Traditional and Electronic Payment

Methods

All kinds of objects as money

Traditional Payment Methods

The barter system

Inefficient with social, political and religious factors

Money

Functions as

a unit of account,
a common measure of value,
a medium of exchange and
a means of payment.

Traditional Payment Methods

Checks and Money orders

A check

A money order

written order on a bank or other financial institution.

Most popular offline payment method.
an order for payment, usually issued and payable at a bank or post office
Convenient for people who do not have bank accounts

Consumer Credit, debit and charge cards

Credit Card

Charge Card

Used instead of cash or checks to pay for goods and services.

Users can pay their monthly balance in full or partial by generally paying interest on the unpaid
balance.
The clearinghouses are now two associations MasterCard and Visa Card
Similar to credit card except that users must pay their charge card in full.
Examples: Diners Club, American Express and Carte Blanche known as travel & entertainment
cards.

Debit Card

Bank issue debit cards in connection with a bank account.

Deduct all debit card transactions directly from the account.

Electronic Credit, Charge and Debit Card

Payments

Many different types of electronic payment methods for

online transactions
The most common and currently the consumer-preferred
method

Use of Credit, debit and charge cards

To accept these cards E-Business must have

Merchant account
Payment processing software
Procedures to protect its customers and itself against fraud

Online Payment Processing

Merchant Account

E-business must set up a merchant account at a financial

institution.
The fees charged might be

A fixed monthly fee

A monthly minimum transaction fee
A one-time setup fee
Or a percentage if each transaction- called a Discount Rate.

A financial institution assesses its level of risk in providing

a merchant account which depends on

The e-businesss credit worthiness and

The financial institutions experience with similar merchant
accounts

Merchant Account

A financial institutions risk of issuing a merchant account

is based on the rate of chargebacks it may experience on
the account.
A chargeback results from a consumers refusal to pay a
charge for a variety of reasons

Returned products, billing errors and fraudulent charges.

Certain other high-risk factors

Cardholder not present

High-Risk products or services

Payment processing software

An e-business must have a process for

Getting card transactions authorized

Getting the credit card transaction processed

A third party provides payment processing software for a

monthly fee
Another alternative is to outsource payment processing
to a third party provider

An e-business passes the card data to the third-party service

provider for authorization and transaction processing.

Security for Credit, Debit and Charge

card processing

Requires some type of encryption and digital

authentication
Cryptography- Encryption/Decryption, Cipher
text/Plaintext
One of the earliest Internet security protocol Secure
Sockets Layer(SSL)
The URL for the SSL secured online begins with https://
instead of just http://
Most browsers indicate by warning message
Some type of icon such as a lock or key

Security for Credit, Debit and Charge

card processing

A digital signature is a unique code attached to an

electronic transmitted message that identifies the sender
A digital certificate is an electronic message attachment
that verifies the senders identity.
A certificate authority, a trusted third-party organization
that guarantees the identity of the sender, issues digital
certificates
An e-business using SSL must get a digital certificate
In 1996,Visa and MasterCard, with the backing of
Mircrosoft, IBM, Netscape, and others, announced support
for protocol called Secure Electronic Transactions (SET)

Secure Electronic Transaction (SET)

Open encryption & security specification

To protect Internet credit card transactions
Developed in 1996 by Mastercard, Visa etc
Not a payment system
Rather a set of security protocols & formats
Secure communications amongst parties
Trust from use of X.509v3 certificates
Privacy by restricted info to those who need it

SET Participants

The SET protocol

The SET protocol coordinates the activities of the customer,

merchant, merchants bank, and card issuer. [Source: Stein]

SET Payment Transactions

SET-protected payments work like this:

Consumer makes purchase by sending encrypted financial

information along with digital certificate
Merchants website transfers the information to a payment
card processing center while a Certification Authority
certifies digital certificate belongs to sender
Payment card-processing center routes transaction to
credit card issuer for approval
Merchant receives approval and credit card is charged
Merchant ships merchandise and adds transaction amount
for deposit into merchants account

SET uses a hierarchy of trust

All parties hold certificates signed directly or

indirectly by a certifying authority. [Source: Stein]

SET Protocol

Extremely secure

Fraud reduced since all parties are authenticated

Requires all parties to have certificates

80 percent of SET activities are in Europe and Asian countries

Problems with SET

Not easy to implement

Not as inexpensive as expected
Expensive to integrated with legacy applications
Not tried and tested, and often not needed
Scalability is still in question

An Electronic or Digital Wallet

The buyers digital certificate, name and address and credit card information
are maintained in an electronic or digital wallet.
Sometimes called an e-wallet is encryption software that stores payment
information
An electronic wallet may reside on

On the buyers PC
On the credit card issuers
E-businesss server

Instead of completing long complicated web-based form during checkout

process, a buyer can use the payment information contained in e-wallet to
expedite the process
The companies provide e-wallet

Q*Wallet, InstaBuy, Gator, Jotter and Microsoft Passport

Other Electronic Payment Forms

Electronic Cash
Smart Cards
Electronic Checks
Person-to-person payment systems
Prepaid Cards and Prepaid accounts
M-Commerce

Electronic Cash

Also called as digital cash, cybercash or e-cash

Allows buyers to pay online by transmitting a unique
electronic number or other identifier that carries specific
value
Two primary advantages

Lower processing costs for the seller

No special credit card type authorization for the buyer

A popular online payment method in Europe and Japan,

not widely accepted by U.S
Early electronic cash issuers were not successful

DigiCash, MessageMedia and CyberCash

Second-generation electronic cash

products

E-tailers are using electronic cash products in customer

rewards systems
Three of these modern electronic cash products are:

Beenz
Cybergold
Flooz

BEENZ
Consumers can earn Beenz from a participating Web site
By visiting web site
By purchasing items from a web site
By accessing the Internet via a participating Internet
Service Provider (ISP)
The beenz e-currency could then be spent with participating online merchants
Cybergold
Like Beenz, is electronic cash used by e-tailers in consumer rewards program.
It pay users to look at offers by participating e-tailers
Users can spend their Cybergold by
Donating it to one of Cybergolds participating non-profit organizations
Converting it to dollars and depositing the dollars to a visa card account or
bank account
Flooz
Flooz is gift currency sent to recipients via e-mail
It is funded by credit card and recipients can spend flooz at more than 60 popular
e-tailers such as Starbucks, Tower Records, Toys R US and Godiva Chocolates

Smart Card

A type of computer embedded chip card that stores and

transacts encrypted data between users.
Smart card are used in healthcare, banking, entertainment
and transportation industries.
Offers enhanced security, convenience and economic
benefits
Rechargeable stored value card

Examples

Mondex in UK
VisaCash in US

Smart Card

Smart Card for E-Commerce

Advantages

Carry personal Accounts

Credit and buying preferences
Manage and control expenditures with automatic limits and reporting

Disadvantages

Costs 2 to 7 times more than magnetic stripe cards

Need a smart card reader

Electronic Checks

The electronic version of a paper check

Much less expensive to process than a paper check
Electronic check process:

Buyers using electronic checks at an online store fill out a web-based

form to authorize the electronic payment
Provide the account number and bank routing number for check
Data is submitted to an approval agency
On through the ACH system transmits data to writers bank

It takes approximately 2 to 3 days for the electronic check.

E-business such as PayByCheck.com (i-Check.com),
OnlineCheck Systems and Cybersource provide the software
and processing support to accept electronic checks Visit the
web site PaySimple.com

Person-to-person systems

Internet payment systems becoming increasingly popular

for

Online auction buyers and sellers

Small business owners
Individuals who need to transfer money to family and freinds

P2P payment systems use e-mail

Examples: eMoneyMail, Union MoneyZap, eCash P2P,
ProPay.com, Billpoint and PayMe.com

Person-to-person systems
eMoneyMail

An email money transfer service

of Bank One (fourth largest U.S.
Bank)
For $1 transaction fee, a user can
send money from a Visa credit,Visa
debit car or checking account to
someone via e-mail
The recipient can have the funds
transferred to his or her visa
credit or debit card or receive a
check, for additional $1 fee.

Western Union MoneyZap

Users register at website to create

an account
Users can send money by
specifying the recipient's name, email address and a personal
message if desired
Users specifies a checking account
or bank card payment method
The recipient receives an e-mail
notice when the funds are
received and identifies how the
funds are to be disbursed

Person-to-person systems
eCash P2P

Allows eCash customers to send

eCash from their accounts to
other eCash accounts, using e-mail
Users can fund their eCash
accounts using credit cards and
paper checks
Recipients of eCash transfers can
convert their eCash into
traditional currency by
transferring it from their eCash
account to traditional bank
account

ProPay.com

Allows individuals to accept credit

card payment as though they were
merchants

With an established ProPay account,

the seller visits ProPay.com, clicks the
Web Pay button, and enters
customers email address, sales
amount and reason for the charge.

Customer receives an e-mail from

ProPay itemizing the sellers request.

Customer clicks URL and enters

credit card information, ProPay
transfers the sales amount into sellers
account

Person-to-person systems
Billpoint

To facilitate P2P credit card a

payments over the internet
Acquired by eBay in 1999 and
became eBays preferred payment
system
Free to buyers, processes
international credit card payments
from buyers around the world
Sellers registers with Billpoint and
pay a small transaction fee on each
payment processed

PayMe.com

A free service of PayMyBills.com

an online bill management
provider
Allows registered users to
transfer money from credit cards
to pay for items bought online
auctions or from online classified
ads
Registered users can also send
money to any individual who has
an e-mail account by entering
recipients e-mail address, the
dollar amount and subject and
message information

Most popular Person-to-person payment

systems
System

Sponsor

Service

eMoneyMail

Bank One

Allows you to send money from credit or

debit cards or checking account

MoneyZap

Western Union

Allows you to send money from Western

Union account to checking account or
bank card account

eCash P2P

eCash

Allow you to send electronic cash from

one eCash account to another

ProPay

ProPay.com

Allow individuals to accept credit cards as

though they were merchants

Billpoint

eBay

Processes credit cards payments for

auction sellers

PayMe.com

PayMyBills.com

Transfers money between credit card

accounts

PayPal

X.com

Allows you to send money via e-mail or

PDA from checking account or credit card.

Prepaid Cards and Prepaid accounts

What about Potential customers????????

E-Tailers are tapping into this lucrative market

Who do not have bank accounts or credit cards

Teens and children under 12
Young shoppers lacking access to the credit cards accepted by
e-tailers
By accepting prepaid shopping cards and prepaid accounts

Offered by e-businesses such as

Cobaltcard, RocketCash, DoughNET and Cybermoola

Prepaid Cards and Prepaid accounts

Card/ Account Description
Name
PocketCard

Web-based Visa debit card targeted to teenagers and sponsored by

parent or other adult sponsor, funded by checking account or credit
card

CobaltCard

Prepaid shopping card funded by checking account transfers,

targeted to young adults and others without access to credit cards

RocketCash

Prepaid accounts for 10-18 year olds funded by check, money order
or credit card

DoughNET

Offers banking services, investment kits and donation opportunities

for children and teens. Parents can control transactions by setting
controls on spending limits, blocking purchases at individual stores,
can also choose to notified by e-mail

Cybermoola

Prepaid shopping card for children and teenagers similar to prepaid

telephone card; buyer purchases cards and gift certificates at
participating brick-and-mortar stores

Visa Buxx

Prepaid Visa card for teenagers 13 year and older, funded and
monitored by parents

Assignment 2

M-Commerce

Mobile commerce or M-Commerce has potential to turn a cell phone or

PDA into an electronic wallet.
With growing number of internet-enabled cell phones
Products and services available

Mobile Money Transfer , Mobile ATM

Mobile ticketing

Mobile vouchers, coupons and loyalty cards

Content purchase and delivery

Location-based services

Information services

Mobile Banking

Mobile brokerage

Auctions

Mobile browsing

Mobile purchase

In-application mobile phone payments

Mobile marketing and advertising

Selecting an electronic method or

methods

Startup e-business should select appropriate electronic payment method(s)

based on

The kinds of products and services the e-business proposes to offer

The type of customers who will buy those products and services

For Example

B2C e-business selling products to adults

B2C e-business that targets teenagers and young adults

Use one or more person-to-person electronic payment methods

B2B e-business

Prepaid card or prepaid accounts might be the best payment approach

C2C e-business

Select Credit, debit or charge card payments

Use a combination of electronic payment methods such as credit card and EFT

E-Business should evaluate the different electronic payment methods