Financial Transaction Processing

from Internet Business

Diverse needs for Internet-based financial transaction processing are already evident. These range from the ability to pay to view/read Web pages at cents per page, through use of the Net for Retailing of Goods and Services, and on to electronic dealings with financial institutions. A range of services are being developed or proposed to meet the various levels of need for confidentiality, confirmation and risk management in dealings between purchasers, vendors and financial service providers.

The great opportunity offered by the Net is to decompose the implicit contractual arrangements, which have conventionally been established by joint physical presence at point of sale, into a network of relationships based on established confidence which can underpin spontaneous transactions between otherwise unconnected parties.
The accompanying illustration, by way of example, represents an idealised flow of information, money and goods to underpin the purchase of those goods as a result of promotional information found on the Web.

In this illustration, the purchaser will already have established a relationship of trust with her banker which will allow her banker to validate the delivery address and a confirming pin number[1] while not being concerned with details of the transaction beyond the price and the vendor's banking arrangements which would be automatically supplied from the order form. The electronic messaging needed to underpin this whole model can be fully automated[2] and encrypted so that each party only 'sees' the details which they need to carry out their part.

The much smaller and more frequent transactions to pay to view/read Web pages will need a simpler, more immediate mechanism such as the concept of 'digital cash' where a banker issues the user with an encrypted token which is transmitted, debited and returned with its value adjusted each time a new page is retrieved. To provide confidence in such a system, the tokens may need to be held by recognised service providers rather than the users themselves.

At the other end of the scale, commercial transactions from bill paying to trading on speculative markets will require the user to have established accounts with relevant institutions and to have a means for certifying transactions. The Internet is already seeing the establishment of entirely net-based financial institutions alongside the increasing Net presence of established financial institutions rushing to provide analogues of their traditional products. The rise of entirely Net-based financial institutions is expected to provide a significant challenge to government regulation of financial markets.

The primary cost of becoming a provider of Financial Transaction Processing services is the cost of establishing the credibility needed to compete with established financial institutions. The operational costs are not significantly different from those of any other Host Service The credibility cost is likely to be much lower for those offering novel financial mechanisms which meet the specific needs of Net-based transactions than for those offering direct analogues of traditional mechanisms.

[1] or equivalent mechanism

[2] other than the purchaser's certification of the order form and delivery confirmation