Electronic Payment Systems: Issues of User Acceptance

Dennis ABRAZHEVICH SamenwerkingsOrgaan Brabantse Universiteiten (SOBU), Technical University of Eindhoven (TUE), PO Box 513, 5600 MB, Eindhoven, Netherlands Phone +31 40 247 52 46, Fax +31 40 243 19 30, Email: [email protected]

Abstract. Electronic commerce and electronic business greatly need new payment systems that will support their further development. This paper discusses issues of user acceptance of electronic payment systems by mass customers and presents results of a user survey on conventional and electronic payment systems that was conducted with the purpose to discover user attitudes towards their characteristic properties. The paper presents issues of users acceptance and guiding principles on design of electronic payment systems with high level of user acceptance, which can be a key point in understanding directions for further development of electronic payment systems.

1. Introduction Electronic payment systems are an essential part of electronic commerce and electronic business and are greatly important for their further development. However, traditional ways of paying for goods and services do not work properly over the Internet. Existing payment systems for the offline world, such as credit cards, are widely accepted as a means of payment on the Internet, however users dont see in them enough of reliability, trust, security, etc [5]. The existing payment systems are also far from ideal for merchants, because of the high transaction costs, fraudulent activity and the multiple parties involved in payment processing. These problems result in reluctant participation of users in e-commerce activities, and this situation, in its turn, affects merchants who are losing potential customers. New payment systems, specially crafted for the Internet also could not avoid the same and different problems. This leads to reluctant use of the electronic payment systems, i.e. results in low user acceptance of newly introduced payment systems by mass customers. The need for new well-performing and user-friendly payment systems is clearly evident. These systems should meet needs of users and merchants, and demonstrate a potential for acceptance on mass market. To highlight the factors that influence user acceptance in payment systems we conducted a survey with users of payment systems. In this survey conventional (cash, credit cards) and electronic payment systems (debit and smart cards and credit cards on the Internet) were addressed.

2. Background The problems of electronic payment systems that we are facing at the present m oment can be described as a failure to address user requirements and needs in the design and deployment of the systems. It can be suggested that in the design of electronic payment systems not only technological but also user-related factors should be taken into account. Even if there are good technical solutions, but they are not accepted by end users or vendors, the

whole system would fail. The existing works that discuss the requirements for electronic payment systems dont provide rationalization for selection of the chosen requirements. This omission can be misleading for designers and backers of electronic payment systems. There is a definite need for user feedback on these issues. It is hereby suggested that it is important to know what characteristics of payment systems have most direct influence on user acceptance. It is interesting to find out what characteristics are critical for success and what can be disregarded, if necessary. Thus a survey has been conducted with an aim to asses user attitudes concerning a range of characteristics of payment systems. The investigated characteristics that are cited in the literature [4], [2] are: anonymity (protecting or concealing customers identity), applicability (ability to pay with a payment system at multiple and diverse points of sale), authorization type (ability to perform offline or online payments), convertibility (ability to convert money to and from a system to another system), ease of use (usability), efficiency (ability of payment system to service small and micro payments), interoperability (support of open standards and protocols), reliability, scalability (ability to accept new users without performance degradation), security, traceability (ability to trace sources of money, income or physical presence), trust. Several characteristics of payment systems (e.g. authorization type, interoperability, scalability) were not included in the questionnaire, because of their specific, mainly technical, nature. These characteristics may also be important for user a cceptance, but they are mainly transparent to users, as they do not affect directly the interaction during the payment activity. Further research will shed more light on these issues.

3. User Survey: Data Collection To reveal the importance of characteristics of payment systems we conducted a survey in cooperation with De Consumentenbond, the largest consumer organization in the Netherlands. The survey was conducted in the form of self-administered questionnaire sent out by post. Respondents were selected from a database of subjects of De Consumentenbond, which has been built from people who reacted to a press advertisement. Among the 1328 of the respondents 94.1% are users of e lectronic payment systems. The respondents are daily users of conventional and electronic payment systems. 19.4% have made payments on the Internet. The sample is balanced in demographic aspects: the respondents are employed in diverse industries and social institutes, there is no bias on sex, age (average is 53.26 years). Occupation of 94.8% is not related to payment systems. For data analysis mainly descriptive statistics was used. The survey was conducted in December 2000 January 2001.

4. Interpretation of the Survey Results In some cases several questions elucidated each single characteristic of payment systems; users were able to express their opinions on a 5-point scale for most of the questions, (in descending order, e.g.: 1 very important; 2 quite important, 3 neutral, 4 quite unimportant, 5- not important at all). Criterion for judgments of relevance for this scale was that st 50% or more of answers should lie in 1 two categories, e.g. very important + quite i m portant. In other cases where scale is different, relative percentage of the responses was an indicator. Survey results are presented in the Appendix. It has been assessed if answers contribute to importance or unimportance of particular characteristic according to percentage ratio (some questions present reverse statements, in this case questions gaining more than 50% indicated unimportance for users).

The most interesting finding was the reaction to questions on anonymity. Despite numerous publications that emphasize the high importance of anonymity as a requirement for an electronic payment system [1], [3] most of the respondents indicated that anonymity is not so important for them. 72.8% of the respondents are never being stopped by the fact that they are revealing their identity when paying. Only 13.5% are concerned that vendors can register what they buy when paying with an electronic payment system. The respondents are quite satisfied with the level of anonymity provided by debit cards, the most nonanonymous system (52.2 %). 72.9% of the respondents would prefer that their purchases are registered to avoid disputes and 50.4% agree that this can be used to provide with better service. An interesting result concerns efficiency (ability of payment system to service small payments). Only 13.4% of the respondents think that small payments are necessary for shopping on the Internet. This is especially remarkable in the view of many attempts to ni troduce small payments solutions for online trade [4], [5]. Ease of use is also rated high. However, users noted that is quite easy to use credit cards for this kind of payments. On the other hand, the process where one has to fill in lengthy forms with personal data and credit card details cannot be regarded as an easy one. Therefore, paying with credit cards is not a convenient process, but users perceive it differently (96.2%). Convertibility of funds to another payment systems did not bring surprises. Users think that convertibility of debit cards is significantly higher that of smart cards systems (Sign test: Z = -11.34; p. < 0.001). This correlates with real situation of low convertibility of these systems. In the two surveyed systems, Chipknip and Chipper, operating in the Netherlands, it is not possible to convert money loaded to them back to any other payment system. These two smart card systems have suffered low level of acceptance and convertibility may be one of the problems that hampered development of the systems. One of them, Chipper was closed in the beginning of 2001. Security is an issue of high importance for most of the respondents (97.4%). 55.3% rank debit cards as their preference for most secure payment system. Understandable results were received on reliability; many respondents are aware and concerned about the incidents when payment systems do not function as expected. 53.5% experienced malfunctioning of debit card readers, 18.0% faced transaction failures, and cards of 32.5% of respondents were r jected in the past. 55.3% prefer debit cards, and e 15.1% prefer cash, because they think that systems are more reliable than others. Trust is considered to be an important issue, 97.6% would trust only a payment system introduced by an established organization. 94.4% would refrain from using a system if they feel it is not trustworthy. In summary, according to the responses some characteristics are perceived as more i m portant than others. Characteristics of primary importance are: applicability, traceability, trust, security, convertibility, ease of use and reliability. Lower level of importance was attributed to anonymity and efficiency. The survey illustrated that characteristics of anonymity and support for small payments are perceived by users as unimportant, in contrast to the numerous works that treat them as crucial issues and motivate building whole systems around these characteristics.

5. Issues of User Acceptance: Guidelines for Businesses To talk about importance of user-related factors of electronic payment systems we have to take into account that users perception of payment systems is perception of a complex system with numerous parameters. From the way users perceive and feel about them they

make difference in acceptance of the systems, provided that there is more than one system available. Thus, user acceptance of electronic payment systems on mass scale depends greatly on users attitudes; feasible technological solutions are not the only important issues, but these systems will be perceived in a complex of facets. Issues of applicability, security, convertibility, rise with seriousness not by themselves but also because they influence users and their subsequent decision to use payment systems. User perception, of actual state things or manipulated by marketing or publicity has a significant effect on user acceptance. The user survey highlighted several interesting issues. In relation to questions of anonymity designers can face a choice: should they design a system that is not anonymous, provided that most of the users do not really feel need for anonymity and may never face consequences of misuse of their private information, or should they deliver a maximally anonymous solution, thinking that users do not really understand the problem and indeed should be protected in spite of incomprehension? There is also a trade-off: when aiming to provide full anonymity that is possible with the available technology, the resulting systems may fall short on other issues, e.g. being hard to operate or inefficient. Another observation derived from the respondents reaction on the questions about small payments is that there might be a significant probability that users may not understand the real need of small payments that is emerging in the Internet industry, or they dont feel need for them simply because they are used getting things for free. However business models that are based on giving out free information and other commodities cannot stay for too long, now we are observing shifts from this direction. Small payments and micropayments will certainly find their place in various applications on the Internet [2]. Therefore an important conclusion can be made that it makes sense to be more specific in targeting payment systems for various context of use. This has implications that different systems should be designed for various applications and contexts, and there will not be one solution that covers all the requirements. For example, there may be cases when anonymity or convertibility are not highly important in relation to other characteristics. Thus user acceptance implies that people are willing to use a system for payments especially if there is more than one payment system available. Acceptance is dependent on: Perception of manifestation of characteristics of payment systems Specific applications for payment system for different contexts of use. Businesses that are developing and launching a payment system should therefore focus on user requirements for concrete applications in the targeted context of use and receive feedback from potential users. Then they should ensure that t e manifestation of the charach teristics in the payment system is along their requirements and predictions thus ensuring high level of user acceptance. The drawback of this approach is that it may be very expensive to implement and introduce a new system, as it has been occurring to new electronic payment systems, and several systems for diverse applications may be cost infective. However, this might happen also because the systems tried to be a universal solution in a faulty approach to not taking into account requirements of users and context of use.

6. Conclusions This survey was a necessary step needed to find out user needs and to guide further design of electronic payment systems with high user acceptance. These results are currently subject to a more detailed analysis. Although survey could identify some problems with defining important characteristics of payment systems further research will have to employ other techniques for finding dimensions of user acceptance and its relations to characteristics, and validate them. This can be case studies or field research. The next step will be to develop

guidelines and principles for design of effective interactions between humans and payment systems to arrive at user-accepted electronic payment systems. The papers is written and presented within Strategic Program Enabling Electronic Commerce of the SOBU initiative (http://cwis.kub.nl/sobu/eec/).
References [1] Chaum, D. (1992) Achieving electronic privacy. Scientific American, August, vol. 267, no.2, pp. 96 - 101. [2] Lynch, D.C. and Lundquist, L. (1996) Digital money: The new era of Internet commerce. Chichester: Wiley. p.165 [3] Medvinsky, G. and Neuman, B.C. (1993) Netcash: A Design for Practical Electronic Currency on the Internet. In Proceedings of first ACM Conference on Computer and Communication security, pp.102-196. [4] Medvinsky, G. and Neuman, B.C. (1995) Requirements for Network Payment: The NetChequeTM Perspective, In Proceedings of the IEEE CompCon'95, San Francisco. [5] Wayner, P. (1997) Digital cash: Commerce on the net, 2nd ed. London: AP Professional.

Appendix: Summary Of The Survey Demographic data:

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Questions marked with * are answered only by those who made Internet payments (19.4%). N = number of responses. Smart cards are: Chipper and Chipknip. The questionnaire is translated from Dutch. Anonymity 1. Are you aware that banks or shops can keep records about your payments when you use debit cards and other electronic payment system? N= 1320 Yes No 60.5% 39.5% 2. When using an electronic payment you can reveal your identity to a shop. Does it sometimes stop you from using the particular payment system? N= 1312 Yes Always Never 4.0% 23.2% 72.8% 3. Are you comfortable with the level of privacy that is provided by debit cards? N=1238 Very much Quite likely Neutral Not really Not at all
5.4% 46.8 % 39.6% 6.4% 1.9%

4. Are you concerned that a shop may know what kind things you buy when you pay electronically e.g. with a credit card or debit card? N=1297 Very much Quite likely Neutral Not really Not at all 2.5% 11.0% 54.5% 24.9% 7.0% 5. Banks and shops can make mistakes with your money. Do you want to have records of your purchases to be able to prove these mistakes, like overbilling? N= 1268 Very much Quite likely Neutral Not really Not at all 38.7% 34.2% 14.6% 9.9% 2.5% 6. Do you think that shops can use your payment records to provide you with better customer service? N= 1257 Very much Quite likely Neutral Not really Not at all 9.8% 40.6% 24.8% 19.0% 5.8%

Convertibility 7. Is it important for you when using a payment system that funds can be easily converted into other payment systems? Cash -> AccountAccount -> Cash Account -> Smart cards Smart cards -> Account Very important 49.6 % 73.4 % 15.6 % 10.5 % Quite important 31.3 % 20.7 % 19.3 % 13.8 % Neutral 11.5% 4.6 % 20.5 % 23.9 % Quite unimportant 4.3 % .5 % 9.7 % 12.1 % Very unimportant 3.3% .8 % 34.9 % 39.8 % Total N 1292 1294 834 812 8. Are you satisfied with the current situation concerning how your money is converted between different payment systems? Cash -> AccountAccount -> Cash Account -> Smart cards Smart cards -> Account Very satisfied 16.5% 32.1% 12.7% 3.6% Satisfied 53.3% 55.0% 34.5% 17.6% Neutral 19.6% 9.1% 20.1% 24.9% Not satisfied 7.6% 2.7% 6.3% 7.1% Very unsatisfied 3.1% 1.0% 26.4% 46.8% Total N 1243 1285 527 449 Ease of use 9. Do you prefer using one particular payment system over another because its easier to use? N= 1253 Debit cards Cash Credit cards Smart cards Other 75.2% 10.4% 5.0% 3.0% .8% 10. To what extent did you find it easy to pay over the Internet with a credit card? * N= 132 Very easy Easy Neutral Difficult 68.2% 28.0% 3.0% .8% 11. Do you feel more comfortable with payments when you are using something tangible to pay with (e.g. a debit card)? N= 1166 For sure Quite likely Not at all 46.5% 35.2% 18.4% 12. Is it important that you are able to find out at any moment how much money do you have? N= 1310 Quite important Very important Neutral Quite unimportant Very unimportant 36.0% 42.1% 15.0% 4.8% 2.2% Efficiency 13. Do you want to be able to make small payments over the Internet, for example for articles, recipes, products advice? * N= 246 Very important Quite important Neutral Quite unimportant Very unimportant 2.0% 11.4% 25.2% 13.0% 48.4% 14. Can you think of cases where small payments over the Internet can be useful? * N= 197 Don't need small payments 54.8% Biding at auctions 5.1% Goods 17.8% Advice on products and services 3.6% Stock research, report 8.6% Press 1.5% Music/video 7.1% Other 1.5% Reliability 15. Do you prefer one particular payment system to another because it is more reliable? N= 990 Debit cards 55.3% Credit cards 2.8% No preference 24.7% Other 1.3% Cash 15.1% Smart cards .8%

Security

16. Is security of payments important for you when you use an electronic payment system? N= 1295 Very important Quite important Neutral Quite unimportant Very unimportant 84.7% 13.7% 1.2% .3% 0% 17. Will you stop using a payment system if you hear about a security breach in the payment system? N= 1302 Absolutely yes Quite likely Neutral Rather not Not at all 25.9% 49.4% 19.7% 4.1% .8% 18. Do you refrain from using any electronic payment system because you think its not secure? Debit cards Smart cards Credit cards Other No preference Yes 3.3% 17.1% 18.8% 5.0% 62.4% No 96.7% 82.9% 81.2% 95.0% 37.6% Total N 1314 1314 1314 1314 1311 Traceabilty 19. Is it important that no traces are left from your electronic payments, like your name, bank account, or address? N= 1269 Very important Quite important Neutral Quite unimportant Very unimportant 27.0% 31.3% 27.5% 8.0% 6.1% 20. Are you concerned that your sources of income can be known by vendors, i.e. the organizations you buy from? N= 1262 Very concerned Concerned Neutral Not concerned Not at all 16.1% 29.2% 41.4% 10.4% 2.9% Trust 21. Is it important that other people also trust the payment system you use? N= 1271 Very important Quite important Neutral Quite unimportant Very unimportant 34.9% 37.5% 19.3% 3.9% 4.4% 22. If a new system is introduced, will you trust any organization that issues it, or only an established one, like a bank? N= 1289 Established Any 97.6% 2.4% 23. Would you stop using a system if you feel that its not trustworthy? N= 1311 For sure Quite likely Neutral Rather not Not at all 46.1% 48.3% 4.8% .8% .1% Applicability 24. Do you think a good shop should offer you the choice to pay with any payment system you like? N= 1313 Yes Rather yes No 85.8% 12.9% 1.3% 25. Is it important that you can use one single particular payment system in most places you have to pay? N= 1285 Very important Quite important Neutral Quite unimportant Very unimportant 59.8% 28.3% 9.6% 1.2% 1.0% 26. What of the following payment systems you would like to use in more points of sale? Cash Debit cards Credit cards Smart cards Credit cards on the Internet Not at all 52.4% 21.3% 31.0% 48.3% 65.7% Sometimes 11.8% 25.5% 31.4% 17.3% 23.5% For sure 35.7% 53.2% 37.6% 34.4% 10.8% Total 1123 1255 827 729 591