Customers deposit cash with X.Com or provide their credit card number, and the payment is then sent to the payee by cheque or deposited in their bank account. To receive the payment, the payee also has to be registered with PayPal. It hopes its profits will come from customers who leave money in their PayPal accounts in-between transactions. Although such payment systems currently only make up a small fraction of online payments, their popularity is growing. There are very few similar systems in place in Europe, though this is likely to change as the market potential becomes apparent.
Payment systems have clear attractions for consumers making purchases over the Internet.
Payment systems pose a threat to credit card use online and therefore have the potential to reduce the transaction fees received by banks. As a consequence, the challenge for banks is to establish partnerships with such players. This is already happening. Little is needed in terms of investment, according to Kasica, because the technology already exists and is easy to install. However, the profits from this area are likely for the foreseeable future to be small, because customers are unwilling to pay large transaction fees or to leave large amounts of money in their electronic accounts.