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online payment systems
``` [I've enclosed (with permission) an excerpt from the "full moon edition" of Ken Laws' online newsletter The Computists' Communique (TCC). (TCC is a commercial newsletter on the net; the full moon edition is a free sample that provides a batch of useful information and helps me remember when the moon is going to be full. The bits I've clipped out of this issue are marked with [...]'s.) The excerpt I've enclosed is about online payment systems. Though it's all good stuff, note that he doesn't present it as a comprehensive study of the field, but as part of his weekly stream of thoughts about the net and the IT industry generally. You can write Ken for more information about TCC, or to get the whole issue, at laws@ai.sri.com.]
Date: Thu 10 Aug 95 02:07:15-PDT
From: Ken Laws
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AI Vol. 5, No. 29 IS August 10, 1995 CS THE COMPUTISTS' COMMUNIQUE
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[...]
My big news this week is that I'm signing up with First Virtual and can accept MasterCard and VISA payments from anywhere in the world. Full membership and a Communique every week are can be yours without banking hassles. Write to me for details, or put me in touch with your department head or librarian.
[...]
5> Credit services:
First Virtual (FV) is a credit-based payment system.
Users register their billing information for $2 plus a phone call
(free in the US) to tap in a MasterCard or VISA number.
There's a $2 renewal fee when your card expires, but changes
of address can be handled online for free. FV knows your real
name and address, but merchants need know only your code word.
Merchants may likewise choose to use pseudonyms, and pay only $10
to sign up (plus the $2 for a FV account). When you buy, the
merchant notifies FV. FV sends you an email confirmation message
with vendor-supplied purchase description, to which you reply YES,
NO, or FRAUD. This is a shareware system, so you're allowed to
say NO -- except that anyone consistently ripping off merchants
will be warned and then booted off. Anyway, if you say YES you
are committed to the payment -- FV does not make refunds.
If you don't respond in a week, you're sent another confirmation
request; if you ignore repeated messages, your account may be
terminated. Once you confirm the purchase, FV submits a credit
charge (if your pending purchases are over $10 or have aged
up to 30 days), accepts payment from the credit company,
waits 90 days to get past your period of legally refusing
the billed credit charge, and then pays the merchant via
direct deposit. (Faster payment may be implemented for buyers
and sellers with good records.) Transactions are handled
by Electronic Data Systems (EDS), over standard bank networks.
The merchant is charged $1 for each weekly deposit, plus
2% and $.29 on each purchase, and must agree to save all
email transaction messages for three years. The minimum
transaction price is $.31 (or $.33 for First InfoHaus merchants),
but that could include multiple smaller items. Only US dollars
are currently handled, but other transactions may be possible
by the end of 1995. Send a message to
First InfoHaus at
The Kagi ("KAH-ghee") service from Kee Nethery helps shareware
authors accept payments from around the world. Kagi provides
a custom invoicing application -- 31KB (stuffed) to 60KB for Mac,
67KB-122KB for Windows -- that you ship with your software or use
in-house to print bar-coded invoices mailed or faxed to customers.
The email or printed invoices cover individual and site licenses,
and are set up for automated processing to keep overhead low.
Shareware buyers can send [lightly encrypted] MasterCard, VISA,
or American Express charges; MasterCard or Visa charges through
First Virtual; checks drawn on US banks or in US currency;
or cash in almost any currency. PGP encryption is permitted
but not required. (You can also have buyers send cash payments
directly to you, of course.) Buyers can pay more than the
requested amount if they wish, as often happens. Shareware
authors report a slight increase in sales using Kagi, with about
half the payments via credit accounts. Kagi passes along any
bank deposits it receives, less a 4.5% service charge (or 5%
for the Newton application) and pass-through deductions for
MC/VISA (2.5% plus $.47), American Express (4% plus about $.47),
or First Virtual (2% plus $.29). No charge at present for
processing cash or checks, except for currency conversion
($15/check) and any bounce charges. There's no membership fee
or minimum transaction volume. The buyer gets an email or
surface-mail acknowledgement; you get a copy (if you wish),
data entry, a detailed accounting, and transfer of any cash
that comes in each month, plus any comments from buyers.
Payments to multiple authors of a shareware package can be
automatically prorated and paid separately. Kagi can also
provide you with a stable postal address and email address
(yourname@kagi.com) -- at no charge! -- so that shareware
payments can always reach you. Kagi also fills out a 1099 form
for US authors who get $600 or more each year, so you have to
give your Social Security number. (Any taxes are your
responsibility, which is why Kagi doesn't sell and ship disks
for you. There are services that will do it all, including
uploads to popular shareware distributors, but they charge
considerably more.) Kagi can also be used for subscriptions
if you provide bar-coded invoices to the buyers; a web page
for that purpose is planned. Acknowledgment to the buyer takes
about a week, so this service isn't suitable for "unlocking"
of software -- even though "kagi" is Japanese for "key," a pun
on Kee Nethery's name. Payment to the author takes about 30 days
for cash and checks, 60 days for credit cards, and 120 days for
First Virtual. See
Each of these services is for try-before-you-buy shareware, to minimize the risk of returned merchandise or disputed charges. First Virtual calls these "information products," and has a [badly written] fineprint clause prohibiting use of your email account for any other purpose. Although FV specifically denies that it will refund confirmed transactions, it reserves the right to withhold and refund any amount that was for a non-information sale, just as for a fraudulent or illegal sale. FV does not want to be held responsible if the buyer obtains merchandise and then initiates a chargeback to recover payment, whether or not the merchandise is returned. If you're only selling bits, you're not likely to protest getting ripped off now and then -- there's no cash flow problem to keep you from generating more product. However, one of FV's info files does condone billing for consulting services or selling low-value merchandise as long as you agree to FV's payment terms. Kagi seems similarly lenient, but less explicit. Neither service requires try-before-you-buy distribution, although both strongly encourage it. (Indeed, both were founded to preserve this aspect of Internet culture.) FV comes near to being foolproof, as it accepts no risk that could be exploited by a collusion of buyers and sellers. No trust is involved, hence no need to screen merchants for trustworthiness and no inflated charges to cover losses. Kagi won't accept credit charges directly from a merchant, but could still be stuck for chargebacks to a merchant who absconds with the credit payments. That risk seems minimal, but deliberate credit card fraud is something like a $600B/year problem. Kagi may need safeguards against phony merchants submitting large or numerous charges via bogus email accounts.
Incidentally, the usual restrictions on merchant accounts do not apply to merchant agreements with FV or Kagi. Credit-card merchants cannot factor for others, set a minimum threshold for credit sales, or charge an extra fee for accepting credit (although they may give discounts for cash). I've seen no stipulation in the FV and Kagi info against accepting charges for others, steering small (or large) payments to another payment mechanism, or passing along any processing costs.
If you'd rather get a traditional merchant account, check
with Teleflora Creditline, 12233 W. Olympic Blvd., Los Angeles,
CA 90064; 800-325-4849. Teleflora has restricted its approval
of home-based and mail-order businesses other than shareware
authors and computer BBS operators. (VISA has had problems
with BBS operators other than those charging by the year.)
Another source for non-standard businesses is Tom McSherry
I've seen many offers of credit services for high-risk
businesses, in addition to those in McSherry's FAQ. One that
caught my eye was from Ted Kremer, EMS-BIG SKY, 208-342-6611,
208-342-0880 Fax;
Of course, payments don't have to involve credit. Cheque
Debit Payment System will transfer money directly from one US
or Canadian checking account to another for as little as $.20
per check or $.15 per 1-800 phone transaction, for amounts
up to $2,500. Jan Teteris, Corporat Computer Distributor
[...]
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Publisher/Editor: Dr. Kenneth I. Laws, 4064 Sutherland Drive, Palo Alto, CA 94303, USA. Phone: (415) 493-7390. Internet: laws@ai.sri.com (courtesy of SRI International). Copyright (C) 1995 by Kenneth I. Laws. Computists' Communique is a service to members of Computists International. Members may make copies for backup, direct mentoring, or recruiting, and may extract occasional articles if attribution is given.
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