Chapter 11 Homework

1.) Write a report of about 300 words in which you advise Bonnie on using a payment processing service such as PayPal.  Identify at least three reasons that Bonnie should use such a service and at least three reasons why she should not.

Upon review of the proposal, I've found several excellent opportunities, as well as a few potential challenges, in using an electronic payment system.  Using electronic payment will allow you to process payments much more quickly and easily than conventional methods.  This will reduce the delay between order and receipt of funds and simplify the job of your Accounts Payable department, reducing your overhead.  Electronic payments are also cheaper per transaction than traditional methods, saving you additional money.  This in turn will increase your profitability, allowing you to offer lower prices to your customers, making your products more attractive.  Because PayPal operates over the internet, you will not have to invest in additional equipment or software in order to use this service, making it a very cost-effective option. 

However, there are some potential disadvantages to using an electronic payment system.  The relative anonymity of electronic cash means that each transaction will provide your company with less information about your customers' spending habits; your company will need to adjust its marketing and surveying efforts to compensate for this.  There is also the potential for anonymous buyers to engage in activities like money laundering through your store.  While you technically would not be doing anything illegal by accepting their money, for ethical reasons you would need to keep a close eye out for potentially suspicious transactions, especially over time.  Finally, there is a certain amount of cultural resistance to the use of electronic cash, particularly with American customers; some efforts should be made to advertise and emphasize the utility and convenience of electronic payment, particularly regarding small purchases.

2.) In about 200 words, outline the reasons that a consumer who owns a credit card might want to use an electronic payment system, such as PayPal, for an internet transaction.  In an additional 200 words, outline the reasons that a small merchant might want to use an electronic payment system in addition to, or instead of, accepting credit cards.

Consumers enjoy many benefits from being able to pay for purchases through an electronic payment system such as PayPal.  The transfer of funds doesn't require the delay of having to wait for the merchant to receive a check or money order through the post; their money is transferred to the merchant securely and instantaneously.  Merchants also tend to require a minimum purchase for credit card orders, in order to cover the cost of processing the transaction; but the relative cheapness of electronic payment systems allows a merchant to handle much smaller transactions, making it that much more convenient to the customer.  Electronic cash is also particularly convenient because it accommodates people who don't have credit cards, either because they don't qualify for cards due to prior debt, or because they are minors.  Electronic cash also offers much of the same anonymity that paying for items with cash does, for those who don't want to divulge too much information about their spending habits.

Merchants would also benefit from adopting an electronic payment system.  Electronic transactions are quicker and more efficient than other methods, making them less costly to conduct.  This efficiency leads to greater customer satisfaction and a lower cost of doing business, which translates into lower prices for the customer, which in turn tends to make buying from the merchant more attractive.  It requires no oversight or authorization from a third party, which also saves time.  It also doesn't require any additional expenses for hardware or software, such as a credit card reader and a dedicated phone line to transmit information, to handle the transaction -- everything works through the existing infrastructure of the Internet.  Electronic safeguards provided by the payment system also protects against double spending, or customers purchasing goods with money that has already been allocated to other transactions.