Chapter 11: Payment Systems

E2. Bonnie Carson has owned and managed her gift and card shop in the Central Shopping Mall for three years. Business has been good, but Bonnie wanted to expand her business. A year ago, she hired a Web designer and built a Web site hosted by a national Internet service provider. Part of the monthly ISP fee for her merchant site includes the software needed to process credit card purchases. She has obtained a merchant account with a national credit card processing company. Bonnie’s Web- based business is beginning to pick up. She wants to provide more payment options to her customers and is considering a payment processing service such as PayPal as an additional option. Write a report of about 300 words in which you advise Bonnie on this. Identify at least three reasons that Bonnie should use such a service and at least three reasons why she should not.

PayPal Implementation Report—Bonnie Carson

I understand that you are expanding your business via Web and would like to implement a payment process system such as PayPal. I think that this is an excellent idea. PayPal is one of the most popular payment systems known by online shoppers today due to its popularity with eBay; therefore, the credibility of this system has already been established.

                For a small business like yours, PayPal will help lowering transaction costs as oppose to credit cards. With credit cards charging monthly fees as well as per transaction fees, the costs for transactions can get high. However, PayPal only has per transaction fees and are much lower than credit cards fees. This will help save your business money and could even allow you to reduce consumer prices, promoting more business.

                Another benefit of PayPal is that it clears payments instantly. Other payment options such as checks and credit cards have slow processing time due to more entities involved. With those options, the time for merchants, customers, and banks to approve payment make delays the process time. However, with electronic cash used with PayPal, authorization is not required. This electronic cash can also be withdrawn from your PayPal account at any time by check or direct deposit.  Having these quick and efficient transactions will allow for faster shipping times and increase customer service.  

                Customers will also be pleased by the security that PayPal brings. PayPal has successful payment surveillance software, which continually monitors PayPal’s transactions. This software searches for fraud patterns, which allows PayPal to react quickly to suspicious activities. The success of this software has shown with fraud rates below .5% versus credit card web and store transactions, which has a fraud rate of 1.13%. Having this type of secure processing system will be beneficial to earning your customers trust in using this system and gaining more profit.

However, be aware that are some drawbacks to a processing system like PayPal. Because it uses electronic cash, it is not easily traceable. This gives you no audit trail as well as puts you at risk for money laundering. Also, in the future, if you want to expand your business internationally, it could be difficult. Due to the lack of a standard in place for electronic cash, there is little success for it globally. Last, in order to accept PayPal transactions, your customer must set up a PayPal account. Convincing them to register account might be a hassle for them considering that they probably have at least a couple credit card accounts to keep track of already.

Although these drawbacks can make you hesitant to use PayPal for your business, there is still the potential to resolve these issues in the future. Right now, the creation of serial numbers for electronic cash is place in order to track it better. Also, it is estimated that by 2020, electronic transfers will jump 9%, which shows that the popularity of the system is growing. With the popularity growing, having consumers sign up for accounts will not be an issue.

RQ2. In about 200 words, outline the reasons that a consumer who owns a credit card might want to use an electronic payment system, such as PayPal, for an Internet transaction. In an additional 200 words, outline the reasons that a small merchant might want to use an electronic payment system in addition to, or instead of, accepting credit cards.

                Today, electronic payment systems such as PayPal have become more and more popular with internet web transactions. Some reasons to why consumers who own credit cards as well as merchants might want use an electronic payment such as PayPal would be due to its convenience, security, and low cost.

                Consumers who set up a PayPal account can easily pay merchants even if they do not have a PayPal account themselves. The transactions process immediately, therefore, merchants who wait for payment before shipping will ship products to consumers faster. For merchants, this promotes better customer service and higher chances of returning customers.

Electronic payment systems also process transactions more securely. This decreases the risk for fraud. Having this security gives both consumers and merchants the trust to support business as oppose to credit card transactions, which has a higher fraud rate.

Also, unlike credit cards, electronic payment systems such as PayPal have no fee to individuals. Credit cards have least an annual fee to consumers. With merchants, their credit card fees are much higher. They are charged per-transaction and monthly fees. Using a low cost system such as PayPal would not only increase business profits, but also have the possibility of lowering consumer prices.