Download - © 2008. Gene Yelle - & Prentice-Hall All rights reserved. CHAPTER 11 E-Commerce Payment Systems
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CHAPTER 11
E-Commerce Payment Systems
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E-Commerce Payment Technology
• Electronic Checking
• Credit Cards
• Stored Value Cards & Systems
• Electronic Cash
• Electronic Bill Presentment & Payment (EBPP)
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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.
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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.
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CHECKS
• Can be used for both small and large transactions
• Introduce security risks for merchants (forgeries, stopped payments), so authentication typically required
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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)
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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
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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.
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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
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Electronic Bill Presentment & Payment (EBPP)
EBPP has grown from12 Million U.S. households (11%) in 2001 to 61 million households (50%) in 2007
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Major Players in the Electronic Bill Presentment & Placement (EBPP) Market Space
Company facilitates its own transactions
Consolidator facilitates transactions
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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.
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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)
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An On-Line Credit Card Transaction Using SSL
(Acquiring Bank)
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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
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Debit Cards
Issued by your local bank.
Provides a Secure, PIN-Protected Transaction.
Fast-Growing Segment for E-Commerce.
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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.
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www.fusioncard.com - Fusion Smart VISA
Mondex
American Express - Blue
Major Smart Card Providers
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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)
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Online Payment Methods
Source: CyberSource Corp, 2007, U.S. Census Bureau. Adapted from E-Commerce – Laudon & Traver Text © 2008 Prentice-Hall
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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.