Credit cards are the most popular payment method across the globe. This is also true for online payments; most online transactions are made using credit cards. Over the last few years a number of alternatives to credit card payments, especially designed for e-commerce (e.g. PayPal) have emerged. But there are also successful local online payment methods.

One of the most successful ones is the iDEAL. It is a real-time online payment method that is based on online banking in the Netherlands. It was launched in 2005 and has now become the most popular (currently has a 50%+ market share, accepted by 80%+ of online merchants) online payment method in the Netherlands.

How does it work?

With iDEAL customers can pay for online purchases directly from their bank account. All major banks in the Netherlands, such as ABN AMRO, Rabobank and ING Bank support iDEAL. The iDEAL service is operated by Currence, a bank association that coordinates the payment systems in the Netherlands. To accept iDEAL payments a merchant can sign up at a certified bank or payment service provider.

Acceptance and use of online payment methods (source: Currence iDEAL factsheet)

This is how iDEAL works:

• The customer selects that he wants to pay with iDEAL and selects his bank during the checkout.
• He is then redirected to his banks login page to authorize the payment using a TAN.
• The bank verifies the transaction and initiates the transfer to the merchant’s bank account.
• The customer is then redirected back to website and the shop will get a conformation of the payment.
• The merchant will receive the payment within 1-2 working days on his bank account.

Advantages

Compared to other payment methods iDEAL offers some advantages for merchants and customers. Millions of customers already use online banking and can use iDEAL without signing up or registering for third-party services. Also customers don’t have to share personal information such as account number with the online merchant. Merchants benefit from the real-time confirmed, guaranteed (by the customers bank) payments that cannot be reversed (no chargebacks).

The transaction fees depend on the size and sales volume of the merchant but are usually much lower (especially for larger transactions) than the fees for accepting credit card payments.

Limited to the Netherlands

iDEAL is based on the Dutch domestic transfer and is only available to customers of the participating banks in the Netherlands. There are planes to adapt iDEAL to the Single Euro Payments Area (SEPA) standard so it can be used also for cross border payments within the E.U. There are similar local direct online banking services in other countries such as Giropay in Germany, EPS in Austria and Secure Vault Payments in the U.S.

The Bitcoin logo

Bitcoin is an electronic currency and payment system based on cryptographic algorithms to enable secure and irreversible direct transactions between parties. It is different from other currencies as it is fully decentralized and does not rely on a central issuer. This means it is not backed by a country or government as conventional currencies are.

Bitcoin was first introduced in 2008 by Satoshi Nakamoto’s Whitepaper: “Bitcoin: A Peer-to-Peer Electronic Cash System”. He also developed the first version of the open source Bitcoin client which was used to start the Bitcoin Network in 2009. Bitcoin is not the first concept of a digital currency based on an asymmetric cryptographic algorithm but it is the first real-world proof of concept of that idea on a large scale.

How does it work?

The Bitcoin network is created by a peer-to-peer (P2P) network of computers running a Bitcoin client. The network is based on a public key infrastructure and uses digital signatures to verify transactions. Using the Bitcoin software, users can generate asymmetric key pairs: a private key that he has to be kept secret and a public key that can be shared. The public part of the key pair is used as the Bitcoin address. Bitcoins (abbrev. BTC) are transferred between these Bitcoin addresses.

A Bitcoin transaction consists of the senders address, the receivers address, and of course the amount of Bitcoins. The sending party signs the transaction with its private key. The transaction is then broadcast to all nodes of the Bitcoin Network. Due to the asymmetric encryption every Bitcoin client can easily verify the transaction but only the user that has access to the private part of the key can create a valid transaction for that Bitcoin address.

This means that only the user that has access to the private key of a Bitcoin address has access to the amount of Bitcoins assigned to that address. The key pairs are stored in the so-called Bitcoin Wallet. A loss of the Bitcoin Wallet (and thus the private keys) results in a loss of the assigned Bitcoins – as would be the case with a real wallet.

The Bitcoin block chain

Bitcoin clients collect and store valid transactions into blocks. A block contains all valid transactions that have not yet been stored and a reference to its predecessor block. Because of the reference to the prior block, the collection of all blocks forms the Bitcoin block chain which is distributed to all clients in the network.

To create a valid block it has to be signed with the solution to a mathematical difficult problem. The problem is a one-way function that is based on the current transactions as well as the previous block. This concept makes the block chain a proof-of-work system that confirms transactions and prevents double spending. An attacker could only change the transaction history if he has more computation power that the rest of the Bitcoin network.

Each block generates a certain amount of Bitcoins as a reward for the client that solves the problem and creates the block. The process of competing to solve the current block is called Bitcoin Mining. The difficulty of the problem is adjusted by the network so that on average a block is generated every 10 minutes.

Wrap-up

Bitcoin information portal weusecoins has created a nice video explaining Bitcoin. Enjoy!

Florian Swoboda, co-founder of Zerebro Internet

Berlin-based startup Bar zahlen recently announced to introduce the concept of online cash payments to Germany. Bar zahlen basically enables customers to pay for their online purchases at retail stores. We sat down with Florian Swoboda, co-founder of Zerebro Internet GmbH, the company behind Bar zahlen.

Payment Observer: Can you give us some background information on Zerebro Internet?

Florian Swoboda: Bar zahlen was founded by Achim Bönsch, Sebastian Seifert and myself, Florian Swoboda, in March 2011. Since then, our team has grown constantly and we have gathered a heavily IT-focused team of about 25 people around us in order to make online payments available for everyone – just like cash. The company is backed by renowned e-commerce investors and experts such as Florian Heinemann, Martin Sinner and Christian Weiss.

Payment Observer: Online cash payments – how does that work?

Florian Swoboda: The customer shops in an online shop of his choice. He selects Bar zahlen as the payment option. After completing the order, a PDF document with a bar code opens. The customer prints out this document and takes it to the next Bar zahlen partner store. There, the cashier scans the bar code and the customer pays his online order. The cash register system instantly sends the payment confirmation to the online shop which immediately sends out the product.

Bar zahlen's online cash payment solution

For users who do not own a printer, we also offer a mobile option that can be used with every phone and not only smartphones.

Payment Observer: How did you come up with the idea to start such a service?

Florian Swoboda: We simply saw a huge problem in e-commerce which is payment. Actually a third of all customers drop out of the order process when selecting the payment option. We were asking ourselves why payment has to be such a conversion killer and why the problem does not exist in stationary trade. So we figured: What’s missing online is the simplicity of cash. With 82% of transactions, cash is the most popular payment method in Germany. Cash is secure and accessible for everyone. You don’t have to register and you don’t have to reveal your financial data to a shop or to a third party payment provider where you can never really be sure how your data is stored.  People are experiencing the current online payment methods as being very complex and many customers are lacking a sense of security when providing their financial data online. That’s why we want to offer an easy and secure online payment option that is available for everyone.

Payment Observer: When are you planning to launch Bar zahlen?

Florian Swoboda: We will launch Bar zahlen in the third quarter of 2012.

Payment Observer: Can you already share with us who your retail partners are?

Florian Swoboda: I’d love to but unfortunately I can’t. What I can reveal is that we are cooperating with well known, nationally represented retail chains in order to provide convenience and a maximum of security to our customers. We will disclose the details right before our launch in the summer.

Alternative online payment methods are advancing in number and acceptance. New services are created especially for online shoppers who do not want to pay online. The option to pay with cash for online purchases became largely popular when PayNearMe launched in the United States last year. PayNearMe enables customers to pay for e-commerce services at 7-Eleven stores, convenience stores that can be found everywhere. Most recently Berlin-based startup Bar zahlen announced to introduce the concept of online cash payments to Germany.

Cash as online payment method

Here’s how Bar zahlen works. Online shoppers can select cash payment in the checkout process when purchasing goods from a participating online retailer. Instead of providing payment details, customers have to print out a receipt with a barcode. Now the customer has to go to a retail partner where the barcode gets scanned and the customer can pay at the regular point-of-sale terminal. The payment does not necessary have to be made in cash. In fact, all payment methods supported by the retailer are accepted. The online merchant will instantly receive a confirmation after the payment is successfully completed.

Benefits: No payment details online 

Having the possibility to pay at local stores is certainly a interesting option for customers that do not want to share their payment details with an online merchant or do not thrust e-commerce payment solutions. The service is also an option for people that don’t have a bank account or a credit card. Teenagers for example can shop online or pay for online games with their pocket money.

In a nutshell

Bar zahlen can enable shoppers in Germany to pay for their online purchases at local retail stores. The service is a promising alternative for those who do not want or cannot use traditional online payment methods

Munich-based Wirecard Bank, a Wirecard Group company, and convenient store supplier Lekkerland are expanding their strategic alliance and announce BarPay, a new e-commerce payment method in Germany.

In cooperation with Berlin-based EZV Gesellschaft für Zahlungssysteme, the companies have developed BarPay to allow cash payments for products ordered online. The new payment service enables customers in Germany to order goods or services on the Internet and to pay for them in cash at 18,000 petrol stations, shops and kiosks supplied by Lekkerland network in Germany. BarPay is designed for consumers that don’t have access to credit cards, don’t want to pay in advance, or don’t trust in online payment services such as PayPal.

According to Lekkerland the flexible opening hours of convenient stores and petrol stations make BarPay a user-friendly payment method. The company’s Executive Vice President Jonny Natelberg commented: “Our national infrastructure ensures that almost all consumers can reach one of our BarPay acceptance agents within a maximum of ten minutes.”

Alternative payment provider TrialPay has raised more than $40 million in its latest round of funding by Visa, Greylock Partners, and others. The company plans to use the fresh money to expand into new markets.

TrialPay provides an advertising platform that enables customers to pay for goods and services by completing an offer (trying or buying a product) from an advertiser. For example, online players can sign up for a DVD rental service to get virtual currency in return. Offer-based payment services are particular popular in social games as they help developers to monetize users which are not willing to pay for virtual currency.

Check out the video how see how TrialPay works:

Payment service provider Xsolla, which specializes in online games, announced today that they have partnered with ZipZap, an alternative payments company that enables cash transactions for online purchases.

Xsolla offers a wide range of different payment options to gaming publishers across the globe, including credit cards, online banking, and mobile payments. Their new partner operates a global cash transaction network of over 700,000 payment centers, enabling consumers to use cash to make online purchases, pay bills and top-up e-Wallets, prepaid cards and mobile.

Adding ZipZap’s CashPay payment option to Xsolla will help publishers to expand their player base to teens and others who don’t have a credit card, or prefer to pay with cash. At big part of the gamer population, especially tweens and teens, do not have access to traditional financial services, but still want to be able to pay for virtual currency in their favorite games. Others prefer to pay with cash because they are concerned about credit card safety and privacy of their personal information.

Earlier today, mobile payment service provider mopay announced to extent its product range into broadband billing. The new billing method enables online merchants to charge purchases directly to consumers’ Internet service provider (ISP) accounts. The French cable companies Orange and SFR were among the first to offer mopay to their customers.

Mopay, part of the MindMatics group, provides mobile payment solutions for online merchants in more than 80 countries across the globe. Integrating a broadband billing service, the company now enables consumers to charge purchases through almost any communications account. To pay via the new billing method, consumers have to select their ISP and log into their existing account. The amount of the transaction will then be billed directly to the consumer’s ISP account.

Ingo Lippert, CEO of MindMatics AG, commented: “With the prevalence and surging growth of online purchases, merchants are looking for ways to offer to consumers the easiest possible check-out. At the same time, consumers are demanding purchasing options other than credit cards and standard wallets. At mopay, we are constantly looking for new payment methods that help meet the needs of both merchants and consumers. The very positive effect of adding mopay’s broadband billing solution to an existing mobile payments offer is just the latest example of our commitment to providing world-class service and products.”

With increasing availability of smartphones and mobile internet, new payment methods are emerging. Mobile payments and digital wallets are one of the hot topics these days. Will new payment methods replace cash and the traditional credit card payments?

Earlier today, Intuit published an infographic exploring new payment methods finding that over time online and mobile payments are expected to replace traditional credit card payments. According to Intuit, only one in four U.S. customer is willing to pay for goods and services using a mobile phone. The infographic reveals that security concerns are the main obstacle to mobile payment adoption.

click to enlarge

Innovative online and mobile payments service Dwolla is dropping its fee for small transactions. Dwolla CEO Ben Milne has announced that all transactions less than $10 are now free. He also has announced major improvements for Dwolla to be presented on December 15, the company’s first anniversary.

Dwolla is a web based payment platform which allows users to send, receive, and request money from other users. For transactions above $10 Dwolla charges a flat fee of $0.25, unlike other e-payment services such as PayPal, Square or credit card companies that charge a percentage share of the transaction volume.

“Micro transactions have never had a payment platform that allowed them to be valuable. Our API now allows anyone selling goods for $1 to actually keep its $1. Money should not depreciate in value as it changes hands,” commented Ben Milne in a blog post.

Check out the video to see how Dwolla works: