© 2008. gene yelle - & prentice-hall all rights reserved. chapter 11 e-commerce payment systems
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© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
CHAPTER 11
E-Commerce Payment Systems
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
E-Commerce Payment Technology
• Electronic Checking
• Credit Cards
• Stored Value Cards & Systems
• Electronic Cash
• Electronic Bill Presentment & Payment (EBPP)
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
E-Commerce Payment Technology
No Universal System
Still in Infancy
E-Commerce Site Owner must make decision on which payment types to employ.
World Wide Web Consortium (W3C) develops fundamental standards.
Use – determines public acceptance.
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Micro-payment Issues
• Micro-payments are small denomination transactions (generally less than $5.00).
• Not profitable to use credit card technology (Cost relative to value of the sale)
• Best accommodated by systems like eCharge & Valista that work via telephone systems.
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
CHECKS
• Can be used for both small and large transactions
• Introduce security risks for merchants (forgeries, stopped payments), so authentication typically required
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
CREDIT CARDS
• Most Used for E-Commerce (80% in 2005)
• Most practical for transactions over $5.00
• Some float
• Introduce security risks for merchants (Stolen Cards, Stolen Account Numbers, etc)
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
STORED VALUE CARDS & SYSTEMS
• Accounts created by depositing funds into an account and from which funds are paid out as needed– Examples: Debit cards, gift certificates, prepaid
cards, smart cards, PayPal-Online System– Debit cards: Immediately debit a checking or
other demand-deposit account
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
ELECTRONIC CASH
• Must be Convenient
• Should not be easily forged or re-used
• One Solution is e-Charge which bills the transaction to your Telephone Bill.
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Electronic Bill Presentment & Payment (EBPP)
• Enables electronic bill payment (EBPP) through your bank (e.g., utilities, phone, etc.)
• CheckFree is the primary operator in US (Recently Acquired by Fserve)
Checkfree is the “transparent application used to facilitate EBPP by many financial institutions
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Electronic Bill Presentment & Payment (EBPP)
EBPP has grown from12 Million U.S. households (11%) in 2001 to 61 million households (50%) in 2007
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Major Players in the Electronic Bill Presentment & Placement (EBPP) Market Space
Company facilitates its own transactions
Consolidator facilitates transactions
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Electronic (Digital) Wallets
Holds Electronic Information Related to: (Credit Cards, Owner Identification, Digital Certificate, Address, etc.)
Provides Information to the E-Commerce Site at Checkout.
Reduces Need to enter Repetitive Information.
Examples: Microsoft Passport , Yahoo! Wallet, Visa Wallet.
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Credit Card Transactions
Web Site must be “Transaction Enabled” (AKA an “E-commerce” site)
E-Commerce firm establishes a Merchant Account with an Acquiring Bank (Merchant Bank)
E-Commerce Site is configured to route transaction to Merchant Bank, using a Payment Processor (e.g., Paymentech, AuthorizeNet, Verisign).
Funds are Drawn on Buyer’s Issuing Bank – (Bank That Issues Card to Purchaser)
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
An On-Line Credit Card Transaction Using SSL
(Acquiring Bank)
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Security- The consumer can be fully Authenticated.
Merchant Risk- Repudiated charges (Charge backs), Fraud, etc.
Merchant Cost- Set-up Fees, Monthly Fees, Transaction Fees.
Social Issues- Some people do not have credit cards.- Almost 100 million adult Americans are considered
poor credit risks.
Online Credit Card Issues
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Debit Cards
Issued by your local bank.
Provides a Secure, PIN-Protected Transaction.
Fast-Growing Segment for E-Commerce.
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Smart Cards as Stored-Value Systems
• Credit-card sized plastic cards that have embedded chips that can store “digital cash” and/or personal information.
• Still in infancy in U.S.
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
www.fusioncard.com - Fusion Smart VISA
Mondex
American Express - Blue
Major Smart Card Providers
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Online Systems - 3rd Party Payment Processors
Example: (Paypal owned by eBay).
Transaction is Processed by 3rd-Party Processor.
Seller Pays Transaction Fee.
Seller does not need a Merchant Account.
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Future Applications
• Wireless Payment Systems using Cell Phone Technology
(Already well established in Europe, Japan & S. Korea)
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Online Payment Methods
Source: CyberSource Corp, 2007, U.S. Census Bureau. Adapted from E-Commerce – Laudon & Traver Text © 2008 Prentice-Hall
© 2008. Gene Yelle - & Prentice-Hall All rights reserved.
Business-to-Business (B2B)
Transaction Elements - (Purchase Order, Invoice, Statement, etc.)
Trending towards Electronic Bill Presentation & Payment (EBPP).
Electronic Payments are More Efficient & have a Lower Cost per Transaction.
Often involve EDI and/or XML based systems.