
cards consist of a server-based wallet that the user can access using a PIN number. The
wallet contains credit card and shipping information (5.3 below discusses virtual wallets
in more detail).
Amex ("Private Payments"), Discover and MBNA offer disposable credit card numbers in
order to enhance the security of credit cards on the Internet. (Webcertificates a solution
that is marketed as a "gift currency" can also be interpreted as a solution with disposable
credit card number.) The functioning of the system is straight forward. When a customer
wants to make a purchase, a central server generates a disposable credit card number with
an expiry date. The customer enters the number into the payment form and the transaction
is processed like a normal credit card transaction.
Another development with possible implications for the use of credit cards on the Internet
is the move to chip-based credit cards.16 Such cards might be used together with a smartcard reader to increase security and authentication of Internet payments. The Amex Blue
card (http://home4.americanexpress.com/blue/meta.asp) was rolled out in 1999 and First
16

From the point of view of the merchant one important incentive to install new chip card enabled terminals
is the opportunity to run enhanced loyalty programs on smart cards.

33

USA started issuing Visa smart cards in October 2000. In both cases smart card-readers
were initially distributed for free. MasterCard has upgraded its debit and credit network
for the use of chip cards.
An important limitation of credit cards is that the conventional credit card contract allows
consumers only to make payments but not to receive payments. Increasingly, however,
this problem is circumvented by a kind of "sub-acquirer" model. In this model, a payment
service provider will accept credit card payments on behalf of its clients and credit their
accounts. An example is the credit card payment via BillPoint (http://www.billpoint.com)
that allows registered sellers on eBay to accept credit card payments. Some of the virtual
wallet schemes discussed below (for instance PayPal), also fall into this category. This
development seems to have had an effect on credit card issuers. Increasingly, the
conventional issuer model seems to be changing. Thus, Citibank allows its c2it customers
to receive payments into their credit card accounts (see 5.3).
5.3

VIRTUAL WALLETS/VIRTUAL ACCOUNTS

The sub-set of Internet payments that has seen the implementation of the largest number
of new schemes is the category of "virtual wallets". In contrast to Europe this group
includes a large number of P2P payment systems.
Yahoo, America Online and Amazon have all introduced wallet solutions to facilitate
payments for e-commerce conducted at one of their portals shops. Their activities show
how portals can get leverage for their brand by offering services such as payments. While
Amazon has restricted its solution (Amazon.com Payments) to payments from consumers
to merchants on its portal, Yahoos PayDirect (http://paydirect.yahoo.com/) offers a
broader payment tool that includes P2P. AOL has teamed up with Citibank and offers
Citis c2it service (https://www.c2it.com) under the name "AOL Quick Cash". Other
schemes that offer

P2P

(http://www.ecount.com),

include

PayPal

MoneyZap

(http://www.paypal.com),

(https://www.moneyzap.com/),

ecount.com
Achex

(http://www.achex.com), eMoneyMail.com (http://www.bankone.com/emoneymail/) and

iMC Card (http://www.internetmoney.com/). ZixCharge is a virtal wallet without P2P
functionality (http://www.zixchanrge.com). All of these schemes are funded using credit
cards, debit cards, EFT or cheques. The most successful scheme involving P2P is PayPal.

34

Launched in 1999 it has attracted 6.5 million customers including 1 million businesses.17
PayPal processes 200,000 payments a day. The average value of a payment is $50-$60.
The current value of payments is equal to US $3.5 billion on an annual basis.
While most of the accounts are simply password protected, internetmoney.com uses a
PIN protected CD-ROM to authenticate transactions carried out with its "iMC card"
scheme.
P2P has been largely fuelled by online auctions. The spectacular success of eBay raised
the demand for convenient P2P payment instruments. PayPal in particular has benefited
from this trend. However, it is noteworthy that the share of P2P as a percentage of all
PayPal transactions has been declining from 100 % to 29 % (Dec. 2000). This indicates
that there was latent demand on the business side for a scheme like PayPal. Although the
dividing line between P2B and P2P is not clear the numbers suggest that the business case
for P2B looks much more promising (see also Kharif 2000).
While some of the virtual wallets simply give consumers online access to their various
existing accounts, others look more and more like normal bank accounts. They provide a
virtual account that can contain positive balances, they facilitate P2P and P2B payments
and sometimes they also offer payment cards. Thus, PayPal offers its customers a Visa
card and eCount offers a MasterCard branded debit card that can be used for purchases in
the real world and to draw cash from ATMs. The close proximity with normal bank
accounts is reflected in Bank Ones announcement to integrate its virtual wallet solution
"eMoneyMail" into its online banking web site (https://www.emoneymail.com/).
5.4

PREPAID VALUE PRODUCTS

In the US there is much less enthusiasm for smart cards than in Europe (BIS 2000). There
were a few pilots involving multi-purpose stored-value cards. However, after the failure
of a highly publicised pilot involving both Mondex and Visa (see Van Hove 1999),
attempts to market multi-purpose e-purses have come to a standstill. Currently, e-purses
are used within closed environments such as military bases and corporate campuses (Visa
Cash; http://www.visa.com/pd/cash/main.html) and on a number of university
campuses.18 In addition e-purses are used for mass ticketing. The Washington
17

This success was not without bumps. In the beginning, PayPal had to cope with fraudulent transactions and
money-laundering and the heavy-handed way in which these cases were handled has disgruntled many
customers. Recently, however, PayPals customer protection policy has won praise.

18

Visa recently confirmed that there are no plans for national roll-out of e-purses (Quan 2001).

35

Metropolitan Transit Authority (WMATA) has introduced its contact-less SmartTrip card
in May 1999 (http://www.wmata.com/riding/smartrip.htm). The San Francisco Bay
Areas Metropolitan Transportation Corporation plans to implement a scheme relying on
smart cards. Some toll systems also rely on contact-less cards.
However, currently there are no attempts to use smart cards as a general-purpose e-purse
that can also be used on the Internet. NACHAs ISAP pilot, the eCheck project and the
use of chip-based credit cards suggests that smart cards may be used in the future for
authentication.
But there is a life for e-purses beyond the plastic card. The Wave E-Commerce System
(http://www.wave.com) provides a chip-based solution for web-based transactions. The
Wave system is based on a chip that is either installed within the customers computer or
that can be connected to a PC via a USB port. Customers can log onto Waves payment
server and use a credit card to put money on their chip. The value stored on the chip can
be used with Wave-enabled merchants. The transaction does not require any online
authentication. The chip is designed to support more than just the payment function. In
particular it can also be used for digital rights management. Wave hopes that this will
make its solution particularly attractive for downloading copyright protected material.
On the whole, little is going on in terms of card-based e-money products as defined in the
EMI Directive. When it comes to software based e-money (network money) there is even
less. After the Mark Twain Bank stopped issuing eCash in September 1998 no other
products have been brought to market.
Most prepaid card schemes, however, do not rely on chip cards. They are based on
magnetic stripe cards and virtual accounts. Following the pioneer InternetCash
(http://www.internetcash.com), schemes like BreezeCard (http://www.greenshoe.com),
Cybermoola, ePAID (http://www.ecatalystone.com), M2Card, Mon-e, the 7-Eleven
Internet Shopping Card, iGen MasterCard (http://www.igencard.com), PrivaCash
MasterCard (http://www.privacash.com) and VisaBuxx (http://www.visabuxx.com) were
introduced. However, this market segment seems to be particularly tough and four of
these schemes (Cybermoola, M2Card, Mon-e, 7-Eleven Internet Shopping Card) have
already been discontinued.19
19

See Rader (2001) and Jones (2001) for an excellent analysis of the difficult business case for prepaid
cards.

36

There are also a number of schemes that do not make use of cards at all: EZCmoney
(http://www.ezcmoney.com), RocketCash (http://www.rocketcash.com) and eCharge Net
Account (http://www.echarge.com; also possible with a line of credit).
Prepaid products have introduced some innovative features. Thus, some of the schemes
allow the restriction of the range of possible payments and may allow parents to monitor
their childrens payment behaviour. Thus, a particular account may only be usable for
payments at a restricted number of stores or they may exclude certain items (i.e. adult
content, etc.). Examples are the VisaBuxx eCharge Net Account and RocketCash (the
discontinued Cybermoola and M2Card also fall into this category).
Prepaid schemes are also particularly well suited for those who do not have access to
credit cards. This may be people with a poor credit rating, children, teenagers and
immigrants (about 25% of US citizens do not have bank account, see Tumin 2001, p.9).
By their very nature prepaid virtual accounts create clear spending limits and therefore do
not involve any credit risk.
5.5

MONEY SURROGATES

There are a number of schemes that could be described as money surrogates. Sometimes
they are also labelled (somewhat misleadingly) as "gift currencies". These schemes
provide electronic loyalty or incentive points that can be spent at a limited number of
shops. The issuers do not usually pledge convertibility. Examples are: Beenz
(http://www.beenz.com), Flooz (http://www.flooz.com), e-Centives.com (http://www.eCentives.com) or MyPoints.com (http://www.mypoints.com). All of these schemes
basically involve virtual wallets in which the "beenz", "points" etc. are recorded. So far,
the use of most of these schemes is minimal. Therefore, it does not come as a surprise that
both, Flooz and Beenz had to suspend operations. Webcertificates, another scheme, is
marketed as a gift currency but has more in common with a disposable credit card scheme
(see 5.2 above).
Other money surrogates are known as "barter schemes" (again a misleading term). Some
of these schemes are moving onto the Internet e.g. Bartertrust now Tradeaq
(http://www.bartertrust.com), Allbusiness Barter (http://www.allbusiness.com), 3D-NET
Intranet Barter (http://www.3dnet.org) or Lassobucks already discontinued.

37

Finally, metal-based currencies such as e-gold (http://www.e-gold.com) and digi-gold

(http://www.digigold.net) could also be regarded as money surrogates.
5.6

MICROBILLING

As in Europe, there are billing systems that charge Internet purchases to a phone bill. The
payment service provider receives the funds from the phone company and passes them on
to the merchant after subtraction of a commission. Examples are eCharge Phone
(http://www.echarge.com) and Chargeit Dial (http://www.chargeit.com). Another system
used inter alia by the Wall Street Journal and the New York Times is Qpass
(http://www.qpass.com). QPass aggregates payment over the month and then charges it to
a credit card.
5.7

MOBILE PAYMENTS

Although mobile phones are not used to the same extent as in Europe many US players
think that mobile payments will be important in the future. For instance, MasterCard
plans to offer mobile payments. It is currently preparing three different solutions
(Mastercard account on smart card, on SIM card or a mobile wallet). Similarly, Visa is
working on mobile solutions.
The US wireless company Cingular has launched a mobile billing service called
"Cingular DirectBill" (http://www.cingular.com). It allows users to buy digital goods such
as ring tones. Cingular plans to extend the service to payments at the real POS, for
instance for vending machines and transit payments.
Both PayPal and Yahoo have already moved beyond the development phase. Both PayPal
and PayDirect can now also be used for mobile payments. The speed with which both
players have adopted and extended their payment systems bears witness to the strength of
their payment models.
5.8

EBPP/IBPP

An issue that is not covered by our typology is EBPP or IBPP. The reason for this
exclusion of IBPP is that it is not really a payment system for e-commerce but rather a
payment method for recurring bills like utilities bills, rent, credit card debt, etc. IBPP is
being rolled out by many large players in the US payment market. It involves the
presentation of bills over the Internet and the possibility of paying these bills online.
38

Customers can choose from different models. Overall, IBPP seems to offer much more
convenience than the use of paper bills and cheques. Nevertheless, IBPP has not been a
great success in the US. Outside the US, particularly in Europe, IBPP does not seem to be
an issue. The reason seems straightforward. For recurring bills most Europeans have been
using either standing orders (automated credits) or direct debits for a long time. Thus at
least the payment side has already been automated. Indeed, it is more automated than
many IBPP schemes because direct debits and standing orders have to be set up only
once. After that they do not require any further customer involvement because in most
European countries users of direct debits can easily reverse incorrect debits to their
accounts. It remains to be seen whether there will be a large demand for bill presentation
over the Internet and a willingness to pay for it.
5.9

SOME TRENDS

Credit cards have taken the Internet by storm. But now the Internet is starting to change
the standard credit card model. The strict separation between the acquiring side and the
issuing side of the business is beginning to erode. Some payment service providers have
implemented "sub-acquirer" models to allow non-acquired merchants to accept credit card
payments into a virtual account or a bank account. Now some issuers have even taken
another step and allow card holders to accept payments into their credit card accounts.
E-money as defined in the EMI Directive is even less visible in the US than in Europe
though a lot happens at the fringes. Some of the central server based approaches are on
the border between banking and e-money issuing. So far, however, US regulators have
not pressed these schemes to become banks.20
As in Europe it can be observed that the established payment providers, after some
hesitation, are muscling their way into the Internet payments market. Banks, credit card
companies and money transmitters like Western Union are either buying innovative firms
or copying innovative new concepts. It looks increasingly likely that these institutions
will, in the end, also dominate Internet payments. This trend is illustrated by the recently
announced partnership between Yahoo and the British bank HSBC (Dennehy 2001).
On the face of it, the developments in the US and Europe look quite different. In
particular the proliferation of virtual wallets/accounts in the US offering not only P2B but
also P2P payments seems striking. However, it can be argued that these wallets simply
20

In many cases banks are involved anyway.

39

serve the same function as home banking in Europe. After all, a home banking customer
in Europe can easily make a credit transfers to anybody be it a person or merchant. Thus
solutions like PayPal and c2it simply cure a traditional weakness of the US payment
system: the impossibility of making P2P credit transfers. However, the virtual wallet
solution in the US is not just catching up with Europe. They also provide more than
traditional home banking. In particular, the use of e-mail and the instant notification of
the payee that payment has been made makes these solutions more suitable for ecommerce. In addition, users can use different accounts.

40

Table 17: Electronic Internet Payment Methods in the US

Electronic Internet-Payment Methods in the US
Type

Access
products

Brand/solutions

Comments

Credit transfers

ACTION project

under development

Electronic checks

BillPoint
Echeck
ACH debit
ISAP pilot
SafeDebit
Credit card numbers via internet, phone,
fax
Virtual credit cards
Disposable credit card numbers
Chip-based credit cards
Sub-acquirer models
P2P
Achex
Amazon
PayDirect
c2it
QuickCash
PayPal
ECount.com
iMC Card
MoneyZap
EMoneyMail.com

Debit card
payments

Credit card payments

Virtual accounts/wallets

Requires card reader

Increasingly used for P2P
Introduced i.a.by Citibank
Only on Amazon portal

Based on c2it
200,000 payments a day
Uses PIN protected CD-ROM
Will be integrated into Bank Ones
online banking

ZixCharge
SmartTrip

Contact-less ticketing

Chipbased

VisaCash
Wave

In closed environments
Incl. digital rights management

Software
wallet

[eCash]

Discontinued Sept. 1998

Single purpose
Emoney

Piloted by US Treasury, using PKI

New NACHA rules
Pilot completed
Using CD-based security
Used in 93% of all internet payments
Using virtual wallets

Prepaid
products
Prepaid dedicated
accounts

Money surrogates

(Micro)Billing

Mobile Payment Systems

InternetCash
Breezecard
ePaid
iGen MasterCard
VisaBuxx
EZCMoney
PrivaCash MasterCard
RocketCash
EChargeNetAccount
[Cybermoola]
[M2Card]
[Mon-e]
[7-eleven internet shopping card]
[Beenz]
[Flooz]
e-centives
MyPoints.com
Webcerificates
Bartertrust/tradeaq
Allbusiness Barter
3D-Net Intranet barter
[Lassobucks]
e-gold
DigiGold
eChargePhone
Chargeit Dial
QPass
Cingular DirectBill
PayPal
PayDirect

Legend: [ ] = scheme ceased operation

41

Optional: a line of credit

Works like disposable credit card

6
6.1

POLICY ISSUES
THE NEED FOR STATISTICS

To monitor the development of Internet payment systems statistics, data provided by

companies and results of surveys have to be taken into account. In our opinion there are
some shortcomings we would like to address. Banking organisations like the ECB and the
BIS could collect more detailed data so that information on POS payments in general and
virtual POS payments in particular could be derived more easily. The ECB, for example,
has started to collect data on e-money in circulation in the Euro area, but does not
distinguish between the amount spent on the Internet and at real POS. Payment service
providers are asked to deliver usage figures. As credit card payments are especially
important for Internet transactions it would be good to have more detailed information
available. To monitor the development of credit card payments country specific
information would be required. We would welcome information about Internet
transaction volume/value per country, share of SET and 3D-SET transactions/volume,
share of 3D-SSL transactions/volume, share of transactions/volume implying virtual
credit card numbers, share of merely SLL secured transactions (volume/value), share of
still non-secured credit card payments. Merchant and consumer organisations as well as
opinion poll institutes are asked to monitor Internet payments from the customer's and the
merchant's point of view. Usually, there is no distinction between payment methods used
for the purchase of tangible and intangible goods even though this distinction is decisive
for the interpretation of Internet payment systems development. Also EUROSTAT and
EITO could enhance their e-commerce and e-payment stocktaking activities. Further data
that would be valuable to assess the future of Internet payments are: the cross-border
streams of payments, goods and services in the field of e-commerce; a break down of
payments products used related to types of goods and services paid for, etc.
6.2

CROSS-BORDER INTERNET PAYMENTS IN THE EU

It is worth distinguishing different payment cultures in Europe. Some of the payment

options are hardly present in some countries such as (micro)billing; loyalty schemes or
mobile phone payments. The preference of payment instruments chosen at the virtual
POS is clearly influenced by the preferred POS payment methods. An interesting aspect
of cross-border payment culture becomes visible when neighbouring countries or
otherwise culturally related countries choose the same approach: e.g. Germany and
42

Austria; Belgium and Netherlands, Scandinavian countries, or the UK and the US.
Globalisation is already taking place at various levels: for years, new payment schemes
have been imported from the US (eCash, CyberCash, beenz, PayPal); technology
providers already have to think globally and payment service providers have set up
operations in Europe (a striking example is IDC).
Credit card payments are crucial, when it comes to cross-border payments, but other
payment methods like prepaid accounts or payments via mobile phone can be applied
(within limits) for the same purpose. Here cross border capabilities emerge with the
international deployment of particular systems. To a certain extent cross-border
interoperability of e-purses follows the line of common technology implemented in
different countries (e.g. Proton or GeldKarte technology). The potential of e-purses, giro
payments, and mobile phone payments to be used cross border is worth further analysis.
6.3

LESSONS FROM THE EU - US COMPARISON

6.3.1 The Role of Regulation

What are the insights that can be gained from a comparison of the regulatory framework
in the US and the EU?
Firstly, the impression that Europe quickly regulated e-money whereas the US favoured a
laissez-faire approach is misleading. In the US, new e-payment products automatically
fell under a number of laws and rules.
Secondly, even when taking the existing payment-related laws and regulations into
account, the US seems to favour a "light-handed" approach (Mester 2000, 17). When
evaluating the trade-off between security and innovation US authorities are clearly more
concerned about not stifling innovation. At the same time they seem to be more confident
that proper regulation can be introduced once e-money has become quantitatively
relevant.
Thirdly, rather than view "e-money" as a new type of money that requires special
regulation, US regulators have grouped e-money together with other payment services
that have been provided mostly by non-banks. They do not see a need to prescribe
redeemability and they have set more liberal investment rules.

43

Fourthly, in the US, there seems to be less concern about providing a "level playing
field". Thus, it may be possible that in the US, bank and non-bank issuers of e-money will
be treated differently just like issuers of travellers cheques are treated differently.
Travellers cheques issued by banks are subject to reserve requirements - those issued by
non-banks are not (Mester 2000, 17, fn). It can be argued that such an attitude is much
more realistic than the strong emphasis placed by EU policy makers on a "level playing
field". Different payment service providers act under different constraints and simply
trying to provide a level playing field in one or two areas does not, by any means,
guarantee it overall. To give an example, if the aim is to create a level playing field for
banks and non-banks, should non-banks also be permitted access to central bank
settlement services or be allowed to invest in a wider set of assets?
6.3.2 Towards Full Integration?
The US payment system is more integrated than the EU payment system as a whole, but it
is less integrated than the payment systems within individual countries. Payment
providers in the US may face a larger number of different jurisdictions than payment
providers in Europe. Even after the implementation of the UMSA payment service
providers will face state regulations that differ to a certain extent. Due to the "passport"
that comes with an EMI license a pan-European e-money provider will have to comply
only with the laws of one country.
This is an interesting point for policy makers. On the one hand, this shows the benefits of
an approach that provides for minimum harmonisation via passport directives. On the
other hand, it can be argued that the example of the US shows that a common economic
area can also function reasonably well without centrally administered harmonisation.
Only now is the US moving towards more (and by no means complete) harmonisation.
This finding is particularly important because in Europe there is often a perception that
within a single currency area the norm is full integration of payment systems and full
interoperability. However, the example of the US shows that this is not the case. Thus,
one may have to contemplate less than full integration at least in the short and medium
term. Forcing full integration might entail large costs because of the high costs of
adjusting legal systems. Furthermore, the co-existence of different not fully integrated
systems may be good for competition.

44

6.3.3 Person-to Person Payments

A noticeable difference between the EU and the US is the lack of P2P Internet payment
systems in Europe. This can be explained by two factors. Firstly, in the US the spread of
P2P payments is mainly due to the success of eBay (e-auctions). Since online auctions are
not as popular in Europe, e-commerce has created considerably less demand for P2P
payments. Secondly, within a European country P2P is not a large problem because credit
transfers are conventionally used in almost all countries (see PaySys 2001). With the
emergence of home banking and Internet banking these transfers have become even more
convenient. What is missing in Europe, however, is a convenient way to send money
across borders be it P2P or B2B.

45

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Law Review, Vol. 46, No. 4, 1163-1175, 1997. (Reprinted in: De Nederlandsche Bank: Reader Elektronisch
Geld, versie 2.1, September 1998, 61-72.)

http://www.dnb.nl/betalingsverkeer/pdf/reader_e_geld.pdf
Lomascolo, Rodolfo
Pase por caja. Todo web BUSINESS No. 17

http://www.webbusinessonline.com/17/afondo.html
Mester, Loretta J.
The Changing Nature of the Payment System: Should New Players Mean New Rules? Federal Reserve Bank
of Philadelphia. Business review March/April 2000, pp. 3-26.

http://www.phil.frb.org/files/br/brma00lm.pdf
NACHA-Internet Council
Internet Secure ATM Payments (ISAP) Pilot, Final Version January 30, 2001

http://Internetcouncil.nacha.org/ATMpilotdescription-Final_Version-20010130.doc
National Conference of Commissioners on Uniform State Laws
Uniform Money Services Act, July 6, 2000.

http://www.law.upenn.edu/bll/ulc/moneyserv/ms00ps.htm
OECD
Local Access pricing and E-Commerce, DSTI/ICCP/TISP(2000)1/FINAL, 27 July 2000

http://www.oecd.org/dsti/sti/it/cm/prod/localaccess.htm
PACE
Purse Application for Cross-border use in Euro (Record on PACE to be retrieved from the Cordis database)

http://dbs.cordis.lu/search/en/simple/EN_PROJ_simple.html
Pache, Arne
Die Kreditwirtschaft als Trust Broker in Online Medien. In: IIR: C@shWorld. 5. IIR-Kongress
Zahlungssysteme im eBusiness., 6.-8.2.2001. Proceedings. Frankfurt am Main: IIR 2001.
PaySys
Zahlungsmethoden bei Internet-Auktionen, Frankfurt, February 2001.

http://www.paysys.de
PBS SET News

http://www.setutility.com/news/index.htm
Proton World International
DUCATO project to validate CEPS Technology has Started. Press Release Brussels, 23 April 2001

http://www.protonworld.com/press/releases/2001/press2001_04_23.htm
Quan, Margaret
E-purse body pushes toward global specification, EETimes.com, May 23, 2001

http://www.eetimes.com/story/OEG20010523S0079
Rader, Michael
Scratch Cards: Here to Stay? ePSO-Newsletter No. 6 (March 2001).

http://epso.jrc.es/newsletter/vol06/3.html
Rountree, David
For Retail Payment On The Net, Only Tradition Is Getting Traction, BankTechNews, February 2001

http://www.banktechnews.com/btn/articles/btnfeb01-6.shtml
Salste, Tuomas
Internet Payment Systems in Finland. ePSO-Newsletter No. 5 (February 2001).

http://epso.jrc.es/newsletter/vol05/3.html
Sint, Peter Paul
E-money Solution from Austria: Paysafecard.com. ePSO-Newsletter No. 6 (March 2001).

http://epso.jrc.es/newsletter/vol06/4.html

49

Star Systems Inc.

Check Electronification at the Beginning of the 21st Century, December 2000.

http://www.star-system.com
Stiftung Warentest
Final report on the investigation into "Electronic commerce in Europe". Berlin 1999.
STOA 2001
Chambers, Graham, STOA, DG IV (ed.): Technological Feasibility of Reducing the Costs of Small CrossBorder-Transfers (CBCTs) Within the Euro Zone prepared by European International University Brussels.
European Parliament May 2001 (PE 297.569 /Int. St.)
Stlzle, Robert; Leibold, Kay; Stroborn, Karsten
Internet-Zahlungssysteme aus Sicht der Verbraucher Ergebnisse der Online-Umfrage IZV4, Mai 2001,
Selbstverlag Institut fr Wirtschaftspolitik und Wirtschaftsforschung, Universitt Karlsruhe 2001
Tribunal de Defensa de la Competencia
Expediente de Concentracion Economica C59/00 MOVILPAGO

http://www.mineco.es/tdc/Concen.Economicas/tdccoec59.htm
Tumin, Zachary
The Future technology of Money. Paper prepared for the OECD Forum for the Future Conference on "The
Future of Money", Luxembourg, 11th-13th July, 2001.
U.S. Census Bureau
Statistical Abstract of the United States: 2000, 2001.
Van Hove, Leo
Electronic Purses, Interoperability, and the Internet. First Monday Vol. 4 No. 4 - April 5th. 1999

http://www.firstmonday.dk/issues/issue4_4/vanhove/index.html
Van Hove, Leo
Electronic Purses: (Which) Way to Go? First Monday Volume 5, Number 7 - July 3rd 2000

http://www.firstmonday.dk/issues/issue5_7/hove/index.html
Vartanian, Thomas P.
The Future of Electronic Payments: Road blocks and Emerging Practices, Testimony before the
Subcommittee on Domestic and International Monetary Policy of the Committee on Banking and Financial
Services, U.S. House of Representatives, Washington, D.C., September 19, 2000.

http://www.ffhsj.com/bancmail/bmarts/roadblck.htm
Vereecken, Marc
A single market for electronic money. The journal of international banking regulation, Vol. 2, Nr. 2, July
2000, pp. 55-76.

50

APPENDIX: INTERNET PAYMENT SYSTEMS COUNTRY BY COUNTRY

The following notes cover Internet payment systems in the EU countries one by one. For each
country we first provide a short description that is followed by a table giving a condensed
overview. The tables are based on the typology of Internet payment instruments presented in
Chapter 3. We are aware that this compilation, as regards the schemes and products covered,
is just a snapshot as at June 2001. The stock take is, of course, far from comprehensive and
runs the risk of being quickly outdated. Nevertheless it may serve for a while as a valuable
source for those interested in the diversified European payment culture and it may also serve
as a starting point for more systematic efforts.
To avoid misunderstandings, we repeat the proviso
G

that the tables present only payment methods for use on the Internet. For example, a
mobile payment system not addressing the virtual Point of Sale would not be listed.

We have excluded payment services not visible to consumers, or the other way round, we
have included only those payment schemes that can be perceived by consumers. This
decision may lead to some ambiguity, because some payment service providers try to
brand their products, while others define their service as "neutral" and themselves a
payment gateways or as a back-office activity. It would be useful, without doubt, to
collect information about these payment service providers too, but as we focus on those
systems observable by users they are out of scope by definition.

The information we provide does not contain all payment systems relevant for B2C ecommerce, but only those that are initiated online and do not imply further off-line
activities by consumers when regularly used. Bill payments after receiving goods, cash on
delivery or prepayments by cheque are thus excluded, although they are of great
importance when paying for tangible goods ordered via the Internet.

We have also excluded escrow services. These services bridge the trust gap between both
the consumers and e-merchants. Interestingly they allow to disassociate the (online)
purchase from the (offline) payment. Payments take place "outside" the Internet.

Payment services that allow for more than one payment method (e.g. credit card payments
and debit card payments) will appear in all categories where appropriate.
The main sources we have used are Leo Van Hove's database on e-purses (Van Hove 2001),
the survey of electronic money developments (BIS 2000), the recent edition of the "blue
book" of the European Central Bank (ECB 2001), the ESTO report on electronic payment

51

systems in European countries (Bhle et al. 1999), and the ePSO database on electronic
payment systems (ePSO 2000f).
Improvements (since the draft of May) of the annex in particular on Austria, Belgium, France,
Germany, Italy, Spain, Sweden, The Netherlands and the United Kingdom are mainly due to
Internet research and personal communications with Piero Bucci (Italian bank), Francesc
Campos (Caixa de Girona), Erik Dahlstrm (consultant), Mike Economakis (eurobank),
Morton Falch (Technical University of Denmark), Hugo Godschalk (consultant), Charles
Goldfinger (GEF, FIWG), Mike Hendry (consultant), Joachim Henkel (TU Munich), Walter
Hoffenberg (OeNB), Julin Inza (movilpago), Simon Lelieveldt (consultant), Ulrich Riehm
(ITAS), Luigi Sciusco (Italy), Katharina Selzer (OeNB), Oliver Steeley (Hyperion), Karsten
Stroborn, Bernard Vanderlande (BankSys), Leo Van Hove (Free University Brussels), Arnd
Weber (ITAS), Thorsten Wichmann (Berlecon Research). We would like to thank them for
their support.

Austria
P.S.K, the Austrian Postbank introduced its payment service bezahlen.at combining
electronic billing and a direct debiting mandate (http://www.bezahlen.at/). The service aims at
the whole range of EBPP (Electronic Bill Presentment and Payment). It is mentioned here
however, because bezahlen.at can also be used for paying e-merchants directly (E-Einkauf).
The buyer is presented with a bill immediately and the merchant gets paid immediately, based
on the direct debit mandate the buyer warranted to bezahlen.at. This innovative approach is
clearly server-based with bezahlen.at as the intermediary. Bezahlen.at will also target the
German market as a next step.21
Without doubt Internet payments by credit card are common practice in Austria. SET (with
50 merchants participating (see http://www.europay.at/htdocs/set/) and SET light (by
Europay Austria) are in use. However, we have no information as to whether Austrian
Internet customers choose one method of sending credit card information in preference to
another. It has been announced that Maestro will introduce a secure debit card scheme in
Austria by June 2001.
sterreichische Lotterien Gesellschaft m.b.H. offers a webclub (http://www.webclub.at/) for
gambling. Money can be paid into the "gambling deposit" either by credit card secured by
21

One may note that in case that bezahlen.at would first aggregate payments before debiting the
customer's account, we would regard it as (Micro)Billing solution. This again makes clear that the
borders between types of payment systems are very flexible. It is easy to imagine a mixed system
aggregating small value purchases, while directly debiting payments above a given threshold.
52

SET (!) or by a so called WebCard worth (ATS 100/7.27 Euro; or ATS 500/36.34 Euro) to
be purchased at all "Lotto" points of acceptance. This prepaid scratchcard is an instance of a
single purpose prepaid payment product.
The pilot of the Austrian e-purse Quick on the Internet began at the end of February 2001
(http://www.europay.at/quick/quick1.htm). The required Card Readers are available for about
65 Euro in Austria.
As regards software-based e-money, Austria was one of the European countries (the others:
Finland, Germany, Switzerland) in which eCash, the well known e-money scheme which
requires customers to install a software wallet on his or her PC, was introduced. It was
suitable for B2C and P2P payments but on 1 November 1999 the Bank of Austria stopped
providing eCash.
Last year, however, a new prepaid payment product paysafecard was introduced
(http://www.paysafecard.com/de/at/m_home.shtml). This scratchcard, for use on the Internet,
can be purchased at all post offices, at the branch offices of the banks involved (BAWAG and
Postsparkasse), at the shops of a major book retailer and elsewhere (see Sint 2001 for more
details). This type of payment instrument is designed specifically for young people without
bank accounts or credit cards. It might also be appealing for gambling and adult content
because of its anonymity. In May 2001 Paysafecard.com began operating in Germany. Cross
border purchases and payments between Austria and Germany are possible.
Paybox, the mobile payment service first rolled out in Germany, has been available in Austria
for C2B and P2P payments since 31 of January 2001 (http://www.paybox.at/). In Austria it
relies on direct debits for the actual payment. Austrian customers of Paybox can also use
their mobile phones for purchases in other countries where Paybox is available (at present:
Germany; Spain and Sweden). Since November 2000 the telecom operator max.com
(http://www.maxmobil.at/) offers a WAP-based m-commerce service banko.max, enabling
Internet payments.
It is interesting to see payment solutions developed in one country being deployed in another.
This export traffic between Germany and Austria works both ways. The geographical
extension of a brand (and a special technical solution) goes together with cross borderpayment capability. Although the cross border payments mentioned are at present limited to
two neighbouring countries speaking the same language, the more general potential of
"mobile payments" and "prepaid dedicated accounts" for cross-border payments has to be kept
in mind.

53

Table 1A: Electronic Internet-Payment Methods in Austria / June 2001

Electronic Internet-Payment Methods in Austria / June 2001

Type
Access
products

Brand/solutions

Comments

Credit transfers

Electronic checks

Debit card payments

Bezahlen.at; Maestro (p)

Credit card payments

SET, SET light

no "wild" debits; bezahlen.at

is a proper direct debit scheme
50 SET merchants

Virtual wallet/accounts

PayPal

WebCard

Single purpose: gambling

chip
based

Quick

Pilot stage

Software
wallet

[eCash]

Stopped 1.11.1999

paysafecard

scratchcard

Money surrogates

(Micro)Billing

Single purpose

Prepaid
products

E-money
2000/46/
EC

Prepaid dedicated
accounts

Paybox, banko.max
Mobile Payment Systems
Legend: [ ] = scheme no longer operational; (p) = pilot.

Banko.max is WAP-based

Belgium
It has been possible to make debit card payments on the Internet with the dominating Belgium
debit card Bancontact / Mister Cash, using a smart card and a smart card reader for
identification, since 1999. This solution was first based on SET. Today a 3D-SET solution by
payment processor Banksys called Banxsafe (http://www.banksys.be/press/en/181000.htm) is
offered. Like the former SET approach Banxsafe is designed for dual use, i.e. for debit card
and credit card payments in the same manner. Dual use of a secure payment infrastructure is
an interesting feature of a payment culture and makes obvious sense in terms of
interoperability. However we lack concrete and detailed information as regards the share of
the market held by each payment card type.
Belgium debit cards were provided with an e-purse chip as early as 1994. The e-purse was
Proton branded. The Proton e-purse, introduced in 1994 and mounted on the debit card, has
been used since late 1997 for purchases on the Internet. In 1998 loading of the e-purse via the
Internet also became possible. Although Proton is regarded as one of the more successful epurse schemes and its technology is being exported to other countries (e.g. Sweden and
Switzerland), e-purse payments over the Internet still seem to be not very popular.
In the Belgian case, the central role of Banksys is striking. It seems to be the main driver for
technological innovation regarding credit card, debit card and e-purse payments in this
54

country. Even for mobile payments the Belgian way is based on Banxsafe allowing direct
debits via mobile phone. Internet payment schemes, others than those promoted by Banksys,
apparently do not exist in Belgium.

Table 2A: Electronic Internet-Payment Methods in Belgium / June 2001

Electronic Internet-Payment Methods in Belgium / June 2001
Type
Access
products

Brand/solutions

Credit transfers

Electronic checks

Debit card payments

Banxsafe (3D-SET)

Credit card payments

Banxsafe (3D-SET)

Virtual wallet/accounts

PayPal

Single purpose

Prepaid
products

E-money
2000/46/
EC

Bancontact / MisterCash debit

cards

chip
based

Proton

Software
wallet

Prepaid dedicated
accounts

Comments

Money surrogates

(Micro)Billing

Mobile Payment Systems

Banxsafe

Denmark
In Denmark the debit card Dankort prevails and credit cards play a minor role. Since April
1999 debit card payments and credit card payments based on SET are possible. As was the
case in Belgium, Denmarks payment culture has led to dual use of the secure infrastructure.
As already reported in Bhle et al. 1999, p. 28, payment service provider PBS
(Pengeinstitutternes BetalingsSystemer http://www.pbs.dk/english/index.htm) had refused to
develop the use of the debit card on the Internet because the Danish Payment Act did not
allow them to charge retailers for the use of payment cards. To "support the development of etrade in Denmark", as the ECB (ECB 2001, p. 103) puts it, the Act was revised in April 1999.
The PBS payment gateway now allows for Internet payments via Dankort, Visa/Dankort,
Visa, Eurocard, MasterCard and Diners Club. By the end of June 2001, 2,279 shops had
registered with PBS and were thus enabled to accept card payments via the Internet. 1,505
agreements were signed for Dankort and Visa/Dankort cards, 774 for international cards. It is
also noteworthy that 2,183 have opted for SSL and 96 for SET (cf. PBS SET News). In the
period between April 9 1999 to June 30 2001, 916,929 Dankort & Visa/Dankort payments
55

were made and 217,636 international card payments, making a total of 1,134,565. The volume
of Internet payment transactions (debit/credit card) has trebled from June 2000 to June 2001.
The Danish e-purse Danmnt is a comparatively successful e-purse scheme, although its use
may decrease as it can not be used for phone calls any more. Its technology has been exported
to many countries (eg it was chosen for the VisaCash trial during the Olympic games in
Atlanta). However, it has not been used for purchases on the Internet so far, though it has
been announced that it will be available for use on the Internet at some point in the first half
of 2001.
It is worth remembering a small prepaid systems trial: At the end of the nineties Clickpay, a
prepaid micropayment scheme (identical to Millicent developed by DEC), was tested at some
web-sites, but not further deployed.
A scratchcard for Internet payments, WebC@rd, has recently been announced
(http://www.mywebcard.dk/index_eng.htm). It will be issued with a value of DKR 100 (13,44
Euro), 200, 300, or 400 and contains a code and a serial number which is sent electronically to
a server when the payment starts.
The Danish clearing house and payment processor, PBS, and the mobile phone service
provider, Mobilix (once 54% share France Telecom) have developed a mobile payment
service (Mobilix Open Mobile Payment) and have announced that this will be made available
as an Internet payment system too. It was first offered as a means of purchasing airtime for
the companys own mobile phone service. The amount due is paid by credit card or Dankort
debit card. Registration at PBS is required, a special piece of software has to be installed in
the phone, and the users must obtain a new SIM card from their phone dealer (cf. Falch 2000).
France Telecom has now bought the mobile phone operator Orange, and Mobilix has been
rebranded Orange (28 May 2001). The new mobile payment service, Orange Mobile Betaling,
has been introduced in Denmark first with 15 shops participating (July 2001). According to
PBS, in order to get access to the payment function of the mobile phone, an individually
assigned PIN code attached to the Orange SIM card is used. Apart from registration of the
payment cards with PBS this is all it takes. At PBS the mobile telephone number is translated
into a valid card number. Thus the payment may be accepted by the issuer of the card. When
the user accepts a payment, a transaction certificate is created, ensuring that the information
cannot be changed later. The payment transaction itself takes less than 10 seconds. Orange
Mobile Payment distinguishes itself by being an open payment system. PBS is provider of the
payment infrastructure and through PBS payment gateway shops are able to receive

56

payments by Dankort, Visa/Dankort, Eurocard and MasterCard. The payment solution is not
exclusive to Orange, and hence, PBS offers the solution to all Danish and foreign telecom
companies, who may be interested. (PBS June 15 2001).
The Danish mobile phone operator Sonofon has also announced their entry into mobile
payments with a mobile banking service using Web browsers stored on SIM cards. Customers
can check balances, make funds transfers, pay bills and trade stock with any of 20 banks they
do business with. By early May 2001, all SIMs Sonofon is going to issue will carry the
browser designed by Finland-based Sonera SmartTrust (cf. CardTechnoloy.com 2001).
The payment culture in Denmark (just like the one in Belgium) is stamped by one payment
processor, PBS, that offers a server-based payment service for all types of cards and for
mobile payments too. However, some alternative approaches to Internet payments are already
visible.
Table 3A: Electronic Internet-Payment Methods in Denmark / June 2001

Electronic Internet-Payment Methods in Denmark / June 2001

Type
Access
products

Brand/solutions

Credit transfers

Electronic checks

Debit card payments

PBS Dankort

Credit card payments

PBS SSL, SET

Virtual wallet/accounts

PayPal

Single purpose

Prepaid
products

E-money
2000/46/
EC

Money surrogates

Ca. 1 mio payments between

April 1999 and July 2001
96 SET contracts

chip
based

*Danmnt

Software
wallet

[Clickpay]

Prepaid dedicated
accounts

Comments

i.e. Millicent

*WebC@rd

(Micro)Billing

[Mobilix], Orange Mobile

Mobilix rebranded and
Mobile Payment Systems
Payment/PBS; *Sonofon
replaced by Orange
Legend: [ ] = scheme no longer operational ; * = scheme announced for use also on the Internet

57

Finland
The most popular Internet payment system in Finland sometimes called electronic giro builds
on online banking and on the relatively low number of banks. Finland is very advanced in
Internet banking. About two million consumers, of a total population of 5 million, have a
contract with their bank to use online banking services. The Finnish solution consists of an
integration of online bank transfers into the shopping process. When ordering, the customer is
asked which bank they use. The shop then redirects the customer's web browser to the
selected bank along with transaction data such as total amount and merchant account number.
The customer logs into the online bank system. The bank system asks the customer to
authorise payment of the given amount. If authorisation is received, the requested amount of
money is immediately transferred from the customer's account to the merchant's. After
successful payment, the bank's web system redirects the customer's browser to a URL on the
merchant's site (see description by Salste 2000). The problem is, however, that a merchant
who wants to be able to receive funds from all bank customers needs a separate account with
each bank. This system is also offered by one bank, Leonia, as a solution for credit card
payments. It works as described above, but the amount due is not immediately debited from
the bank account but added to the credit card balance.
Solo, the online banking product developed by MeritaNordbanken, exists also as Solo epayment to pay for purchases on the net. When paying with Solo e-payment, the customer is
directed to the Solo server on the Internet to pay directly by credit transfer. After an order the
e-tailer generates an electronic bill. The customer accepts the bill using Solo Codes; i.e. type
of one-time password or TAN. The payment is immediately transferred to the seller's account.
It is worth pointing out that merchant sites are accessible through the bank's shopping mall
Solo Market and that the service operates cross border: The potential clientele is composed
of over two million users of Solo in Finland, Sweden and Denmark.
Credit card payments via SET have been possible in Finland since 1998. Currently there are
about 250 online merchants accepting Visa, MasterCard and Eurocard. With 225 cards per
1000 inhabitants, Finland is at the lower level of credit card distribution within Europe.
In Finland, an eCash (DigiCash) trial by Eunet failed, as did the trial of Money-Penny, an
account based system we know little about. The Finnish e-purse Avant can be loaded via the
Internet and has been available for making payments on the Internet since October 1997. This
method, however, is rarely used.
Sonera is quite successful in mobile payments, extending its service Sonera Mobile Pay
(http://www.sonera.fi/english/solutions/mobilepay/mobile_pay/index.html) now also to the
58

Internet. Payment methods enabled are credit card payments, direct debits and (Micro)Billing.
A competitor is the electronic mobile payment service EMPS provided by Nokia,
MeritaNordbanken, and Visa International. The technical solution promoted here is a dual
chip phone (SIM+WIM) and the payment method of choice is credit card payments.
Finland is a good example of the influence of the payment culture. The structure of the
banking system (only a few banks) and the popularity of online-banking are the foundation
for quite popular Internet payment methods. In the field of mobile payments the same is true:
the technological potential of the Finnish industry in this field plus the high penetration of
mobile phones (highest in Europe), lead to innovative mobile payment services. Also Finland
has to be seen as part of the Scandinavian payment culture, bearing in mind that the Solo epayment solution is offered cross-border and the EMPS mobile payment approach is being
tested in Sweden too.
Table 4A: Electronic Internet-Payment Methods in Finland / June 2001

Electronic Internet-Payment Methods in Finland / June 2001

Type

Brand/solutions

Credit transfers

Electronic giro; Solo epayment

Electronic checks

Access
products

Comments
Solo merchants are available
through the Solo Market, a
shopping mall; potential for
cross-border purchases in
Scandinavia

Debit card payments

Leonia Online Credit Card
Payment
PayPal

Credit card payments

Virtual wallet/accounts
Single purpose

Prepaid
products

E-money
2000/46/
EC

Based on the electronic giro

system

chipbased

Avant

Software
wallet

[eCash], [MoneyPenny]

Prepaid dedicated
accounts
Money surrogates
(Micro)Billing
Mobile Payment Systems

Sonera Mobile Pay (p);

EMPS (p)

Legend: [ ] = scheme no longer operational; (p) = pilot

59

EMPS pilot with special

emphasis on Internet
payments

France
In the area of card payments France has long been a forerunner of smartcard solutions and
was the first country to introduce a debit card with a chip. This chip orientation is so strong
that the SET solution propagated by the major Credit card companies was re-shaped in order
to make it compatible with chipcards. A number of trials and pilots (CyberCard/C-SET, eCOMM and SEC; cf. Bourreau and Bounie 2001) led to the announcement of a joint industry
effort named Cyber-COMM in 1997 (http://www.cyber-comm.com/). It took, however, a
long time to be put into practice and was finally wound down in the first quarter of 2001 (see
FIWG 2001). Cyber-COMM relies on the SET protocol, smartcards and secure smartcard
readers. The smartcards used were based on the French smart card technology (chips called
B0). Migration to EMV is foreseen. Common interests between the banking industry and the
strong chip industry in France may explain this unique approach.
Credit cards issued by banks are not very important yet in France, although recently the ECB
(2001, p. 232) stated "deposit banks have started to issue credit cards". As French debit cards
allow for deferred debits (depending on the contract), the need for credit cards may be limited.
In addition, out of 37.6 million cartes bancaires issued, 26 million allow for payments at Visa
and Eurcard/MasterCard merchants abroad. Circa 20 million retailer cards have been issued.
However if they have a credit function and are used at third parties sites, they have to be
issued by a credit institution although they still look like retailer cards to the customer. These
credit cards are provided by retailers, with technological and service support supplied by two
organisations, CETELEM and COFINOGA, whose shareholders include major banks,
particularly BNP Paribas. There are no payment networks outside banking.
For some time there was also a virtual wallet/account type of payment system in France,
called Klebox first and later K-wallet, offered by Kleline, a subsidiary of Paribas. The ewallet could be used for credit card payments, and the virtual account could be used for small
value transactions. The architecture of this French payment system thus resembled the
CyberCash approach. This solution was also exported to Sweden. It was reported (BIS 2001,
p. 32) that the service was used by 300 merchants of which 50% were outside France. After
the merger of BNP and Paribas, the service ceased operation (see FIWG 2001). One founder
of Kleline, however, set up a new company, BlueLine, in Februray 2000 in Luxembourg
announcing the launch of Odysseo in France March 2001. Odysseo involves a server based
virtual wallet with access to payment cards and a virtual account to be loaded via these cards.
As the product relies on electronic signatures the customer has to download a thin wallet
(security software). Odysseo was set up for cross-border payments and plans existed to offer

60

P2P functionality too. Before it was rolled out, however, BlueLine was already going out of
business. PayPal is the only virtual wallet/account type payment system in France today.
Electronic purses, introduced relatively late in France in 1998, (Moneo, Modeus, and
Mondex) are still not used for payments on the Internet. From a technological point of view
this is not an issue as the underlying technology (GeldKarte and Mondex) has proved usable
elsewhere on the Internet. The value point scheme Beenz was present in France, but closed its
office in March 2001. Maximiles, a value point scheme supported by 48 online merchants
founded in 2000 is still operational.
The billing scheme kiosque, first introduced as the billing service within Minitel, is still on
offer. When France Tlcom enabled Minitel for web use (via i-Minitel) and enabled web
merchants to have their content transformed to Minitel format (via Et Hop!), the
(Micro)Billing system survived. However, France Tlcom and iPIN have already built up a
new company w-HA to develop an Internet payment system for the French market that will be
introduced at the end of 2001.
France is also a good example of the impact of payment culture in the field of mobile
payments. The solution called "Paiement CB sur mobile" is based on dual slot mobile
phones, i.e. there is a special slot provided in the mobile phone to insert the banking card for
credit and debit payments. Another mobile payment scheme is Payline GSM. It also allows
payments via GSM dual-slot mobile phones. This service is equivalent to Paiement CB sur
mobile and France Telecom Mobile is also a partner in the provision of this scheme.

61

Table 5A: Electronic Internet-Payment Methods in France / June 2001

Electronic Internet-Payment Methods in France / June 2001

Type
Access
products

Brand/solutions

Credit transfers

Electronic checks

Debit card payments

Cyber-COMM

Credit card payments

Cyber-COMM

Virtual wallet/accounts

[Klebox/K-wallet],
[Odysseo], PayPal1

Comments

"operation wound down"

1

disbursements via bank

account enabled

Single purpose

Prepaid
products

E-money
2000/46/
EC

chip
based

*Moneo, *Mondex

Software
wallet

[Kleline/K-wallet]

Prepaid dedicated
accounts
Money surrogates

[Beenz], Maximiles

(Micro)Billing

Kiosque
Paiement CB sur mobile,
Mobile Payment Systems
Payline 300
Legend: [ ] = scheme no longer operational; * = scheme announced for use also on the Internet

Germany
The available surveys tell us (cf. Berlecon 2001, Stlzle et. al 2001, BdB 2000), that debit
card payments on the Internet are at least as important as credit card payments in Germany.
This reflects the payment habits at the real POS, where offline debits (hand written signature
required) are more popular than online debits (PIN code required). Within the defunct
CyberCash payment scheme a method called "electronic direct debit" had been developed
for the German market. Today most direct debits on the Internet will probably proceed as
"wild" schemes. Nevertheless in many cases the processing of the payment information is
handled by specialist payment service providers, who check security and take the merchants'
risk. In general, these companies offer their services for processing of credit card information
too. Normally these services are not visible to the consumer. HighText Verlag
(http://www.ibusiness.de/marktuebersichten/payment/) offers some details on 26 payment
service providers operating in Germany. Most of these claim to take care of offline debits on
the Internet (eg Point e-pay GmbH, Telecash Click&Pay, eops AG, DebiTech, iPIN, eScore,
inatec, EBS electronic billing AG, Globuy AG, Virbus AG, C-Systems GmbH, ALLCASH
GmbH, Bibit BV). bezahlen.at offers an alternative approach, based on a debit mandate,
which requires both consumers and merchants to register for this service. Recently an new
service called fun HomePay-Gateway (http://www.fun.de) started operation. Its concept is to
62

act as intermediary between customers, shops, and banks allowing to integrate credit transfers
based on traditional homebanking into the online transaction process. The solution is
somehow similar to the electronic giro in Finland with the difference that in Germany an
intermediary service is in place of the banks. It is too early to tell about success or failure of
this approach.
Bankgesellschaft Berlin piloted SET in Germany and was one of the first to adopt 3D-SET.
As is the case elsewhere, credit card payments via SSL are more frequently used. We must
add, however, that SSL is not always simply SSL and that merchants often call in a specialist
intermediary for risk management and further processing (see for example the service
providers mentioned above). The intermediary can be chosen from the many new Internet
service providers, or from the established card processors, and may even be a bank.
Commerzbank has followed this path offering a kind of 3D-SSL approach. Commerzbank
also announced the launch of 3D-SSL for electronic direct debits.
Following our typology of Internet payment systems, CyberCash/CyberCoin (discontinued
at the end of 2000) has to be understood as an instance of the virtual wallet/account type. It
provided the facility to channel giro payments and it offered a virtual account on a central
server that could be fed from a bank account or by credit card. It was different from PayPal in
so far as a fat wallet was required at the consumer's PC, and as the money on the virtual
account was presented as "CyberCoin", paying tribute to the rhetoric of those days.
In the area of prepaid products, there are two e-purses at present: GeldKarte and PayCard.
Geldkarte is without doubt the dominating scheme. It is the only one used on the Internet at
the time of writing. GeldKarte, the e-purse supported by all German banking groups, can
already be used for purchases on the Internet (tests started in 1997, and the required class III
smart card readers have been available since the end of 2000). The competitor "Card etc."
(http://www.cardetc.de/) communicated that PayCard would not be ready for the Internet
before end of 2001.
First generation Internet payment systems "imported" from the US, based on thick client
wallets, are no longer operational despite the support of large banks. The software-based emoney scheme eCash (to be regarded as European and/or US-American) was discontinued in
May 2001. Instead, prepaid dedicated accounts are offered in various forms. One case is the
ISP germany.net (Nexgo) that administers a virtual account for its clients to be used for small
value purchases on the Internet. The so-called "Nexgo Kleingeldbrse" is loaded via direct
debits. Paysafecard, a scratchcard first deployed in Austria started operation in Germany
May 2001 (http://www.paysafecard.com/de/de/m_home.shtml). Deutsche Telekom Card63

Service GmbH has already announced a competing product called MicroMoney, also to be
used for phone calls (http://www.micromoney.de/). Commerzbank announced another
system along the lines of the Spanish scheme "virtual cash+" to be launched in the second half
of 2001 This prepaid account can be fed at ATMs, transferring money from a bank account.
In the expanding field of money surrogates webmiles, Payback and bonus.net (issuing
"bonuts") appear as the most successful schemes today. Webmiles, 70 percent owned by
Bertelsmann Group, claims to have more than 1 million registered customers in Germany.
Combining Internet and real POS, Webmiles and the Berliner Bank issued a "webmiles credit
card", offering value points for every purchase. Webmiles is also active in France and
Switzerland, while WebRewards (as the scheme was labelled in the UK) has been sold to
iPoints. It is also interesting to see that Berliner Bank offers a bank account (BB*MAGIC)
where each and every transaction adds webmiles. Payback, a Loyalty Partner GmbH scheme
(Lufthansa Commercial Holding GmbH 50,6 %, Metro AG 25,1% and others) started in 1998
targeting the offline world, and entered the Internet in June 2000, claiming now to have 1.5
million Internet users. It is interesting that points can be spent for premiums or redeemed in
money. The third scheme to mention here is bonus.net, which also targets the Austrian and
Swiss market (for online use only). There are of course minor schemes like eCollect.de or
cards developed for cities or regions with a potential for Internet value points as well like
Bonuscard Schleswig-Holstein (http://www.mybonuscard.de/) or essencard. Beenz once
opened an office in Germany that later closed.
(Micro)Billing was quite popular in the context of the German videotext service
Bildschirmtext, but did not manage the change to an open network environment. Its successor
is NET900, developed by "in medias res". The company offers two billing methods. First it
provided the technology to add Internet purchases to the phone bill by integrating the use of
0192 numbers into the shopping process; later it offered NET900 Kontopass, in which the
amounts were aggregated and later deducted from the customers accounts by direct debit. A
competitor of in medias res, X-PressPay, works in a similar way, making use of 0190
numbers to aggregate purchases to a bill. Another (Micro)Billing scheme operational in
Germany is Firstgate Click&buy. It is especially designed for the purchase of digital
products. It is a server-based system and merchants and customers have to subscribe to the
service. At the end of a period, the aggregated purchases are credited to the merchants
accounts via bank transfer, while at the same time the customers current accounts are debited
using direct debits. What is interesting is that each customer purchase creates a direct debit,
but instead of debiting the customers account at once as is the case with bezahlen.at the
debit is deferred. The line between a billing system and a direct debit system is obviously
64

blurred. These are the most visible schemes. If one digs a little deeper (cf. Henkel 2001) more
(Micro)Billing systems can be found: eg Infin Micropayments, WebDiver, X-Diver,
PurePay, Supercent, and TeleWord, indicating that this type of payment solution attracts
also smaller companies.
The mobile payment solutions market also looks highly competitive. In most cases, however,
the diffusion has not passed the pilot stage. Paybox, 50% owned by Deutsche Bank, is de
facto operational. Payitmobile by E-plus and payment processor GZS has announced a pilot
for the third quarter of 2001. Mobilbank (joint venture of Mobilcom and Landesbank BadenWrtemberg) has announced it will use StreetCash, a solution of inatec Leipzig. Genion MPayments by VIAG Interkom GmbH & Co. has a pilot running. Schemes with less visibility
are those offered by service providers eg Anny Way Mobile Payment by Materna group,
mobilpay by CMT Inc., smsPay by Webtrade, and NetPay(@cash) by Rate One or GiSMo.
Another area where there is a lot of activity is the spread of escrow services, i.e. services
where buyers and sellers register, and a third party guarantees payments to the merchant and
delivery of goods as requested, or money back, to the customer. In a way these trusted third
parties serve as intermediaries reducing the risk for both parties, but at the same time they
strengthen the role of traditional "non-integrated" payment methods outside the Internet,
especially credit transfers and direct debits. In a German mailing list on Internet payment
systems, EZI-L, a joint effort resulted in twelve companies offering services of this type. At
least five of these focus on the German market: S-ITT, iclear, webtransfer (Deutsche Post
AG, Postbank), PAGO eTransaction Services GmbH, e-trusco, PAY-OK, Triple-deal,
Billpoint, InsureDeal, Escrow.com, i-EscrowEurope, ESKROWZ.COM.
To sum up, Germany seems to be a vivid laboratory for payment schemes of all types
including those from abroad. The direct and indirect reliance on direct debits seems also to be
a striking feature of Germany's payment culture.

65

Table 6A: Electronic Internet-Payment Methods in Germany / June 2001

Electronic Internet-Payment Methods in Germany / June 2001

Type

Brand/solutions

Credit transfers

fun HomePay-Gateway (p)

Electronic checks

Comments

Access
products
Debit card payments

[CyberCash]1 *Bezahlen.at

ceased operation 12/00;

"wild" solutions in place; a
range of payment service
providers offer to process
offline debits

Credit card payments

SET, 3D-SET

Virtual wallet/accounts

[CyberCash], PayPal

CyberCash ceased operation

12/00; PayPal: disbursements
via bank account enabled

chip
based

GeldKarte2, *PayCard

Software
wallet

[eCash]3

Single purpose

Prepaid
products

E-money
2000/46/
EC

Prepaid dedicated
accounts

Nexgo Kleingeldbrse4,
paysafecard,
*MicroMoney5,
*Commerzbank virtual
card,

Money surrogates

Payback, webmiles6,
bonuts (bonus.net)

(Micro)Billing

Net900, NET 900

Kontopass, Firstgate
Click&buy, X-Press-Pay,
Infin Micropayments etc.

class III readers required

ceased operation 5/2001

limited to one ISP

to be used as phone card too

phone cards combined

special credit card available

Streetcash can also be used

with paysafecard number
instead of PIN
Mobile Payment Systems
8
Mobilbank will use
inatec/streetcash; *Anny Way
Mobile Payment (Materna)
Legend: [ ] = scheme no longer operational; * = scheme announced for Internet payments in Germany;
(p) = pilot
Paybox, Genion MPayment (p), *Payitmobil,
Streetcash7, *Mobilbank8
(p), etc.

66

Greece
We can provide some information on Greece, obtained from a Greek member of the ePSOForum working at Eurobank. There are two banks in Greece offering an e-commerce payment
solutions for merchants (B2C): Eurobank and Winbank. Eurobank uses the solution of HPVerifone epos eps S/W under SSL 128 encryption; Winbank uses a solution from Trintec
supporting SSL and 3D-SET. As regards market size, Eurobank has 100 merchants on line,
whereas Winbank has 20 merchants making use of SSL and only one or two using 3D-SET.
Both acquire Visa and Mastercard (no Diners, no Amex). In July 2001 Worldpay started
business in Greece but no details are available yet. PayPal is also available in Greece. There
are no debit card payments accepted in Greece on the Internet, CVV2 verification is not in
place, and no prepaid dedicated account schemes are in use. Eurobank is prepared for mcommerce with a payment gateway, but has not started operation yet. Eurobank is involved in
an EC funded project, under the IST program, titled "BALCARD: A Balkan prepaid smart
card for secure cross border Internet transactions".

Ireland
With respect to Ireland the only interesting information we have is about the Clikpay system,
which presents a server-based approach relying on SSL. In this sense we could interpret it as
another case of 3D-SSL. PayPal is also offered in Ireland.

Italy
In Italy, secure credit card payments are made using SET light and TELEpay Light, offered
by SSB (Societ per I Servizi Bancari at http://www.ssb.it/english/), which is owned by
Italian banks. SSB is active for Italian banks in the areas of payment systems, processing of
credit and debit cards, and digital signature services. TELEpay Light is based on SSL and can
be regarded as an instance of the 3D-SSL approach. The SBB web site also announces a
server-based solution called PagoInBanca. This is a secure system for receiving payments
from Internet involving "the re-direction of the buyer onto a 'secure site' managed by the
banking system. After being identified and recognised by the site, the buyer selects the
preferred method of payment (credit card, debit card, rechargeable/pre-paid card, fund
transfer etc.)". As we understand it, this solution positions the bank as payment intermediary
and in doing so this service might be seen as a reaction to the threat of non-banks offering
virtual wallets and/or accounts respectively. The same solution is available though mobile
phones as PagoMobile.
Movercard can be regarded as an instance of the virtual wallet/account type, combined here
with a smartcard for security purposes. Mover (http://www.mover.it/ ), the company offering
67

the Movercard, is not a bank. With Movercard, users register with the service (paying 62 Euro
and giving credit card details). In return they get the Movercard smartcard and a smartcard
reader for purchases on the Internet at merchants sites which accept this method. Mover acts
as a payment intermediary and type of "sub-acquirer". At present Mover channels only credit
card payments. There are plans, however, to extend the system to direct debits and credit
transfers.
There is a range of alternatives in the prepaid products segment in Italy. It has been possible
over the last few years to use the Italian e-purse MiniPay on the Internet. However, demand
for this service, PayOnWeb (cf. for example http://www.tsp.it/notizie_com27gen00.htm),
seems to be limited. Another interesting scheme is Moneta OnLine, combining a prepaid
dedicated account and virtual credit card numbers (http://www.monetaonline.it/). It is issued
by Banca Intesa and Visa Europe is involved. Moneta OnLine is a prepaid card available at
branches of Intesa and other shops (for 50, 100 or 200 Euro). When using it for purchases on
the Internet, the user is linked to a server where a virtual disposable Visa Electron card
number is produced. This number can be used at shops accepting the Moneta card as such and
Visa merchants. In the field of prepaid dedicated accounts, Banca Popolare di Milano will
issue and distribute via its branch offices Cartafacile (http://www.cartafacile.it/), a prepaid
card for purchases on the Internet. It will be available with values of 100.000 Lire (51.65
Euro) and 500.000 Lire (258.23 Euro). Another announcement is a prepaid product by ICCRIBFE (ICCRI Banca Federale Europea) that will be server-based and probably branded
Kalibra. A fifth prepaid scheme is the Omnipay card introduced in the Italian market by the
mobile phone operator Omnitel-Vodafone (http://www.omnitel.it/ ). The Omnipay card is a
regular prepaid phone card (25.000, 60.000 or 110.000 Lire) that can alternatively be used to
top up airtime. When the secret code of the card is used for the first time for shopping on the
Internet, a virtual dedicated account (Omnicard account) is established automatically with
Deutsche Bank and credited with the value corresponding to the value of the phone card.
Italians are heavily inclined to use mobile phones. This is reflected in the area of mobile
payments: Omnipay Onphone is a recent mobile payment system for subscribers of Omnitel
and owners of the co-branded Visa card in Italy. It is based on an agreement between Omnitel
and Visa. At the checkout at the e-merchant site, the mobile phone number is filled in instead
of the credit card number. As both numbers are interconnected in this case the phone number
can serve as a quid pro quo. The payment then has to be confirmed by a mobile phone call to
a cost free number within 24 hours and the client has to follow the instructions of the voice
computer. At a given moment a PIN code, delivered when subscribing to this service, has to
be typed in for confirmation. The mobile operator Blu is said to have adopted the EMPS
68

solution (see Finland). EasyBuy is another Italian m-payment service we have heard about.
We@TIM, offered by TIM (Telecom Italia Mobile) together with Oberthur Card Systems
and Societa' per i Servizi Bancari (SSB), may be seen as a hybrid of mobile phone banking
and mobile payments. It allows banking functions and m-payments to be carried out. To
activate the service, the customer must go to his/her own bank, sign a contract and authorise
the payment instruments at his/her disposal. From that moment, the mobile telephone is
enabled to display a special menu for handling payment transactions.
How far these services are already used for purchases over the Internet is not clear. From
Bucchi (2001) one also gets the impression that WAP (including payment services) would
attract more interest in Italy than in other European countries.
Table 7A: Electronic Internet-Payment Methods in Italy / June 2001

Electronic Internet-Payment Methods in Italy

Type

Brand/solutions

Credit transfers
Access
products

PagoInBanca

Comments
1

state of deployment unclear

Electronic checks
Debit card payments

Credit card payments

PagoInBanca
SET light, TelePay light
2

Virtual wallet/accounts

PayPal, Mover card

used for credit card payments

at present; direct debit and
credit transfer announced

Single purpose

Prepaid
products

E-money
2000/46/EC

chip
based

MiniPay (PayOnWeb)

Software
wallet

Prepaid dedicated
accounts

MonetaOnline,
*Cartafacile, *Kalibra,
OmniPay card

Money surrogates
(Micro)Billing
PagoMobile3, Blu/EMPS,
3
same solution as PagoIn
EasyBuy, Omnipay
Mobile Payment Systems
Banca
Onphone
Legend: [ ] = scheme no longer operational; * = scheme announced; (p) = pilot

69

Luxembourg
There is hardly no information reported on Luxembourg about Internet Payment systems.
PayPal however is said to be available in Luxembourg too. The e-purse miniCASH (based on
GeldKarte technology) is not used on the Internet, although it would be technically feasible.

Netherlands
Two large banks in the Netherlands, ABN AMRO and Rabobank have adapted their Internetand home-banking applications to allow payments over the Internet. The ABN AMRO
product is called the ABN AMRO E-wallet and involves the use of a separate device, the
E.dentifier, which authenticates the customer during transactions. The Rabo product is called
Rabobank Direct Betalen (direct payment) and currently requires the use of a security
calculator (which will, in the future, be replaced by an authentication device similar to the
E.dentifier). The payment service provider Bibit has incorporated both payment methods into
their payment engine.
In the Netherlands I-Pay (http://www.i-pay.com/ ), which requires a software wallet, was
developed by Interpay, Dutch banks (including Postbank) and Planet Internet (the largest
Internet provider in the Netherlands) and tested first in 1996. In 1999 it was made SET
compliant. In this version the issuing banks allowed the use of both credit cards and debit
cards. In cases where the consumer chose to debit her/his account directly, the issuing bank
determined the authentication mechanism that customers had to use in I-pay. Postbank and
ABN AMRO chose a smartcard based authentication, whereas Rabobank chose to use its
existing base of security calculators for this purpose. Currently the product I-pay with SET
has been taken off the market by ABN AMRO bank, although its infrastructure will be used
as a part of e-Wallet solutions of individual banks. Postbank has done the same by not
supporting the use of the cyberchipper authentication device.
For some years two electronic purses were competing in the Netherlands: Chipper and
Chipknip. Both were suitable for Internet payments. In March 2001 it was announced that
Chipper would be taken off the market (see ePSO-Forum of 7. March 2001
http://www.jrc.es/archives/epso-forum.html). This announcement marks the end of a period of
almost six years in which ING/Postbank diverged from the original joint development of the
Chipknip project. Chipknip is based on Belgian Proton technology. Data on the use of these
schemes for Internet payments is not available.
There is one microbilling scheme, which makes use of special phone numbers for charging
(like NET900 or X-Press-Pay in Germany). The 0900 InternetConnect started operating in
70

1997. It is now called Switchpoint (http://www.switchpoint.nl/ ) and it has two basic product
versions with different modes of operation. Switch Point Connect requires a plug-in, which
dials a specific 0900-number. Switch Point Direct does not require a plug in, but asks the
user to phone a specific phone number and the access code that is presented on the PC-screen.
Having dialled the separate number (which costs a specific fee) and having chosen the access
code over the phone, the browser will then proceed with the application. An example of this
latter version can be found at http://www.postmanrings.com.
A less sophisticated voucher based system for Internet payments is the WWW.bon.
Customers buy a WWW.bon at the post office for Euro 20. The vouchers contain an area with
a secret code that has to be scratched off and entered on the web site at the moment of
purchase. Actual usage of the WWW bon appears to be very low.

Table 8A: Electronic Internet-Payment Methods in the Netherlands / June 2001

Electronic Internet-Payment Methods in the Netherlands
Type

Brand/solutions

Comments

Credit transfers
Access
products

Electronic checks

Credit card payments

[I-Pay], ABN AMRO Ewallet, Rabobank Direct

Betalen
[I-Pay]

Virtual wallet/accounts

PayPal

Debit card payments

disbursements via bank

account enabled

Single purpose

Prepaid
products

E-money
2000/46/EC

chip
based

Chipknip/[Chipper]

Software
wallet

Prepaid dedicated
accounts

WWW.bon

Money surrogates
(Micro)Billing

Switchpoint Connect,
Switchpoint Direct

Mobile Payment Systems

Legend: [ ] = scheme no longer operationa

71

formerly named 0900

InternetConnect

Portugal
The only information on Portugal is that PayPal is present and that the e-purse Porta Moedas
Multibanco can be used on the Internet.

Sweden
As in other countries, the picture of Internet payments is not quite clear in Sweden. In 1998
two direct debit schemes with online authorisation which were fully integrated into the
shopping process were operating on a small scale. However, it is not clear if they are still
operational. In any case those schemes were quite limited as merchants and customers were
required to have a bank account at the bank offering this service. At present DebiTech,
formerly known as VerifyEasy, offers its payment gateway to e-merchants in the B2B and
B2C segment (270 as of July 2001). DebiTech claims to be the "leading Internet payment
solution company in the Nordic region". Its Payment Gateway enables, among other things,
credit card payments and direct payments via Internet banks. This last option fits in with our
picture of the preference for giro payments in the Nordic countries. At the same time, it shows
that payment service providers can enable banks to become visible in Internet payments again
(DebiTech does not, however, appear as a payment method to the user). The French payment
solution Kleline has also had customers in Sweden, but stopped operation (see the section on
France).
The Swedish e-purse Cash, based on Proton technology, which has been available for loading
via the Internet since 1998, has only recently announced its use for payment on the Internet.
We do not know of other prepaid products in Sweden.
It is also not clear if the billing scheme operated by the Swedish postal service at the shopping
mall Torget operated by the postal service is still alive.
What seems to be clearer is that Sweden is an interesting mobile payment market. Telia PayIT
is being tested at the moment and its commercial launch is planned for first half of 2001. Telia
PayIt is a server-based approach (using Jalda developed by Ericsson and Hewlett Packard
Telecommunication). There is a prepaid virtual account variant and a way to get payments
added to the phone bill by using premium-rate phone calls. It is worth noting that this service
is especially designed for the purchase of intangible goods on the Internet.
More recently two Swedish start ups, Mint and iCash, announced mobile payment methods
for any mobile phone, which can also be used at the virtual POS. Providers of mobile
payment solutions from other countries are also present: Paybox, GiSMo and EMPS. As an
aside, it is interesting that competition in the field of parking applications may be higher than
72

in the field of mobile Internet payments, with three companies from outside Sweden
competing: ParkingPartner (Ireland), Easypark (Norway) and TeleP (Finland).

Table 9A: Electronic Internet-Payment Methods in Sweden / June 2001

Electronic Internet-Payment Methods in Sweden
Type

Brand/solutions

Comments
As the DebiTech payment
gateway is not a payment
system visible to the customer,
it is out of scope.

Credit transfers
Access
products
Electronic checks
Debit card payments
Credit card payments
Virtual wallet/accounts

[Kleline], PayPal

Single purpose

Prepaid
products

E-money
2000/46/EC

chip
based

Loading on the Internet since

1998

*Cash

Software
wallet

Prepaid dedicated
accounts
Money surrogates
(Micro)Billing

[Post/Torget]
Telia Payit (p), EMPS (p),
Mobile Payment Systems
GiSMo, *Mint, *iCash
Legend: [ ] = scheme no longer operational; * = scheme announced for use on Internet; (p) = pilot

Spain
Credit transfers integrated in online shopping procedures were possible in 1998 at two
shopping malls. As in the Swedish case, the spread of these schemes was limited, as they
require merchants and customers to have their accounts with the same bank. It is not known if
these schemes are still on offer. In the area of access products, there is Virtual Cash of
Banesto, a bank card that allows access to online-banking and payment at ca. 2,000 onlinemerchants that have installed Banestos vPOS system. Card number and PIN are required for
identification (see http://www.banesto.es/banesto/virtual/castella/e650virt.htm).
Banesto, one of the innovative banks in Spain, also developed SET Facil (Easy SET) for
credit card payments; an approach which substitutes a fat wallet with a thin one.
According to a survey (DG Internal Market 2000), all Spanish e-purses, i.e. Monedero 4B,
Euro 6000 and VisaCash, allow for payments on the Internet, but it is not known how many
merchants and customers are prepared to use them. Since June 2000 Visa Espaa and BBVA

73

have been promoting "clic and cash" a service that allows loading the VisaCash e-purse via
the Internet and spending e-money at e-merchants.
An innovative Internet payment method, VirtualC@sh+ developed by Banesto (see
http://www.banesto.es/banesto/virtualplus/), provides a virtual dedicated account that is
funded by bank transfer via home banking or at the ATMs of the 4B banking group. In the
beginning the scheme made use of a simple card, distributed freely, e.g. attached to computer
journals. The visible number provided on these cards was the account number of the virtual
account, and the number to be scratched was the PIN. As the account can only be fed at
ATMs using the regular PIN of a bank card, there is no risk involved at this stage. Purchases
on the Internet and access to the virtual account are secured by the scratched PIN (that can be
changed at the virtual cash plus web-site). This payment method is for use mainly at the
shopping mall Esc@parate, which consists of more than 1000 shops and is maintained by
Banesto. Today, instead of using the scratch card approach, the virtual account can be
established completely in the virtual world using e-mail and web-access. The difference
between VirtualC@sh and VirtualC@sh+ is that the prepaid account allows for anonymous
payments.
Another interesting prepaid product is "cybertarjeta" of La Caixa. This scheme, developed
by MasterCard, is not just a virtual credit card, but a virtual prepaid card. The virtual card is
provided with a card number and a PIN code and is accepted worldwide where MasterCard is
accepted. The maximum amount that can be loaded on this prepaid account is 250.000 PTS
(ca. 1500 Euro). It is also worth mentioning that the use of this virtual card is connected with
a loyalty scheme where every purchase with the card adds value points.
In the field of money surrogates, there is one incentive point scheme Zakis
(http://www.zakis.com/) used at the shopping mall Comerzia, which contains ca. 50 shops.
One Zakis is equivalent to one Peseta. When buying a good, the buyer gets between 5% and
20% of the value credited in form of value points to his/her Zakis account. Another way of
earning value points for further purchases is by looking at web pages or participating in online
games.
MicroBilling is offered in Spain by Qpass and is accepted by the following Information
providers: Zeta Digital, Inicia and Recoleta. Qpass specialises in billing for online purchase of
digital goods and services. The bill is paid via the user's credit card at the end of the month.
As in many European countries mobile payment systems seem to be attractive. Movilpago, a
joint venture of Telefonica Mviles (50%) and BBVA (Banco Bilbao Vizcaya Argentaria)
74

(50%), announced its m-payment solution a year ago. Tests will be performed this year and
the official start is expected in 2002. Payments will be possible in a prepaid (prepaid account)
and a postpaid (micro-billing) form: the prepaid account can be fed at ATMs, by credit
transfer or by a credit from another user of Movilpago. The (micro)billing option involves a
debit from the customer's bank account at the end of the month. No change of the SIM card or
other technical prerequisites is necessary. Technically the system is based on a sophisticated
(and expensive) proprietary system that delivers messages to the mobile phone. The regular
SMS messages as a delivery service were regarded as not sufficiently reliable as messages can
take a long time to arrive during peak hours. In May 2001, Airtel/BSCH (Banco Santander
Central Hispano) joined in with a scheme of their own called Pagomvil. Banco Popular and
Caja de Madrid followed shortly afterwards.
When Movilpago, a joint venture of Telefonica Mviles (50%) and (Banco Bilbao Vizcaya
Argentaria), was established, it had to be approved by the competition authorities. As BBVA
is the largest banking group in Spain and Telefonica Mviles the largest mobile phone
operator, there were fears of concentration. The competition authorities (Servicio de Defensa
de la Competencia SDC) considered that Movilpago would affect both the market for epayments and the market for mobile telephony. The major concern was that it could constitute
a barrier to new entrants into the mobile telephony market. Concentration and exclusion of
competitors may be due to lack of open standards, patent ownership, a large client base,
financial strength, and a large distribution network. As m-payments may become the most
important payment form in e-commerce, a unified and widely used m-payment system is in
the interest of the consumer. With this in mind, the SDC approved the joint venture on the
following conditions: other mobile operators must be allowed to participate and adapt their
technical systems; it must be possible to use the system with any mobile operator and any
financial institution; contracts with Movilpago may not limit customers in their freedom to
choose services of other operators or financial institutions; interchange fees between the
involved financial institutions are subject to approval of the SDC. This happened in
November 2000, prompting negotiations between the different mobile operators and a number
of banks. This resulted in a consolidation of m-payment schemes in Spain and at the same
time meant that it will take longer to roll out the new technological solution (see Tribunal de
Defensa de la Competencia 2001).
Movilpago may be seen as a solution favouring the banks as the bank account of the payers is
involved to make this chained payment instrument (prepaid or billing) work. It comes as no
surprise that there is another m-payment scheme in place linked to the credit card. La Caixa,
once offering CaixaMvil, committed itself to Visamvil. Visamvil substituted the former
75

Caixa Mvil in March 2001. Members of the banking group 4B, Visa Espaa, and Visa
International support Visamvil. The VISA brand name should be an asset in marketing this
product. In this scheme a mobile phone is assigned to a credit card and a PIN (which can be
different from the Pin number normally assigned to the credit card). When paying on Internet
the mobile is contacted by voice service. This system is less sophisticated but also less
expensive than Movilpago. Currently it can be used at 500 online-shops, but its usage could
be extended to the real world. Paybox is the third competitor in the Spanish market. It uses
the voice channel and debits payments directly from the current account. P2P payments are
enabled.

Table 10A: Electronic Internet-Payment Methods in Spain / June 2001

Electronic Internet-Payment Methods in Spain
Type

Brand/solutions

Comments

Credit transfers
Access
products

Electronic checks
Debit card payments

Virtual Cash

Credit card payments

SET Facil (Banesto)

Virtual wallet/accounts

PayPal

access to online-banking
facilities with the same card

Single purpose
Monedero 4B
Euro 6000
VisaCash

VisaCash is promoted as "Clic

and Cash" by Visa Espaa and
BBVA for use on Internet

Virtual cash plus

(Banesto)1 Cybertarjeta (La
Caixa)2

to be used at the shopping

mall "escaparate";
2
includes loyalty points,
international use

Money surrogates

Zakis

to be used at shopping mall

"comerzia"

(Micro)Billing

Qpass
*Movilpago, Visamvil,
Paybox, [CaixaMvil]

Prepaid
products

E-money
2000/46/EC

chip
based
Software
wallet

Prepaid dedicated
accounts

Mobile Payment Systems

Legend: [ ] = scheme no longer operational; * = scheme announced

76

United Kingdom
Most consumer-to-business (C2B) Internet payments in the UK are carried out using credit
and debit cards. Debit cards (Visa debit and the domestic debit card Switch) are accepted by
all merchants who accept credit cards. These cards are signature-based (offline debit) and so
can be handled by the same mechanisms as for credit cards (although the rules, and in some
cases the card number formats, are different). The online versions of these cards (Electron
and Solo) are not so widely accepted; this is more of a commercial limitation than a technical
one. Direct debit (using the BACS automated clearing house service) is not widely used for
Internet shopping, as it is a two-part process (the customer must first set up the direct debit
instruction and the merchant can then make the payment request). The set up usually requires
a paper signature, and the merchant does not know for three days whether the payment
instruction has been accepted. Nonetheless, this method is used by some portals and ISPs.
BACS-approved software, and a merchant certificate, are required to send payment
instructions to BACS. Regarding access products, in March 2000 APACS (the Association
for Payment Clearing Services) announced the possible launch of a new Internet payment
system that envisions "a same-day secure and reliable bank-based system" for 2001. It is not
exactly a live service yet.22 Cheques are often used for auction payments, and are requested by
some smaller merchants who find these cheaper than accepting card payments through a PSP,
but in contrast to the US there are no e-cheques in use.
Credit cards (and in some cases also charge cards) are accepted by most merchants, normally
in a secure (SSL) session. In general, authorisation is carried out in real time, although some
merchants use batch authorisations. None of the acquirers yet insists on (or even encourages)
the use of SET. Since April 2001 merchants have been able to include CV2 (sometimes
known as the card security or card verification code) and address information in their
authorisation requests, and will receive a supplementary response on these fields. However
this is not yet mandatory and is only used by some large merchants who connect directly to
their acquirers rather than through a Payment Service Provider.
A feature of the UK online payments market is the use of Payment Service Providers (PSPs).
These companies - the best known are Worldpay and Netbanx - act as intermediaries
between the banks and online merchants, converting protocols and acting as a "security
buffer" to protect the banks' systems. In some cases they also act as a commercial
intermediary, accepting payments and taking the payment risk in return for a (substantial)
22

It's just one step from electronic debit solutions to EBPP. A scheme sponsored by the banks,
under the auspices of the inter-bank organisation APACS, had been announced, but is shelved

77

premium on the Merchant Service Charge. Nearly all dot-com merchants, and most small and
medium-sized e-tailers, use a PSP, whereas large bricks-and-clicks merchants pass their
online transactions through the same direct X.25 connections to the banks that they use for
face-to-face transactions. PSPs also collect transactions authorised during the day and submit
them overnight, obviating the need for the e-tailer to keep track of transactions after
authorisation.
Virtual e-wallet/account systems have also had mixed success. Barclays' Barclaycoin (a
Cybercash implementation) was closed down in 2000, however there is a new generation of
products that are already attracting greater numbers of users. Server-based e-wallets without
prepayment functions are available from Earthport (http://www.earthport.co.uk) (which is
used by Internet bank Egg and by Barclays) and Safedoor (http://www.securicor.com/).
These products hide users' card numbers and identities from merchants. Payhound
(http://www.payhound.com) is a Person-to-Person payment scheme, partnered with Freeserve
Auctions and with MSN Hotmail. It offers virtual accounts that can be loaded from a card or
bank account, and payments can be made to another Payhound user or merchant. Nochex
(http://www.nochex.com/ ) is similar, with an auctions focus. Smart Creds, formerly y-creds,
(http://wallet.uksmart.co.uk/) started by using scratch cards, bought in Post Offices, to top up
the online account, but has now added card and bank transfer options also; again the value can
only be used at partner merchants.
There have been two electronic purse schemes issued by banks in the UK, however at present
(July 2001) neither is available as an Internet payment method. Mondex is no longer used
even in the universities where it had been quite popular, and the SmartAxis Internet payment
method (which offered either Mondex or Proton payments using a card reader supplied by
Smart Axis) ceased operations in May 2001. However the technology has been bought and
the founder is hopeful that it can be revived. VisaCash has been re-branded within the e-Visa
division, and Visa has said that this will result in a repositioning as an Internet payment
method.
In the UK, one is tempted to say wallets are dead, long live the wallet. It is interesting to see
two pilots both dealing with the payment of copyright protected digital content. They offer a
combination of software wallet and Copyright Management System (CRMS). Magex
(http://www.magex.com/), a case in point, was founded in 1998 by National Westminster
Bank. In June 2000, Magex became the first digital commerce service to offer a generally
available commercial solution for secure music download. On March 2001, 5 music vendors
however for the time being. Also worthy of mention is the Electronic Bill Presentment and Payment
(EBPP) system Clear Money, which is due for launch shortly.
78

were using the Magex solution including Universal Music on a pilot basis, and Didio, the
UK's biggest publisher of audio books. The prepayment is done using the credit card. In this
context it is also interesting that Barclaycard started a pilot on its own for the copyright
protected download of music at music33.com. It is a server-based solution with a thin wallet,
the CopyLock e-purse (http://www.copylock.co.uk/).
Splash Plastic (http://www.splashplastic.com) is a prepaid account aimed at teenagers;
Splash cards can be bought and loaded at Post Offices and some convenience stores, and the
value can then be spent at selected Splash merchants. Another prepaid account service called
Rools has closed down, although the company is still in business selling consultancy and
software products.
Multi-party loyalty and incentive schemes have only been marginally more successful. The
Beenz scheme finished operation 26 August 2001. I-points (http://www.ipoints.co.uk/) has
partners, but it is not clear whether it has reached or will reach a critical mass of users. Ipoints however purchased Webrewards, the UK arm of webmiles (see Germany) in June
2001. An interesting aspect of this deal is that I-points ands webmiles have agreed to combine
their network with a potential for loyalty schemes cross-border. Further schemes of this type
(see http://www.mypoints.co.uk and http://www.interactivcash.com/ ) are MyPoints and
InteractivCash. All these schemes allow users to collect points in return for shopping at
partner merchants, registering for products or completing surveys. The points can then be
redeemed at other partners. Closed schemes like GoPoints, Clubcard points of Tesco, or the
Sainsbury's Reward Card allow collection of value points for Internet purchases also, they are
however beyond our scope.
British Telecom conducted a billing pilot some years ago called BT Array, but this was not
implemented as a commercial service. When micro payments, which were aggregated by BT,
reached five British Pounds the amount was debited to the customer's credit card account. At
present Global Internet Billing's Chargitdial (http://www.chargitdial.com/ ) service allows
low-value purchases to be paid for by reconnection to a premium rate telephone line. On the
mobile

commerce

side,

there

are

pilots

of

GiSMo

and

Phonepaid

(http://www.phonepaid.com/home/home.htm), which seems to be a Paybox clone. Both BT

Cellnet and Vodafone are believed to be close to launching their own server-based accounts
systems.

79

Table 11A: Electronic Internet-Payment Methods in the United Kingdom / June 2001
Electronic Internet-Payment Methods in the United Kingdom
Type

Brand/solutions

Comments

Credit transfers
Access
products

Electronic checks
Debit card payments

Visa debit, Switch,

BACS1, *APACS solution

Credit card payments

used at some portals and ISP

no support of SET
2

[Barclaycoin], PayHound
(P2P), Nochex2, Earthport,
Safedoor, Smart Creds3
PayPal4

Virtual wallet/accounts

auctions focus,
example of a prepaid product
that extended its scope
4
disbursements via bank
account enabled
3

Single purpose

Prepaid
products

E-money
2000/46/EC

chip
based

[Mondex], [SmartAxis],
*VisaCash

Software
wallet

Magex (p), CopyLock epurse (p)

Prepaid dedicated
accounts

SplashPlastic, [Rools],
Smart Creds3

Money surrogates

[Beenz], I-points,
IncentivCash, MyPoints
[Webrewards],

(Micro)Billing

[BT Array],
Chargeitdigital

GiSMo, Phonepaid,
Mobile Payment Systems
Legend: [ ] = scheme no longer operational; * = scheme announced

80

example of a prepaid product

that extended its scope