e-Payment

Hong Kong

One challenge e-Commerce retailers face is providing payment mechanisms that consumers perceive as sufficiently secure and convenient to induce them to complete commercial transactions online. For e-Commerce to grow beyond a small niche market, ordinary consumers will have to be persuaded to accept some form of digital payment mechanism as being as reliable and convenient to use as cash is today.

Unless the merchant is working on a strict cash basis (which is difficult on the web) or using some other method of offline payment, taking money isn't easy and requires different processes of interaction with banks or other financial institutions. Presently, credit card payments, electronic money, electronic checks, and smart cards are the most common methods of e-Commerce payments.

According to Internet specialist Jupiter Communications, credit cards remain as the preferred method of payment for online purchases. Credit card transactions between the merchant web site and the consumer are encrypted using a technology called SSL, or secure sockets layer. One shortcoming of SSL is it cannot confirm for the merchant that the person with the credit number is actually the real cardholder. Similarly, there's no way for a customer to know if the merchant web site is really authorized to accept credit cards or if it's just a fake site designed to collect numbers.

To solve that problem, MasterCard and Visa are heavily promoting a jointly developed technology called secure electronic transaction (SET). SET provides authentication by giving each customer and merchant a digital certificate. SET encodes the credit card numbers so only the consumer and financial institution have access to them. Cardholders, merchants, and the financial institutions each retain SET certificates that identify them and the public keys associated with their digital identities. At the time of the purchase, each party's SET-compliant software validates both merchant and cardholder before any information is exchanged. The validation takes place by checking the digital certificates that were issued by an authorized third party. In the case of Hong Kong, the third party is Hong Kong Post ("Digital Hong Kong," n.d.).

The Hong Kong Monetary Authority, under the Banking Ordinance, regulates the issuance of multi-purpose stored value cards. Banks licensed in Hong Kong have the authority to issue these cards, although other types of businesses may apply to the Department of Trade and Commerce for a license to issue multi-purpose stored value cards. The Banking Ordinance also applies to companies that make arrangements with third parties to issue multi-purpose stored value cards. In addition, smart cards with digital authentication capabilities are regulated under the Import and Export (Strategic Commodities) Regulations. SMEs who intend to offer such cards as part of an electronic payment scheme should obtain specific advice on compliance with these laws (Tam, n.d.).