Marrying Payment Systems to the Web
- By Heather Harreld
- Jul 31, 1999
Electronic commerce has been hailed as a boon for the public sector in part because it enables state and local governments to replace traditional fee and fine collection systems with less costly collection systems using the Internet.
Although attention has been focused on the security issues involved in doing business with the government over the World Wide Web, state and local jurisdictions also must deal with policy and technology considerations to construct a clear path for moving funds from an e-commerce Web page to government coffers.
The most commonly used method for accepting payments from citizens over the Internet is by credit card. But credit card companies treat state and local governments as merchants. As merchants, they are charged a fee-usually 2 percent to 3 percent of the value of each Internet transaction.
Kara LaPierre, director of operations for the National Electronic Commerce Coordinating Council, noted that the fees associated with credit cards are the biggest barrier to accepting online payments. "Most transactions in electronic government...that are important require a payment mechanism," LaPierre said. "For transactions that require payment, somebody needs to pay some sort of fee. The issue of fee payment has to be resolved to enable an electronic payment transaction of any dollar size."
The resolution of the fee issue is being debated by many governments as they grapple with e-commerce initiatives, she said. Some are eating the costs by tapping into interest earned by other accounts, while others are using a third-party service provider that incorporates proc-essing fees into charges to the government.
Many governments find that state laws ban them from charging citizens more than the exact amount they owe the government. Some governments are recovering the credit card fees by charging a "convenience fee" to citizens who pay via the Internet.
However, this method also can cause consternation, LaPierre said. "You shouldn't have to pay extra," she said. "If we're accepting a check from you, and we're paying the processing fees...why wouldn't we pay those [fees that accumulate] for the credit card? If you're thinking about a personal income tax payment of a thousand dollars, all of a sudden a 2 percent fee is a substantial amount."
The Clark County Solution
Clark County, Nev., the home of Las Vegas, is one of the first county governments to launch an e-commerce application. County officials were finishing plans this summer to launch an application that would enable citizens to purchase marriage certificates online using credit cards.
To process payments from online purchasers, the county has created a partnership between the three entities most commonly cited as being crucial for successful e-commerce applications: a bank, an authorization entity and a credit card company.
Clark County is using CyberCash Inc. as the intermediary between the county's bank-Bank of America-and the credit card companies, said Gary Dalcher, the county's application supervisor. The county treasurer's office is absorbing the credit card fees for now, but if the ordering volume becomes heavy, the cost will be passed on to consumers, Dalcher said.
To use the marriage certificate application, the user submits credit card information to a secure server, which encrypts the information and beams it to CyberCash's application programming interface, which verifies that the user's account is valid.
Then CyberCash passes the charges to Visa or MasterCard, and the user's account is charged. The credit card companies pay Bank of America, which uses established mechanisms to route the money into the state's coffers.
But while the bank, the authorization entity and the credit card company work out how the money will be moved around, government agencies still have to build systems to meet the demands of e-commerce payments.
The government entity has to create a Web interface to accept credit card information from consumers and link this interface to databases containing information about the transaction. For example, a parking ticket e-commerce application should tie into the police department's ticket records.
In Clark County, officials had to devise a system to store transaction data, including credit card information, in case a user challenges the transaction after the charges appear on his credit card statement. The county encrypts and stores a user's name and credit card number (minus the last four digits) in a database. The last four digits are removed to prevent potential hackers from using citizens' credit card numbers, Dalcher said.
In addition to setting up a back-end system to store data regarding e-commerce transactions, some governments may be required by law to ensure that consumers attempting to purchase goods or pay fees online do not have any delinquent debt to government, child support payments or student loans from state universities, said Jerry Johnson, a senior policy analyst with the Texas Department of Information Resources.
ATM Cards to the Rescue?
While e-commerce initiatives usually rely on the use of credit cards, several alternative electronic payment methods soon will be tested. The National Automated Clearing House Association (www.nacha.org) is recruiting state and local governments to participate in two pilots to test online payment mechanisms, said David Merritt, director of financial services at the Digital Signature Trust Co. and a steering committee member of NACHA's Internet Council.
First, the association plans to test the use of automated teller machine cards to enable Internet users to pay for online purchases. ATM transaction costs are flat fees that are much lower than the percentage fees associated with credit cards, Merritt said.
NACHA also is finishing plans for a "credit push" pilot, Merritt said. In this method, the buyer obtains account information from the merchant's-or agency's-Web site. The buyer then instructs his bank to send money to the merchant. The bank then would issue a confirmation to the government agency that the money will be transferred.
"It's kind of like being able to get the equivalent to a check online," Merritt said.
- Heather Harreld is a free-lance writer based in Cary, N.C.
ATM Machine Goes Home
While several pilot programs will explore alternative online payment technologies for state and local officials, even newer technology may put card readers in citizens' homes.
In June, Seattle-based UTM Systems Corp. announced a device that can be inserted into the floppy drive of any Internet-connected computer. It would enable the user to swipe his credit card or ATM card through it. The device, called a UTM Machine, interfaces directly with banks via the ATM network, quickly verifies the user's information and enables the payment transaction, effectively taking governments out of the online payment processing business.