Online Payment Services

After businesses have built a Web site and implemented SSL certificates to authenticate themselves to customers and encrypt communications and transactions, they must address another crucial component of an e-commerce infrastructure. This involves enabling customers to easily pay for products and services online—and processing and managing those payments in conjunction with a complex network of financial institutions.

Today’s fragmented Internet payment systems often connect online merchants to banks via privately operated, point-to-point payment networks. In 2002, for example, over 9 billion electronic payment transactions (originating from approximately 6 million merchant locations and representing over $690 billion in merchant dollar volume) were passed over leased lines and non-Internet interfaces to a single transaction processor (First Data Corporation).

This situation is rapidly changing. Internet commerce is entering an accelerated growth phase. IDC estimates worldwide e-commerce revenues will increase to $652 billion in 2004. Behind each of these Internet purchases is a payment transaction. However, traditional payment systems have proven to be ill-equipped to manage the costs and complexity of transitioning and enabling transactions over the Internet. As a result, only a fraction of today’s potentially automated e-commerce transactions are currently enabled for Internet payment. The situation is particularly acute in the B2B payments arena—today, most B2B systems stop short of enabling actual payment execution on the Web.

Demand is, therefore, high for a simpler, “Internet payment gateway” approach that provides easier Internet connectivity between buyers, sellers, and the financial networks that move money between them. A truly flexible Internet payment gateway must support multiple payment instruments, connect to all relevant back-office payment processors, and be packaged for easy integration into front-office Web applications. Ideally, the gateway should also offer uniform interfaces to payment functionality, permitting e-businesses to deploy payment applications that can be easily switched between alternative financial instruments, institutions, and payment processors. And, to form part of a complete e-commerce trust infrastructure, the gateway must ensure fail-safe security for payment data as it passes from customer to Web site and through the backend processing system.

Finally, some merchants may build an Internet payment gateway themselves, or purchase a software-based solution. However, according to the Gartner Group, most e-merchants have transaction volumes that do not justify the expense of bringing the process in-house, and are opting to outsource ASP solutions.