Making payments in cyberspace.

• Author: Bauer, Paul W.

Cyberspace is loosely defined as the collection of computer communication networks that has evolved since the early 1970s. Although it is most often associated with the Internet, a myriad of bulletin board providers and commercial services also are included.

Vendors are attracted to cyberspace for several reasons. First, millions of people throughout the world have at least some access to the "Net," and their ranks are swelling. These users tend to be young, educated, and wealthier than average - characteristics that marketers find very attractive.(1) Second, by building a presence in cyberspace, a business can offer its goods and services relatively cheaply, worldwide, 24 hours a day. Finally, a cyberpresence, by distributing detailed information to potential consumers, also may boost sales through conventional channels.

What makes the emerging cybermarket particularly exciting is that the technology will allow many new products to be developed and markets to be tapped. With communications and computing costs plunging, cyberservices will be available to anyone with a telephone and a personal computer.

Unfortunately, a number of problems will have to be overcome as the electronic marketplace evolves. Currently, not everyone has access, and many users lack the high-speed equipment required to take full advantage of the graphic interfaces. A number of procedural and legal challenges also will have to be addressed, such as who - if anyone - will control the content of the material sold in cyberspace and how copyright issues will be handled. But one of the most vexing problems is how to pay for cybergoods and services.(2)

Need for New Payment Instruments

Traditional means of making payments (cash, check, credit card, automated clearinghouse, wire transfer) conflict with the characteristics of many cybermarkets. In particular, many transactions are likely to encounter problems of trust, security, or size.

A number of general payment problems can arise when a prior relationship of trust is lacking. Suppose that a professional photographer having only a "homepage" presence on the World Wide Web wants to market pictures directly to individual buyers.(3) A customer could mail the photographer cash (not advisable) or a check (better), but "snail mail" is unlikely to be a satisfactory solution. The necessary trust probably does not exist between two strangers in cyberspace. On one hand, if the photographer provides the picture immediately and has to trust a customer to send a check, how many payments might never be mailed? On the other hand, if customers cannot download the picture until their check clears, should the customers get money back if the procedure does not work or if the product is not as advertised?

Credit and debit cards seem somewhat better suited to dealing with a lack of trust among electronic strangers. The seller could rely on the same verification system used in filling phone orders from catalogue shoppers.

Solving the matter of trust between buyers and sellers would not eliminate...