INTRODUCTION The commercialisation of the Internet and the subsequent evolution of electronic commerce

INTRODUCTION The commercialisation of the Internet and the subsequent evolution of electronic commerce have resulted in a dynamic business environment where transactions are able to take place without face- to-face interaction. As the popularity of electronic commerce continues to increase, numerous payment systems have been created, attempting to make the process of exchanging money over the Internet easier for consumers. Electronic payment systems (EPS) can be defined here as any payment system that facilitates secure electronic commerce transactions between organisations or individuals. These include systems such as electronic cash, electronic cheques, smart cards and micropayment solutions such as PayPal. EPS provide users with an array of functionalities including person-to-person (P2P) payments and electronic bill presentment and payment (EBPP). These new EPS are also able to facilitate financial transactions over the Internet which are significantly more efficient, faster and less Copyright 2007, Australian Computer Society Inc. General permission to republish, but not for profit, all or part of this material is granted, provided that the JRPIT copyright notice is given and that reference is made to the publication, to its date of issue, and to the fact that reprinting privileges were granted by permission of the Australian Computer Society Inc. Manuscript received: 10 January 2007 Communicating Editor: Joan Cooper Journal of Research and Practice in Information Technology, Vol. 39, No. 4. November 2007 231

Exploring the Reasons for a Failure of Electronic Payment Systems expensive than using credit cards (Abrazhevich, 2001). Yu et al (2002) argues that EPS which help avoid the use of credit cards are important to the development of electronic commerce. A significant number of EPS have failed within a relatively short period of time. These include companies such as Beenz. CyberCash, Cybercent. Digicash, Charge. First Virtual Flooz and Micromint (Hurwicz, 2001: Kniberg, 2002). In fact, the use of credit cards still remains the most widely used payment method for electronic commerce transactions despite the criticism from the literature for its lack of efficiency and security as well as high transaction fees (Simpson 2004; Shon and Swatman, 1998). The majority of research into the area of EPS has focused on successful cases such as Hong Kong's Octopus smart card system and PayPal (Liao and Wong, 2004: Schwartz, 2001). However, there have been relatively fewer studies into failed EPS (Kniberg, 2002: Truman et al, 2003). This is most likely due to the difficulty in gaining access to failure cases. In this study, we explore factors that lead to the failure of EPS. For this purpose, a single in-depth case study of a failed Australian EPS was conducted in 2005 This study is also differentiated from existing studies of EPS by its approach. Recent studies in this area can be grouped into two general streams. One stream examines adoption of an EPS from the users' perspective or user acceptance (Abrazhevich. 2001; Chu and Poon. 2003: Liao and Wong. 2004: Yu et al. 2002). The other stream of studies proposes new payment schemes from the technological perspective. They develop new payment protocols in order to address some limitations with current solutions (Camenisch et al. 1996; Dai and Grundy, 2006: Herzberg. 2003: Juang, 2006Peha and Khamitov, 2004). This study takes a system provider's perspective, through the examination of a business case. This perspective is able to provide coverage of a wider range of issues and factors surrounding EPS not only user acceptance and technology, but also collaboration and competition in industry and market, and fimm-related management issues. The findings demonstrate that cooperation with established organisations, simplicity, trust. security and mutuality of stakeholder benefits are all of importance to the adoption of EPS. These factors are consistent with the adoption factors found during our literature-based analysis. In particular, this study highlights the significance of establishing partnerships with large organisations in the adoption of EPS because they are able to provide access to a large installed base of customers. association with their brand and marketing resources in order to achieve public awareness. In the next section, a literature review on factors affecting the adoption of EPS is presented. The research method used for this study is then described. This is followed by a short description of the case. Then findings are presented and discussed. In the conclusion, we highlight contributions made in this paper and make suggestions for further research. ELECTRONIC PAYMENT SYSTEMS (EPS) ADOPTION Factors that influence the adoption of EPS are multifaceted. They include cooperation with established entities (Badderley, 2004), trust (Chau and Poon, 2003), security (Ba et al, 1999) and simplicity (Weiler. 1995). Recently, the concept of mutuality of stakeholder benefits has also been used to explain the adoption of EPS (Oh et al. 2006). These factors are discussed below. Cooperation with Existing Entities The literature related to EPS clearly identifies cooperation with well known.established institutions as a factor which influences adoption of these systems (Mann, 2003; Mc Andrews, 1997: Panurach. 1996; Rosen, 2001: Simpson, 2004). Investigating EPS from an economic standpoint, Badderley (2004) contends that in order to be successfully adopted, an electronic payment system requires 232 Journal of Research and Practice in Information Technology, Vol. 39, No. 4. November 2007

Exploring the Reasons for a failure of Electronic Payment Systems universal acceptability. This acceptability can be achieved through cooperation with institutions such as recognised businesses, governments and banks. Oh et al (2006) assert that a precondition for success in the EPS market is the involvement of a partner who is able to provide a critical mass of users. Rogers (1991) defines critical mass as the point where enough individuals have adopted an interactive innovation to cause the perceived cost- benefit of adopting the innovation to shift from negative to positive for the individuals in the system"" (p.250). Therefore, once this critical mass is provided by the partner, both the benefits of the system and consequently system use will increase. This can be seen in the case of the successful PayPal system. Rosen (2001) argues that the main contributor to the widespread acceptability of PayPal was its cooperation with large entities with an installed base of users, especially online auction site eBay. This is consistent with the principle of network extemalities which stipulates that the value of unit product/service increases as the number of sold products/services, or the number of consumers, increases (Shapiro and Varian, 1999: Hanseth. 1999). Network externality has positive feedback mechanism in itself which makes the strong stronger. Trust The literature identifies that a high level of user confidence or trust in an EPS is an important factor contributing to their successful adoption (Dekleva. 2000; Lanford and Hubscher. 2004: Panurach. 1996: Schwartz, 2001: Yeung et al. 2003). In investigating Hong Kong's successful Octopus payment system. Chau and Poon (2003) identified trust in the system and its provider as a primary contributor to its success. Liao and Wong (2004) also examined the Octopus system, surveying users and identifying factors which influence the use of the smartcard. The authors also found that users are willing to use the Octopus system because they perceive it to be trustworthy. These two investi- gations of the Octopus system are pertinent as they identify elements which lead to the successful adoption of an EPS. These findings are supported by a user survey conducted by Abrazhevich (2001) who found that users would refrain from using a system which they feel is not trustworthy. Kniberg (2002) associates the credibility of an EPS with adoption, arguing that a credible, recognised and trusted system will be more likely to be adopted by both users and merchants. Security In the context of EPS security refers to the capacity of a system to reduce fraud and protect the user from the theft of their funds and personal information (Shon and Swatman, 1998). Security has been a longstanding issue for customers, which can be traced back to the origins of electronic commerce (Ford and Baum. 1997: Garfinkel and Spafford. 1997). The literature widely recognises the security concerns of users and the effect it has on the adoption of electronic payment systems (Ba et al. 1999: Mann, 2003: Schwartz, 2001). Taking a technological view of security, Rose et al (1999) contend that inadequacies associated with security are the primary impediment to the acceptance of electronic commerce. Rose et al (1999) strongly recommend that organisations engaged in electronic transactions employ security measures such as encryption and firewalls. In the aforementioned study of the Octopus system, Liao and Wong (2004) concluded that the employment of security mechanisms by the payment provider had a positive effect on customers' willingness to use the system. Simplicity A survey undertaken by Weiler (1995) found that simplicity was one of the most pertinent aspects influencing EPS adoption. A number of payment schemes have focussed on factors such as security Journal of Research and Practice in Information Technology, Vol. 39, No. 6, November 2007 233

Exploring the Reasons for a Failure of Electronic Payment Systems and user anonymity, employing technologies and processes which are difficult for the user to understand (Kniberg, 2002). As a result, these systems have failed to achieve widespread usage. In a study of a failed smart card implementation trial in New York. Truman et al (2003) found that the complexity of using the smart card technology in particular, the process of replenishing the cards) adversely affected the acceptance of the technology. On the other hand. Schwartz (2001) found that the simplicity of the PayPal payment process was a significant contributor to its success. Yu et al (2002) clearly asserts that an EPS should be simple and easy to use. Ease of use has long been cited as a contributing factor affecting the adoption of information systems (Davis 1989: Karahanna and Straub. 1999). Davis (1989) defines ease of use as ""the degree to which a person believes that using a particular system would be free of effort"" (p.320). A number of studies have applied the construct of case of use to the context of EPS. For example. Liao and Wong (2004) found that perceived case of use had a positive effect on customers willingness to use the Octopus smartcard system Kniberg (2002) states that the case of registering with an EPS provider is also a factor which affects the adoption of an EPS Mutuality of Stakeholder Benefits The concept of stakeholder mutuality has also been applied to the adoption of EPS (Oh et al. 2006). The authors contend that mutuality of benefits and costs among stakeholders is a necessary condition for the diffusion of an EPS. In the context of EPS, the main stakeholders include consumers and merchants who want to use the system. Mutuality of stakeholder benefits stipulates that the benefits for each individual stakeholder must exceed the cost these stakeholders incur when they choose to adopt a system. When adopting an EPS, consumers incur certain costs including transaction fees, the time taken to sign up and occasionally, subscription costs. For merchants who wish to use an electronic payment system as a means for collecting money from customers (for example, through their company web page). an EPS must be integrated with organisational processes and this may also incur certain investments. Applying mutuality of stakeholder benefits to the adoption of EPS would imply that a consumer would be more likely to adopt an EPS if the aforementioned costs were outweighed by the benefits of the payment system, namely, convenience, cost advantages, rewards. etc. Similarly, merchants would be attracted to adopt an EPS if their integration costs were compensated by benefits such as increased revenue, lower fees. less paperwork, etc. The concept of mutuality of stakeholder benefits assumes stakeholder independence and rationality. In the case of EPS stakeholders are able to act independently of each other due to the absence of regulation by an overarching governance structure (Oh et al. 2006). RESEARCH METHOD For this study of a failed EPS, we conducted a case study. As EPS are influenced by multiple factors such as individual consumers, internal management, merchants and alliance partners as seen in the literature review, the case study is an appropriate approach in that it allows researchers to deal with those factors in a comprehensive manner (Lee, 1989). The case study is an appropriate approach as it allows to answer ""why"" and ""how' questions (Yin, 1994), that is, why and how the EPS under study failed to attract a sizable user base. Data were collected using semi-structured interviews and document analysis. In selecting participants within the organisation, the roles and positions of staff members were considered with the objective of attaining all appropriate perspectives of the organisation. The interview process involved three participants, cach from a different area of the organisation. These participants included the heads of the Operations department and the Research and Development team as well Joumal of Research and Practice in Information Technology, Vol. 39, No. 4, November 2007 234