Paying for something.
It’s a transaction so common we take it entirely for granted. We routinely use cash, checks, credit cards, debit cards, pre-paid cards, wire transfers — we have many choices. And most of the time, it works — smoothly, conveniently, and transparently.
In the good ol’ days, making a payment was easy: you went to a store, handed over money, and walked away with your goods. Only two parties were in play — the consumer and the merchant. Even today, with plastic replacing paper, many payment transactions are still face-to-face. Or voice-to-voice. Or through some other medium (like mail) where something tangible (like a check) changes hands.
But as more ways of making payments — and more ways of acquiring goods and services — become available, the picture is less clear. When we as consumers make a payment online or through some automated pay-by-phone mechanism, we don’t actually know the other party to the transaction. We deal with a machine. It can be anywhere. And we assume it’s in fact the merchant. Likewise, the merchant receiving the payment doesn’t know the consumer; like the famous New Yorker cartoon drove home, “On the Internet, no one knows you’re a dog.”
Speaking of the Internet, its nature makes knowing with whom one is dealing even more difficult than conventional, face-to-face transactions, or even those that use mail. Merchants want to know their customer’s identity — or at least know that their customer’s bank will vouch for a customer’s payment. Consumers want to make online payments without exposing their personal data over what appears to be an insecure Internet.
When it is not possible to directly know the other party to a transaction, intermediaries are required. These intermediaries become trusted third parties that both consumers and merchants trust, even though they may not know each other. The most trusted intermediaries are, of course, banks because of their expertise as secure and safe institutions built up over many decades (even centuries) of service.
Banks are the oldest and most well established components
— but not the only ones — in a huge global IT and telecom payment-enabling infrastructure. Credit card processors such as Visa and MasterCard,
and funds transfers systems such as Automated Clearing House, also show up prominently.
This infrastructure exists for three reasons:
In a complex global infrastructure that has many moving parts, finding vulnerabilities is easy. And many hackers and thieves have done exactly that. Identity theft and credit card fraud are rampant. The rise of Internet phishing, fraudulent email solicitation, and pharming (the fraudster practice of a Web site masquerading as a legitimate business), has injected significant doubt at the foundation of all online transactions. Everyone — the consumer, merchant, and bank — loses.
But building bullet-proof systems is hard. And expensive: both consumers and merchants pay for peace of mind through high transaction fees that these intermediaries must, by necessity, impose. New schemes are constantly being developed to thwart miscreants without imposing undue complexity on the payment transaction.
Payment Pathways, Inc. has developed a new, breakthrough approach that solves many of the identity problems in a robust and economical way.
To learn more about our solutions, click an industry in the menu item on the left, or keep reading.