© 2008. Gene Yelle - & Prentice-Hall All rights reserved. CHAPTER 11 E-Commerce Payment Systems

© 2008. Gene Yelle - & Prentice-Hall All rights reserved.

CHAPTER 11

E-Commerce Payment Systems


E-Commerce Payment Technology

• Electronic Checking

• Credit Cards

• Stored Value Cards & Systems

• Electronic Cash

• Electronic Bill Presentment & Payment (EBPP)


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.

http://www.w3.org/ecommerce/micropayments/


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.


CHECKS

• Can be used for both small and large transactions

• Introduce security risks for merchants (forgeries, stopped payments), so authentication typically required


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)


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


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.


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

http://www.checkfree.com/


Electronic Bill Presentment & Payment (EBPP)

EBPP has grown from12 Million U.S. households (11%) in 2001 to 61 million households (50%) in 2007



Major Players in the Electronic Bill Presentment & Placement (EBPP) Market Space

Company facilitates its own transactions

Consolidator facilitates transactions


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.

http://www.passport.com/


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)


An On-Line Credit Card Transaction Using SSL

(Acquiring Bank)


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


Debit Cards

Issued by your local bank.

Provides a Secure, PIN-Protected Transaction.

Fast-Growing Segment for E-Commerce.


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.


www.fusioncard.com - Fusion Smart VISA

Mondex

American Express - Blue

Major Smart Card Providers

http://www.fusioncard.com/

http://mondex.com/

http://www.americanexpress.com/

http://www.fusioncard.com/


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.

http://www.paypal.com/


Future Applications

• Wireless Payment Systems using Cell Phone Technology

(Already well established in Europe, Japan & S. Korea)


Online Payment Methods

Source: CyberSource Corp, 2007, U.S. Census Bureau. Adapted from E-Commerce – Laudon & Traver Text © 2008 Prentice-Hall


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.

Documents

© 2008. Gene Yelle - & Prentice-Hall All rights reserved. CHAPTER 11 E-Commerce Payment Systems