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Understanding m-commerce payment systems through the analytic hierarchy process Yuntsai Chou*, Chiwei Lee, Jianru Chung. AHP Case Study 4. Money is always a tempting subject; however, few works are done to address the payment issue over online commerce.

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Understanding m-commerce payment systems through the analytic hierarchy process

Yuntsai Chou*, Chiwei Lee, Jianru Chung

AHP Case Study 4


Money is always a tempting subject; however, few works are done to address the payment issue over online commerce.

This paper analyzes currently available e-payment systems and finds the stored-value card to be the best overall payment scheme for online commerce.


The paper employs the analytic hierarchy process (AHP) to evaluate the performance of four e-payment systems:

    • The credit card
    • The stored-value card
    • The smart card
    • The telecommunication bill.
  • The results show that the stored-value card has the highest performance among the four options considered.

Our findings also suggest that a payment alternative, such as the credit card, can be flawed technologically but can still become the de facto e-payment scheme due to the advantage of an established customer base.

This leads us to suggest that multiple usages be added to e-payment systems with higher economic/social merits so that they can gain a critical customer base.

Users will benefit as technologically more capable e-payments are widely adopted for online commerce.



Payment systems

Evaluation criteria

The analytic hierarchy process


Prospects for m-payment: conclusion


Electronic cash (or digital cash) was invented early on in the development of e-commerce.

However, the reality of e-cash business has proved less than exciting.

Within the first few years, the issuers of e-cash went bankrupt (DigiCash), dropped the product (CyberCash), or moved into another business (First Virtual).


Observing the failure of the above e-cash mechanisms and the extensive adoption of the credit card on the Internet (95% of online payments are made by credit cards in the US; Singh, 1999, p. 762), we probe the question of what payment schemes are adequate for the e-business environment.

We hypothesize that, in addition to technological considerations, economic and social factors play an important role in the popularity of online payments.


This paper begins by describing four e-payment systems and defining the technological, economic, and social factors that characterize these systems.

It then delineates the presumptions and procedures to conduct the analytic hierarchy process (AHP).

To test our hypothesis, AHP is used to obtain the relative weights among the subfactors and the total values of each payment system based on these weights.


An ordinal ranking based on the total value gained by each payment scheme determines their relative performance.

Based on our analysis of the results, we suggest policy alternatives.

payment systems

This paper focuses on e-payment schemes that are either currently available or have been previously put into practice for a period of time:

    • The credit card
    • The stored-value card
    • The smart card
  • The telecommunication bill is a promising method for m-commerce payment because of the surge in mobile subscription rates across countries and the installation of intelligence systems in telecommunication networks
Payment Systems
payment systems1

The credit card

    • It is the most popular payment method for online shopping today, despite its vulnerability to security breaches when used online (Turban et al., 2000, p. 277).
    • The secure sockets layer (SSL) protocol was invented in 1994 to deter false uses.
    • It is a postpaid method.
Payment systems
payment systems2

The stored-value card

    • It is often viewed as a prepaid method.
    • When it is used in online commerce, customers must key-in certain identification numbers.
    • The amount of the product or service is then deducted by the card reader and the reader rewrites information back to the card.
    • Many stores desiring micropayment mechanisms adopt the stored-value card payment system.
    • The stored-value card can be either anonymous or identifiable. Anonymous cards have the advantage to be
    • transferred from one person to another, whereas identifiable cards are nontransferable (Greenstein and Feinman, 2000, p. 305–306).
Payment systems
payment systems3

The smart card

    • It is the real-time payment method and is the only payment scheme capable of converting stored value back to real currency.
    • With its superior encryption technology, the smart card is less vulnerable to security breaches than the credit card.
    • Another merit of the smart card lies in its capabilities to include peer-to-peer payment.
Payment systems
payment systems4

The telecommunication bill

    • The system can be thought of as a charge card for which all balances must be paid at the end of every billing cycle.
    • In this sense, it is a postpaid payment method.
    • This system is unable to make peer-to peer payments.
    • In countries where telecommunications services are popular, telecommunication bills can easily substitute for other payment systems for two reasons.
    • Telecommunication service providers possess the sole access to the online shopping activities of their customers.
    • The telecommunication billing system is able to handle micropayment, as evidenced by its over 99% billing accuracy and reliability (Standage, 2001, p. 10).
Payment systems
evaluation criteria

Most discussions about e-payment emphasize only technological advancement.

However, we suggest that economic and social factors are also critical to people’s decisions regarding the use of e-payment schemes.

Therefore, the paper propose that three major factors affect the performance of e-payment systems: technological, economic, and social factors.

We break each of these categories into subfactors that are most instructive and mutually exclusive, leading to a total of 13 subfactorsthat influence the performance of a payment system.

Evaluation criteria
evaluation criteria1

1. Technological factors

    • 1.1. Security
      • Because e-commerce is operated on an open network, encryption technologies must be developed to deter hacker attacks. In particular, security failures reduce people’s trust in electronic payment systems and hinder the emergence of these systems.
    • 1.2. Reliability
      • The e-payments must be available online 24h a day. That is, the operation system of e-payment should not present failures at anytime (Neuman and Medvinsky, 1995, p.2).
Evaluation criteria
evaluation criteria2

1.3. Nonrepudiation

    • Acknowledging payment and producing receipts are the basic properties required for any payment system. Such proof of payment can deter the alteration or destruction of transaction information during transmission (Neuman and Medvinsky, 1995, p. 2).
  • 1.4. Latency (clearing time and frequency)
    • Even during peak load periods, payments should be transmitted at a steady pace. Customers and merchants should be able to use the e-payment mechanisms without noticeable delays in authorization and clearing (Schmidt and Muller, 1997, p. 4).
Evaluation criteria
evaluation criteria3

1.5. Transaction completeness

    • Payments must be completed; otherwise, transaction inconsistencies will result. A simultaneous and instant clearing and settlement instrument should be installed in e-payment systems to avoid transaction incompleteness.
Evaluation criteria
evaluation criteria4

2. Economic factors

    • 2.1. Costs
      • There are two kinds of costs in adopting e-payment systems: fixed and transaction costs.
        • Fixed costs refer to those of installing payment equipment such as card readers and payment software.
        • Transaction costs are those incurred by merchants and customers every time they undertake a business exchange. As many online transactions involve micropayment, low fixed and transaction costs are essential to the popularity of e-payment systems.
Evaluation criteria
evaluation criteria5

2.2. Monetary convertibility

    • Provided an e-payment system allows the (monetary) value in a digital format to be converted back to real currencies, the utility of the system increases for end-users, and it is more easily accepted (Schmidt and Muller, 1997, p. 4).
  • 2.3. Customer base
    • It is by and large determines the performance of e-payment schemes. For a payment system that represents a certain network, its adoption depends on the number of customers and merchants using it. This is the so-called positive network effect (network externality) (Katz and Shapiro, 1994, p. 94).
Evaluation criteria
evaluation criteria6

2.4. Peer-to-peer payment

    • It is desirable to have an e-payment scheme that enables peer-to-peer compensation when customer-to-customer (C2C) business reaches its potential over e-commerce.
Evaluation criteria
evaluation criteria7

3. Social factors

    • 3.1. Anonymity
      • Although the ability to make untraceable transactions raises concerns in regard to tax evasion, money laundering, and other criminal uses, transactional anonymity is a basic right of consumers.
    • 3.2. Privacy
      • In addition to a user’s identity, her spending patterns and income sources should not be revealed to other parties without his/her permission.
Evaluation criteria
evaluation criteria8

3.3. Convenience

    • Convenience refers to the ease with which users can spend, store, and transport a currency value via the payment system. The ability to operate e-payment systems on different platforms and network infrastructures (i.e., telephone, modem, or Internet connection) makes online transactions quicker and easier for users (Neuman and Medvinsky, 1995, p. 2).
  • 3.4. Merchant acceptance
    • Similar to the concept of convenience, acceptance refers to the number and type of locations where an epayment system is in use. As use of the payment scheme becomes more widespread, network effects increase the utility of the scheme for users (Neuman and Medvinsky, 1995, p. 2).
Evaluation criteria
the analytic hierarchy process

First, we construct the hierarchical structure by which the causalities between the factors, subfactors, and alternatives are established.

Second, we calculate the priority weights among the factors through the pairwise comparison matrix.

Third, we calculate the total value for each payment alternative based on the priority weights multiplying the data from the expert poll.

The analytic hierarchy process

Table 1 lists the priority weights among the factors/subfactors and their ranking


1. Dominance of the technological factor

    • The results in Table 1 corroborate that technological factors more forcefully determine the performance of epayment systems than economic or social factors.
  • 2. The stored-value card as the best choice
    • Table 2 shows that the stored-value card is a superior e-payment instrument, and the telecommunication bill is the least desirable vehicle.

3. Network effects

    • Treating network effects as an exogenous factor, we subtract the points associated with the customer base from the total scores. The bottom row in Table 2 shows that the ranking of the four payment systems alters on removing the score associated with the customer base. The stored-value card still occupies the Number 1 spot, and the telecommunication bill the last one. However, the smart card replaces of the credit card to take second place. The result demonstrates that for equal customer sizes the smart card outperforms the credit card.
prospects for m payment conclusion

In this paper, we propose that the success of an e-payment system depends on technological, economic, and social factors.

First of all, our study corroborates that technological factors dominate over economic and social considerations in experts’ adoption of e-payment systems.

Secondly, among the economic and social subfactors, the customer base by and large determines the comparative advantages of e-payment systems.

Prospects for m-payment: conclusion
prospects for m payment conclusion1

Finally, the stored-value card is found to be the superior payment choice among the four systems because it has the best technological and social performances.

In addition, the smart card could be a likely choice providing that its customer base can be formed.

Prospects for m-payment: conclusion