October 20, 2005

Penny Payment Systems

Google's plans on a payment system are giving some people amusement. (1, 2, 3). Synopsis: it's a merchant oriented system, based on credit card. Direct "Paypal" model in other words. (This is a little unfair to those who invented the model, before Paypal, but hey, history sucks.)

Question is, would you or I do any different? That's a tricky question. Probably not, because Paypal is about as vulnerable as a unchaperoned princess on the way to her first ball. I'd be keen to migrate that model away for fraud reasons, but the "standard approach" has a lot of merit going for it right now.

This column waxes on without limit about how the planet will spin faster and the sun will shine brighter when google releases, due to all the hook-ins with other google products. Roight. But seeing as I murmured that eBay was looking ok the other day, I feel compelled to point out this statement: "Since eBay is already in deep trouble, it poses no threat to Google either way." Huh!

(More on eBay at the end.)


WhoPay: : a Scalable and Anonymous Payment System for Peer-to-Peer Environments Kai Wei, Yih-Farn Chen, Alan J. Smith and Binh Vo

EECS Department
University of California, Berkeley
Technical Report No. UCB/CSD-05-1386 2005


An electronic payment system ideally should provide security, anonymity, fairness, transferability and scalability. Existing payment schemes often lack either anonymity or scalability. In this paper we propose WhoPay, a peer-to-peer payment system that provides all the above properties. For anonymity, we represent coins with public keys; for scalability, we distribute coin transfer load across all peers, rather than rely on a central entity such as the broker. This basic version of WhoPay is as secure and scalable as existing peer-to-peer payment schemes such as PPay, while providing a much higher level of user anonymity. We also introduce the idea of real-time double spending detection by making use of distributed hash tables (DHT), which further improves the security level of WhoPay. To evaluate how well WhoPay distributes load among peers, we have run simulations with several different configurations. The simulation results show that the majority of the system load is handled by the peers under typical peer availability, indicating that WhoPay should scale well.


To which, Daniel comments that "the main idea is simple: rollovers are handled by the first user who received a coin rather than directly by the issuer. If the user goes off-line, the issuer can temporarily take care of the rollovers. This is the innovation of PPay. This WhoPay is basically an anonimization layer on top of PPay." As commented from time to time, a lot of good research is going on in p2p space.

In more PayPal/eBay news, PaymentNews reports that the AuctionBytes.com's Ina Steiner has commented on the new eBay policy of banning other payment systems from auctions. Ostensibly for user safety, there is some user skepticism, and notions that this is positioning in advance of google are going to be hard to shake. Read this snippet and make your own mind up:

From time to time, as new payment services arise, eBay will evaluate them to determine whether they may present trust and safety concerns and are appropriate for the marketplace. eBay will consider the following factors, among others, in making its determination:
  • Whether the payment model offers substantial financial, privacy and anti-fraud protection for buyers and sellers
  • Whether the payment model raises the potential for confusion among eBay users, or involves incentives that may present fraud concerns
  • Whether the payment model involves precious metals, or other non-cash (points, miles, minutes, coupons, discounts) as consideration
  • Whether the payment service has a substantial historical track record of providing safe and reliable financial and/or banking related services (new services without such a track record generally cannot be promoted on eBay)
  • The identity, background and other business interests of the payment service sponsor
  • The license/regulatory status of the payment provider in the countries where it provides payment services

The gold community will get a kick out that one! Also recently reported was PayPal's year summary. Payment News says:

PayPal's parent eBay announced third quarter financial results this afternoon. The following highlights regarding PayPal's third quarter financial performance were included:
  • Payments net revenues grew to $247.1 million, an increase of 44 percent year over the same quarter last year and up 1.3 percent vs. the prior quarter.
  • PayPal's user accounts grew to 86.6 million accounts, up 53 percent year over year and up 9.8 percent vs. the prior quarter. Active accounts grew to 24.5 million, up 41 percent year over year and 7 percent vs. the prior quarter.
  • Total gross payment volume handled by PayPal grew to $6.7 billion, up 44 percent year over year and 3 percent vs. the prior quarter. Total number of payments grew to 117.4 million, up 41 percent year over year and 4 percent vs. the prior quarter. 69 percent of PayPal's payment volume was eBay-related.
  • PayPal earned revenues of 3.60% on payment volume totaling $247.1 million, had expenses of 1.11% of payment volume totaling $74 million and losses of 24 basis points totaling approximately $16 million.
Posted by iang at October 20, 2005 07:50 AM | TrackBack

Hope, they won't ban Canada's Interac payment, because that's my exclusive preference on eBay. It's run by a consortium comprising all Canadian banks and some major Credit Unions, and allows fund transfers with knowing only the email address of the recipient (the security is provided by a passphrase that needs to be transfered separately trough a reasonably secure channel). An interesting low-tech model, recently adapted by @mail.ru for the payment system they launched earlier this week.

Posted by: Daniel A. Nagy at October 20, 2005 06:23 AM

Creating a micropayments system that has enough features to challenge paypal is one thing and getting the number of countries on board is yet another. Paypal accepts payments from more than 50 countries (remember the US only represents a fraction of all the money in the world). Even with its market cap, google stands to spend a lot of money on such a system long before it will ever turn a profit. Then again, all paypal has to do is lower its already low transaction rates to make it nearly impossible for google to compete pound for pound yet still turn a profit. As big as google is you can't be masters of every domain. It should stick with what it is good at rather than throw good money after very risky ventures such as taking on the already crowded micropayments marketplace.

Posted by: Bruce Bahlmann at November 2, 2005 12:57 PM
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