An escrow service receives money from the customer. It then authorizes the merchant to ship the order. The money is released to the merchant once the customer had indicated that he has received and is satisfied with the order. Examples of escrow services include escrow.com [14] and escrow.ca. The problem with escrow is that there is a substantial time lag before the merchant receives the money. Moreover, there is substantial work involved in setting up an escrow transaction. Moreover, the buyer himself must become a member and this may put prospective buyers off because of the extra time and hassle involved. In my experience, around one third of escrow transactions are abandoned by the buyer. However, there is no possibility of the merchant being defrauded by credit card fraud as escrow assumes full responsibility for the transaction. Escrow services are especially useful where large transactions are involved. The escrow charge of around 4% of the value of the transaction is quite reasonable. .
PayPal [29] has truly revolutionized e-commerce, particularly for the small merchant. For the first time, there is a means for private individuals to accept credit card payments with ease. It is now an attractive proposition for small merchants in Hong Kong especially since it allows withdrawal of money to a Hong Kong bank account, whereas up until last year, this was only available to residents of the U.S. and Canada . PayPal is now the major means of payment for online auctions and eBay [11] had now taken over PayPal. However, like escrow services, the buyer must sign up for PayPal before being allowed to pay, and likewise, this may put prospective buyers off.
A payment gateway allows the customer to make a purchase by credit card and have it processed in real-time. The payment gateway sends a request for authorization directly to the computers of the credit card holder's bank. On authorization, the funds are captured. After a holding period of around 4 weeks, the funds are disbursed to the merchant. This leads to substantial savings in time for the merchant in that he need not seek authorization by phone from his bank. To date, no locally based payment gateway is available to merchants based in Hong Kong . Payment gateways are usually based in the U.S. or Europe and are available for merchants based in their respective countries only. Although this can be got round by opening a “Shell” company in the U.S. , this process is tedious and expensive. As from last year, several payment gateways have begun to take in customers based in Hong Kong at a reasonable cost. These include 2checkout.com [41] and Worldpay [37]. Some like 2checkout.com will take in new merchants without doing a background check but whereas others like Worldpay would require a company registration certificate and also a thorough background check. The quality of the service provided varies enormously, particularly in the case of fraud screening.
(4). The issue of credit card fraud
Credit card fraud is one of the most destabilizing factors in e-commerce. The banks and credit card companies regard e-commerce as a high-risk activity, and thus the merchant is liable for all the loss sustained through credit card fraud. To add insult to injury, the merchant also has to pay a charge-back fee of around US$20-30 for every fraudulent transaction as a reimbursement to the banks for the time spent in investigation. Typically, the buyer makes a purchase with a credit card issued by a bank in a particular country and asks the goods to be sent to another person in another country. There are also other means of checking the validity of the purchase e.g. by verifying that the invoice address given is correct and also that the customer has entered the correct 3 or 4 letter security code.
4.1.5. TURNKEY Approach
Setting up a web site and integrating it with a carting system and a payment gateway could be a very daunting and complicated task for the uninitiated. For this reason, a number of TURNKEY approaches are on the market offering a combination of the above elements in a single package. The most common combination is to offer web hosting with a shop-front/shopping cart system offered by hypermart.net and retineada.com. Another combination involves combining a shopping cart with the payment gateway such as 2checkout.com. Packages are becoming available whereby web hosting, shop-front, and payment gateway is combined into one package. A good example of this is the ‘click and build' [4] system offered by Worldpay [37].