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Analysis of Electronic Payment Systems for Network Gaming

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Analysis of Electronic Payment Systems for Network Gaming Thesis written at Sulake Corporation in Helsinki Author: Toni Saikkonen Supervisor: Prof. Heikki H mm inen – PowerPoint PPT presentation

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Title: Analysis of Electronic Payment Systems for Network Gaming


1
Analysis of Electronic Payment Systems for
Network Gaming
  • Thesis written at Sulake Corporation in Helsinki
  • Author Toni Saikkonen
  • Supervisor Prof. Heikki Hämmäinen
  • Instructors FM Hanna Rajatora, BBA Marko Orenius
  • Presented 18.10.2005 at TKK

2
Agenda
  • Background, Research Problem and Methods
  • History of Electronic Payments and Payment
    Cultures
  • Electronic Payment Architectures and Roles in
    Payment Business
  • A Framework for Evaluating Payment Systems
  • Conclusions, Results and Future Considerations
  • Questions

3
Background, Research Problem and Methods
4
Background
  • Electronic payment systems are required to make
    the digital content business profitable for
    content providers.
  • A single transaction is usually no more than 10
    Euros. These small value transactions are
    commonly referred to as micro payments (under
    10EUR).
  • This is a problematic aspect because the share
    from actual payment that goes to parties other
    than the digital content provider itself can be
    enormous.
  • That is why these digital content providers are
    constantly seeking cost-effective solutions for
    timely and low-risk processing of high-volume,
    time-sensitive transactions.

5
Research Problem
  • The market potential of highly profitable network
    games with thousands of simultaneous users is
    tremendous provided the total costs of electronic
    transactions can be lowered.
  • The research problem investigated here revolves
    around an analysis of different electronic
    payment methods used in network gaming to better
    understand the cost structures, pricing
    principles, buying behaviors and their
    inter-relation to the relevant cultural context.
  • It is intended that this analysis will provide a
    good ground theory and strategic framework for
    improving payment systems in network gaming.

6
Research Methods
  • This study is conducted primarily through
    analyzing an existing business case, namely, the
    Habbo Hotel -network game.
  • The game is analyzed first by comparing some
    Habbo Hotels in a country specific context and
    then introducing a new payment system for a
    specific country.
  • Materials for the case study are collected from
    expert interviews and actual statistics available
    which contain information about payment culture,
    payment architectures, cost structures, pricing
    models, legal issues and other restrictions.
  • Applied background theory is collected from
    literature, newspapers, Internet and other
    available sources.

7
History of Electronic Payments and Payment
Cultures
8
Brief History of Electronic Payments
  • The shift from physical to virtual payments has
    brought enormous benefits to consumers and
    merchants.
  • This has placed extra pressure on payment service
    providers, including banks, card companies, and
    mobile operators, to provide robust security and
    interoperability.
  • During the last 30 years electronic payment
    systems have evolved in many directions.
  • The resulting variety and complexity of the
    systems has turned out to be one of the obstacles
    for broad acceptance of electronic payment.
  • Solely for the Internet, more than 100 payment
    methods are available, some of which are still
    being used commercially.
  • The advent of mobile payments has added another
    layer of complexity through the use of
    constrained devices with different capabilities
    and network limitations.
  • History shows how problematic the concept of high
    volume electronic micro payments can be.

9
Payment Cultures
  • Countries can be divided to giro countries,
    cheque countries and cash countries.
  • The use of the different instruments varies
    substantially from country to country.
  • The overall preferred payment instrument of
    choice, mainly for international purchases, is
    the credit card.
  • Credit transfers (giro), payment cards and
    cheques are the most important payment
    instruments for retail payments in the EU.
  • Direct debit contracts are very popular in many
    countries when buying continuous services
    (subcribtion based).
  • In 10 years, Payment Cards has gone from being
    one of the least used to being the most widely
    used form of payment. (substitute to cash for
    lower value everyday payments.)
  • When examining the possibilities for Internet
    payments, we have to deal with a large number of
    different approaches in each country and between
    the countries.

10
Payment Cultures - Examples
  • Cashless transactions
  • Debit Card vs. Other Cards
  • Prepay vs. Postpay in mobile payments

11
Electronic Payment Architectures and Roles in
Payment Business
12
Roles in Payment Business
  • Different Roles can be identified
  • Consumer
  • Content or Service Provider
  • Merchant
  • Payment System provider
  • Acquirer
  • Issuer
  • Infrastructure Provider
  • Support / Service Provider
  • These 8 most common roles identify how the system
    works and how money amongst value network parties
    is divided

13
Electronic Payment Architectures
  • Telecom Payments (SMS/IVR)
  • SMS Transaction cost micro level 50-75, macro
    level 30-50
  • IVR Transaction cost 25-50
  • Tight to usage volumes and price point (fixed and
    variable part)
  • Credit Card Online Payments
  • Transaction costs tight to to usage volumes
    (fixed and variable part)
  • Typical online payment transaction cost 0,50EUR
    3-5 of purchase amount
  • one-time micro payments problematic
  • Stored Value Online Payments
  • transaction cost (typic. 5- 30) based on
    providers transaction costs sources
    infrastructure, billing, marketing, maintenance,
    development and other external transaction costs.

14
Case Study Habbo Hotel A Framework for
Evaluating Payment Systems
15
Case Study - Habbo Hotel
  • Habbo Hotel, a virtual multi user online
    community and game, is the main product of Sulake
    Corporation in 16 countries
  • The basic business model is to selling virtual
    goods (furniture, pets etc.) to users.
  • Customers can use various payment methods (SMS,
    IVR, Credit card etc.) to buy Habbo Credits (the
    currency of the Habbo Hotel).
  • Habbo Credits are sold in bundles to lower
    transactions costs per Habbo Credit.
  • GOAL A Framework for Evaluating Payment Systems
    and Finding Optimal Payment Systems for Habbo
    Hotels

16
Payment System Evaluation Framework
  • Payment System Evaluation Framework can be used
    to
  • Identify weaknesses of current payment systems
    per method and per system.
  • Tool to support strategy/priority making per
    system and with within all systems
  • Measure effect of changes in payment methods and
    systems
  • Finding optimal payment system for every Habbo
    Hotel
  • Input values for a single payment method
    evaluation (criteria)
  • Target group coverage percentage
  • Revenue share percentage
  • Response time value
  • Usability value
  • Uniqueness percentage
  • Risk percentage
  • Output values for a single payment method
    evaluation
  • Primary Usage Likelihood Percentage
  • Method Viability Score

17
Payment System Evaluation Framework (2)
  • Primary Usage Likelihood Percentage for a
    payment SYSTEM tells how many methods a single
    user on average can and will use from available
    methods.
  • Method Viability Score for payment SYSTEM tells
    how good the whole system is for generating
    profit to a company.
  • In order to support multiple user buying
    behaviors we need micro and macro level payment
    methods in both online and offline environment.
    This is why SYSTEMs Usage Likelihood can and
    should be over 100
  • To have this mix of methods we need for example
  • Micro level telecom payments (micro below
    10/5)
  • This type of payment methods generates usage
    VOLUME
  • Macro level online payments (macro above 10)
  • This type of payment methods generate good PROFIT
  • Micro/Macro level offline payments
  • This type of payment methods have access to users
    pocket money e.g. Cash

18
Payment System Evaluation Framework - Example
SYSTEM Target group Coverage Profit Share Realtime Usability Primary Usage likelyhood Unique method Profit after Risk issues SYSTEM Viability Score
A1 sms 70 45 80 90 60 100 95 0,25
A2 ivr 50 70 75 70 36 100 95 0,24
A3 cc 25 95 75 70 18 100 95 0,16
B1 ebank 40 80 80 80 32 100 99 0,25
B2 moneyorder 75 100 0 10 4 100 99 0,04
B3 prepaidcard 80 70 5 80 34 100 99 0,24
System A 126 74
System B 58 44
A B 184 119
  • Comparison table of systems A, B and AB that
    contains methods (A1,A2,A3,B1,B2 and B3)
  • Example output values of systems A, B and AB in
    XY-chart

19
Conclusions, Results and Future Considerations
20
Conclusions and Results
  • Internet purchase behavior is a mix of existing
    purchase behavior, set by surrounding culture,
    and a more global Internet purchase behavior,
    established by other cultures.
  • The roles in different payment method
    architectures are fairly similar throughout the
    global scale and are currently quite stabile in
    nature.
  • It is hard to find alternative architectures or
    bypass roles to have easy cost savings on
    transaction costs.
  • In Network gaming, users normally do not want to
    be tied to one game for a long period of time
    which is why a transaction based model functions
    best here. Subscription only to support business.
  • When there are several competing methods for
    buying single product or service over the
    internet, the purchase is made based on methods
    availability to user, usability and response
    time.

21
Conclusions and Results (2)
  • The payment system evaluation framework may be
    used for planning and evaluating payment systems
    for transaction based online gaming and other
    similar services. The framework illustrates how
    viable the system is not only from a users point
    of view but also from a merchants point of view.
  • The near future of electronic payment for network
    gaming systems will still be divided to
    subscription based and transaction based models
    in both micro and macro level. These models are
    more frequently being divided into 3 categories
    Telecom payments, online payments and offline
    payments, where Offline methods are much more
    used than they currently are.
  • To define the future trend for payment systems in
    network gaming and similar services, one may see
    that having different viable options for payments
    to cover the real target groups needs is a key
    future success factor.

22
Further Studies
  • The primary subject for future study in this area
    is to find a model illustrating how the impact of
    pricing affects a payment systems ability to
    generate revenue.
  • It would also be useful to study more deeply how
    the subscription based model differs from the
    transaction based model, advantages and
    disadvantages of both methods, where they work
    better and possible options to combine them
    successfully.
  • Finally, analyzing and uncovering how limiting
    telecommunication billing for this target group
    effects to actual revenue holds intriguing
    potential.

23
Thank You!
  • Toni Saikkonen toni.saikkonen_at_hut.fi
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