Online Payment Basics

 Cash, checks, credit cards, and debit

cards
 Account for more than 90 percent of all
consumer payments in the United States
 Most popular consumer electronic
transfers are automated payments of
 Auto loans
 Insurance payments
 Mortgage payments made from
consumers’ checking accounts
E-Commerce: The Second Wave, Fifth Annual Edition
 Payment Methods for all Types
of U.S.
2 Consumer Transactions, 2005
Projections

E-Commerce: The Second Wave, Fifth Annual Edition

 Payment Cards
3

 Describe all types of plastic cards used

to make purchases

 Credit card

 Has spending limit based on user’s credit

history

E-Commerce: The Second Wave, Fifth Annual Edition

 Payment Cards (Continued)
4

 Debit card
 Removes amount from cardholder’s bank
account
 Transfers it to seller’s bank account
 Charge card
 Carries no spending limit
 Amount charged is due at end of billing
period
E-Commerce: The Second Wave, Fifth Annual Edition
 Advantages and
Disadvantages of Payment
5
Cards
 Advantage
 Worldwide acceptance
 Built-in security for merchants

 Disadvantage
 Payment card service companies charge
merchants per-transaction fees and
monthly processing fees
E-Commerce: The Second Wave, Fifth Annual Edition
 Payment Acceptance and
6
Processing
 Steps followed once merchant receives
consumer’s payment card information
 Merchant authenticates payment card
 Merchant checks with payment card issuer
 To ensure that credit or funds are available
 Putsa hold on credit line or the funds needed
to cover the charge
 Settlement occurs

E-Commerce: The Second Wave, Fifth Annual Edition

 Open and Closed Loop
7
System
 Closed loop systems
 Card issuer pays merchants that accept
the card directly and does not use an
intermediary
 Open loop systems
 Involve three or more parties
 Systems using Visa or MasterCard are
examples
E-Commerce: The Second Wave, Fifth Annual Edition
 Merchant Accounts
8

 To process payment cards for Internet

transactions
 Online merchant must set up merchant
account
 New merchant must supply
 Business plan
 Details about existing bank accounts
 Business and personal credit history

E-Commerce: The Second Wave, Fifth Annual Edition

 Processing Payments Online
9

 InternetSecure
 Provides secure payment card services
 First Data
 Provides merchant payment card processing
services with the following programs
 ICVERIFY, PCAuthorize, and WebAuthorize
 Banks connect to an Automated Clearing
House (ACH) through
 Highly secure, private leased telephone lines

E-Commerce: The Second Wave, Fifth Annual Edition

 Electronic Cash
10

 Term that describes any value storage

and exchange system created by a
private entity that
 Does not use paper documents or coins
 Can serve as a substitute for government-
issued physical currency
 Attractive in two arenas
 Sale of goods and services of less than $10
 Sale of higher-priced goods and services to
those without credit cards
E-Commerce: The Second Wave, Fifth Annual Edition
 Micropayments and Small
11
Payments
 Micropayments

 Internet payments for items costing from a

few cents to approximately a dollar

 Small payments

 Payments of less than $10

E-Commerce: The Second Wave, Fifth Annual Edition

 Privacy and Security of
12
Electronic Cash
 Concerns about electronic payment
methods include
 Privacy and security
 Independence
 Portability
 Convenience
 Advantages of electronic cash
 Independent and portable
E-Commerce: The Second Wave, Fifth Annual Edition
 eCharge Home Page
13

E-Commerce: The Second Wave, Fifth Annual Edition

 Holding Electronic Cash:
14
Online and Offline Cash
 Online cash storage
 Trusted third party is involved in all
transfers of electronic cash
 Holds consumers’ cash accounts
 Offline cash storage
 Virtual equivalent of money kept in a wallet
 No third party is involved in the transaction
 Double-spending
 Spending electronic cash twice

E-Commerce: The Second Wave, Fifth Annual Edition

 Advantages and
Disadvantages of Electronic
15
Cash
 Advantages of electronic cash
 Transactions are more efficient
 Transfer on the Internet costs less than
processing credit card transactions
 Disadvantages of electronic cash
 Use provides no audit trail
 Problem of money laundering arises
 Susceptible to forgery
E-Commerce: The Second Wave, Fifth Annual Edition
 Providing Security for
16
Electronic Cash
 Cryptographic algorithms
 Keys to creating tamperproof electronic
cash that can be traced back to its origins
 Anonymous electronic cash
 Electronic cash that cannot be traced back
to the person who spent it
 Creating truly anonymous electronic
cash
 Requires bank to issue electronic cash with
embedded serial numbers
E-Commerce: The Second Wave, Fifth Annual Edition
 Detecting Double-Spending of
17
Electronic Cash

E-Commerce: The Second Wave, Fifth Annual Edition

 Electronic Cash Systems
18

 CheckFree

 Largest online bill processor in the world

 Provides online payment processing

services

 Clickshare

 An electronic cash system aimed at

magazine and newspaper publishers
E-Commerce: The Second Wave, Fifth Annual Edition
 Electronic Cash Systems
19
(Continued)
 InternetCash
 Provides electronic currency that is very
similar to traditional cash
 Customers must first purchase an
InternetCash card from a store
 PayPal
 Provides payment processing services to
businesses and to individuals
 Peer-to-peer (P2P) payment system
 Free payment clearing service for individuals

E-Commerce: The Second Wave, Fifth Annual Edition

 PayPal Payment Method
Search Option on eBay Main
20
Search Page

E-Commerce: The Second Wave, Fifth Annual Edition

 Electronic Wallets
21

 Hold credit card numbers, electronic

cash, owner identification and contact
information

 Give consumers the benefit of entering

their information just once

 Make shopping more efficient

E-Commerce: The Second Wave, Fifth Annual Edition

 Electronic Wallets
22
(Continued)
 Server-side electronic wallet

 Stores customer’s information on a remote

server belonging to a particular merchant
or wallet publisher

 Client-side electronic wallet

 Stores consumer’s information on his or her

own computer

E-Commerce: The Second Wave, Fifth Annual Edition

 Microsoft .NET Passport
23

 An electronic wallet operated by Microsoft

 Passport consists of four integrated services
 Passport single sign-in service (SSI)
 Passport Wallet service
 Kids Passport service
 Public profiles

E-Commerce: The Second Wave, Fifth Annual Edition

 Microsoft .NET Passport
24
Home Page

E-Commerce: The Second Wave, Fifth Annual Edition

 Yahoo! Wallet
25

 An electronic wallet offered by the Web

portal site Yahoo!

 Lets users store information about

several major credit and charge cards

 Many industry observers and privacy

rights activist groups are concerned
about electronic wallets

E-Commerce: The Second Wave, Fifth Annual Edition

 W3C Micropayment Standards
26
Development Activity
 Common Markup for Micropayment Per-Fee-
Links
 Standards developed by W3C Electronic
Commerce Interest Group (ECIG)
 Provide extensible and interoperable way to
embed micropayment information in Web page
 Extensible system
 One that developers can add to (or extend)
without voiding any earlier work on the system

E-Commerce: The Second Wave, Fifth Annual Edition

 W3C Proposed Micropayment
27
HTML Tags

E-Commerce: The Second Wave, Fifth Annual Edition

 The ECML Standard
28

 Electronic Commerce Modeling Language

(ECML)
 Users can enter credit card and address
information once into an ECML-capable
electronic wallet
 Any existing wallet can be redesigned to
follow the ECML standard
 Users control access to their ECML
electronic wallets
E-Commerce: The Second Wave, Fifth Annual Edition
 Stored-Value Cards
29

 Can be an elaborate smart card with a

microchip that records currency
balance

 Common stored-value cards

 Prepaid phone, copy, subway, and bus

cards

E-Commerce: The Second Wave, Fifth Annual Edition

 Magnetic Strip Cards
30

 Cannot send or receive information

 Cannot increment or decrement value of
cash stored on the card
 Processing must be done on a device
into which card is inserted
 Smart card
 Better suited for Internet payment
transactions
E-Commerce: The Second Wave, Fifth Annual Edition
 Smart Cards
31

 Stored-value cards

 Can hold private user data, such as

financial facts

 Can store about 100 times more

information than a magnetic strip plastic
card

 Safer than conventional credit cards

E-Commerce: The Second Wave, Fifth Annual Edition
 Octopus Smart Card
Information on the Hong Kong
32
Citybus Site

E-Commerce: The Second Wave, Fifth Annual Edition

 Smart Cards (Continued)
33

 Smart Card Alliance

 Promotes benefits of smart cards
 Promotes widespread acceptance of
multiple-application smart card technology
 Members include companies in banking,
financial services, computer technology,
and healthcare
 Promotes compatibility among smart cards,
card reader devices, and applications
E-Commerce: The Second Wave, Fifth Annual Edition
 Mondex
34

 Smart card that holds and dispenses

electronic cash
 Introduced in 1990 and now part of
MasterCard International
 Can accept electronic cash directly from
a user’s bank account
 Card carries real cash in electronic form
 Risk of theft may deter users from loading
it with very much money

E-Commerce: The Second Wave, Fifth Annual Edition

 Mondex (Continued)
35

 Steps in using a Mondex card to

transfer electronic cash from buyer to
seller

1. Card user inserts Mondex card into reader

2. Merchant’s terminal requests payment

3. Customer’s card checks merchant’s

digital signature

E-Commerce: The Second Wave, Fifth Annual Edition

 Steps in using a Mondex Card
to Transfer Electronic Cash
36 from Buyer to Seller
(Continued)
4. Merchant’s terminal checks customer’s
just-sent digital signature for
authenticity

5. Once electronic cash is deducted from

the cardholder’s card
 Same amount is transferred into the
merchant’s electronic cash account

E-Commerce: The Second Wave, Fifth Annual Edition

 Mondex Smart Card
37
Processing

E-Commerce: The Second Wave, Fifth Annual Edition

 Summary
38

 Most popular forms of payment on the

Internet

 Credit card

 Debit card

 Charge cards (payment cards)

E-Commerce: The Second Wave, Fifth Annual Edition

 Summary
39

 Electronic cash
 Form of online payment
 Slow to catch on in the United States
 Especially useful for making
micropayments
 Advantages
 Portable,anonymous, and usable for
international transactions
E-Commerce: The Second Wave, Fifth Annual Edition
 Summary
40

 Electronic wallets
 Provide convenience to online shoppers
 Eliminate need to reenter payment card
and shipping information at site’s
electronic checkout counter
 Stored-value cards
 Physical devices that hold information
 Smart cards
 Intended to replace collection of plastic
cards people now carry
E-Commerce: The Second Wave, Fifth Annual Edition