Contemporary Bank Check Alternatives
Consumer-to-Consumer: Paypal
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- 3.1 How It Works
- 3.2 Underlying Processes
- 3.3 Advantages and Disadvantages
- 3.4 Commercial Success Thus Far/Future Prospects
- 3.5 Similar Products
3. Consumer-to-Consumer: PaypalConsumer-to-consumer (C2C) transfers, as the name implies, involve one individual transferring money to another individual. Specific examples might include:
There are several systems that currently fulfill this need. They all rely on internet and e-mail. Currently, Paypal (www.paypal.com) is the most successful. It began as a service that was primarily used to pay for items purchased at online auction sites such as EBay. By allowing bidders to instantly and securely transfer money to sellers, it proved to be invaluable for these types of purchases. The only parallel alternative with similar convenience and security was and is the credit card; however, receiving payments in this manner is not an option for most individuals and small businesses. From its simple roots, Paypal has expanded dramatically and currently offers many of the services of a traditional bank. Additionally, its systems are active in 38 countries, thereby allowing C2C commerce to be truly international.
Prospective Paypal users begin by opening an account on the Paypal website (www.paypal.com). Three different types of accounts (personal, premier, business) can be opened, each possessing a different set of features as discussed below [4]. The only requirements to open an account are access to the internet and an e-mail address. The account registration process is simple, involving a one page form that needs to be filled out. Personal Account The most basic type of account is the personal account and is targeted primarily at home users who occasionally use it for commercial purposes. These purposes might include online auction listings and small-scale internet sales. The features offered by this type of account include: Traditional Bank Services: Paypal accounts can be treated like traditional bank accounts. Money can be transferred to and from Paypal accounts using electronic fund transfers employing the ACH Network. This money is stored in the account in the form of a balance and can earn a money market rate of interest. In order to do so, the account must be enrolled in the Money Market Fund and funds must be stored in U.S. currency [4]. If money is not enrolled in the Money Market Fund, no interest is accrued. This is due to the fact that Paypal does not possess the legal right to act as a bank and thus has no claim and cannot use the customers’ money in a manner that a traditional bank can. Send Money: To send a payment, the e-mail address of the recipient, payment amount, and funding source are entered via the Paypal website. Funding sources can include standard checking accounts at brick-and-mortar banks, credit cards and Paypal balances. Payments can also undergo currency exchange during transmission, a feature recently added through a partnership with Wells Fargo. When the funding source is a brick-and-mortar bank account, the user can either attempt to instantly transfer the money or to send the money via an eCheck – a route which will take roughly three to four days to process. In some cases, Paypal will deny a user the right to instantly transfer a specific payment and will refer him/her to use an eCheck instead. This will be explained in section 3.2. For instant transfers, both the sender and receiver are notified by e-mail when the processing is complete. For eCheck’s, the sender and receiver are notified when the transaction order is placed and again when the eCheck has cleared.
Premium features exist beyond core features. The following features are offered for premier and business accounts: Accept unlimited credit card payments: Subscribers to the premium feature set are allowed to accept an unlimited number of payments, including payments by credit card. On the downside however, users must pay a fee for these payments. The fee remains the same regardless of the funding source employed by the sender. Pricing for these transfers is as shown below. 
Figure 6. Pricing for Paypal transfers [4] Mass Payments: This feature facilitates the payment of large numbers of bills. The sender uploads a tab-delimited text file containing receivers’ e-mail addresses and corresponding payment amounts. The sender is allowed to create a customized e-mail to accompany the payments, which are then sent [4]. Subscriptions and Recurring Payments: This feature is similar to Mass Payments except from the other end. This feature allows Paypal users to automatically and periodically invoice their customers for payments. ATM/Debit Card: This is potentially one of the most effective features that Paypal offers. Through a partnership with Providian bank, Paypal users can apply for a physical ATM/Debit Card that directly accesses funds stored in the user’s Paypal account. The debit card is of the MasterCard variety and employs the MasterCard computer systems. With this feature, Paypal extends its reach to the brick-and-mortar world and offers features that have traditionally been in the exclusive domain of credit unions and banks. Additionally, since the card withdraws money directly from a user’s Paypal account, there is no paperwork or check writing required on the part of the user. Multiple Logins: This feature is targeted primarily at business users. Different logins can be set to have different levels of access to the Paypal account. 3.2 Underlying ProcessesAccording to Paypal employee Premal Shah, there are four primary methods by which Paypal transfers money between customers [3]:
3.3 Advantages and DisadvantagesClearly, Paypal possesses numerous advantages over traditional bank checks. It has the capability of being nearly instantaneous, is entirely electronic, and eliminates significant processing costs to society. Furthermore, especially for small business, Paypal possess the potential to become an invaluable tool. Many do not possess a cost-effective method of accepting online payments. Paypal allows them to accept these types of payments without the high monthly cost of POS credit card terminals. The biggest disadvantage to such a system, however, is that transactions can only occur between holders of Paypal accounts. Because of this, even those who choose to use the system may be limited by potential counterparties. On the positive side, Paypal is currently the most dominant internet based C2C service; this means that customers who do use such services are likely to use Paypal, increasing the latter’s effectiveness. Because the pre-existing customer base is a major draw for new users, Paypal is unlikely to be faced with significant competition, thereby potentially removing the incentive for further innovation. This early adapter problem can be seen in the instant messenger space where AOL instant messenger dominates because among other reasons, it was the first instant messenger available and the biggest, which can stifle competition. Another potential disadvantage is that payments are primarily e-mail based. This format is ideally suited for internet auction transactions. However, it does not work well for other forms of C2C commerce, many of which involve some sort of face to face interaction. For these, cash and bank checks are clearly better suited as both goods or services can be exchanged in person for money. A possible solution is Paypal’s use of mobile phones as a means of instantly transferring money, and almost as importantly, checking on the status of an account or specific transactions. In this scenario, money might be transferred by phone by the sender and the receiver could then immediately verify the transaction. It is yet to be seen whether this slightly cumbersome, yet, effective method of transfer will be embraced.
Paypal’s aspirations do not end with its bread and butter, $100 billion C2C market [10]. It is currently doing extremely well in the C2B market, a $4.2 trillion market [10], with small business owners and is looking to expand to the Business-to-Consumer (B2C) and Business-to-Business (B2B) markets as well. Its Mass Payments and Recurring Payments features discussed in section 3.2 should prove invaluable. Paypal’s exemplary track record, significant and growing user base, and strong backing make it a sure bet to thrive in the future. 3.5 Similar ProductsThere are several systems on the market which operate in a similar manner to Paypal. These include, Yahoo!’s Paydirect, XCompte, BidPay by Western Union, and Billpoint. The last of these is a subsidiary of EBay, but is now being phased out with EBay’s recent acquisition of Paypal. Directory: profit -> htdocs -> thesis thesis -> Design and Implementation of Fisheye Routing Protocol for Mobile Ad Hoc Networks by profit -> Extra Titles profit -> P. O. Box 210108 Tucson, az 85721-0108 profit -> Three Trends Dealerships Must Not Ignore in 2016 Download 131.07 Kb. Share with your friends:
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