Paypal

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E-commerce requires a competent online payment system. Traditional payment systems can not provide an efficient and yet secure solution for the emerging online transactions. [|PayPal], a peer-to-peer payment system, was emerged.

=What is Paypal?= It is a simple and popular peer-to-peer (P2P) payment system. It allows individuals to transfer money through e-mail. Both merchants and customers are better off thanks to the service. Having 86.6 million members, serving 56 countries and regions, PayPal is the world’s largest online payment service provider today.

=How does Paypal work?= To make a payment, both the sender and the receiver must have a PayPal account which is free. The payment process works like this: the sender pays, money is drawn from the his/her bank account or credit card to the Automated Clearing House Network (ACH), ACH transfers the fund to the receiver’s account, then PayPal e-mails the receiver that the fund is available. The sender and the receiver are not aware of the other party’s bank information.

=History of Paypal= In 1999, PayPal began its business application for the users to exchange small amount of funds with handheld devices. In 2000, PayPal launched the web based money transfer application which mainly serves online auctions, such as eBay. On February 15, 2002, it went public. By that time, PayPal has 14 million registered accounts. And it is available to users in 36 markets around the world (Chesher, Kaura and Linton 57-58). In July 2002, it was acquired by eBay. Now PayPal represents about 5% of eBay's business (PayPal). As a major player in online payment system, it has competitors such as: c2it from Citibank, MoneyZap from Western Union, Checkfree and Yahoo Direct. And it forces traditional banks to pay more attention to personal payments. In March 2000, Chicago's Bank One launched eMoneyMail, “which allows customers to e-mail money to each other from their credit cards or bank accounts.”

=Advantages= The transaction is comprimised by several e-mails, so it is comparable to the speed of e-mail transctions, which can be as fast as a few seconds up to a couple of minutes depending on the traffic of the internet. Paypal operates 24-hour per day, 7-day per week. Security is an essential feature of payment method. PayPal ensures security transaction. The senders and the receivers’ financial information are protected in ACH instead of being released to the other party. Thus, customers are more confident to make on-line transactions, and merchants gain more customers and sell more goods through e-commerce. It charges the receiver 1.9% of the transaction fee plus 25 cents. And it charges the sender nothing. By making payments easy and safe, PayPal eliminated the barriers to entry into the e-commerce, especially online auctions like e-Bay. In this way, merchants do not need to worry about how to receive their funds, and clients do not worry about how to protect their private financial information. Only with the competent payment system can e-commerce run smoothly. In a word, online payment system reduced frictions in the e-commerce in the dimensions of time and distance
 * Fast
 * Easy
 * Secure
 * Low cost

=Eligible Laws and Regulations= In February 2004, PayPal Europe was granted electronic money institution (EMI) status by the UK’s Financial Services Authority (FAS). //“… electronic money shall mean monetary value as represented by a claim on the issuer which is: (i) stored on an electronic device; (ii) issued on receipt of funds of an amount not less in value than the monetary value issued; (iii) accepted as means of payment by undertakings other than the issuer.”// (EMI Directive)

= = =Legal Altercations=

Pay pal has had run ins with the law on more than one occasion. In 2002, PayPal users sued Pay Pal for supposed infringement on their Electronic Funds Transfer act. Pay Pal denied all allegations, although proposed an agreement a year later which stated the revising and alteration of their business processes as well as a 9.25 million settlement check made out to defendants (Wikipedia). The major case Pay Pal was faced against with Craig Comb et al v. PayPal. As could be assumed PayPal is a business that has many agreements that have to be followed, Craig Comb and others sued Pay Pall on improper customer and quality service and ruled in favor of the defendants (Wikipedia).

=Conclusion= The invention of money made human being leave the era of barter economy. It enabled a much more convenient way of business transaction. Then came the invention of credit card, it accelerated the business transaction and saved the danger of carrying large amount of cash. In this new age of internet economy, PayPal is the new form of “money” in the e-commerce. However, Basic economics concepts still work, like the rule of demand and supply still applies. However, the progress of technology speeds up the economy. PayPal facilitates a countable, durable, convenient and most importantly, a secure method of closing business transaction online. PayPal is an instance of how technology drove the progress of economy.

In the future, with the development of information communication technology (ICT), new and better online payment method will be available in the marketplace. It may have more advantages than today’s PayPal in the dimensions of time, distance and information.

=Sources:= Chesher, Michael, Rukesh Kaura, and Peter Linton. __Electronic Business & Commerce__. London ; New York: Springer, 2003. CNN (2005): 5 December 2006 . EMI Directive, Art. 1.3(b) ISP-Planet (2003): 5 December 2006 . Laudon, Kenneth C., and Carol Guercio Traver. __E-Commerce : Business, Technology, Society__. Boston: Addison Wesley, 2002. Mann, Catherine L., Sue E. Eckert, and Sarah Cleeland Knight. __Global Electronic Commerce : A Policy Primer__. Washington, D.C.: Institute for International Economics, 2000. PayPal (2005): 5 December 2006 . "PayPal." __Wikipedia__. 2 Dec. 2006. 25 Nov. 2006  “The Personal Touch: Internet Payments [Person-to-Person Transactions].” __The Economist__ 356 (2000): 70.