Chapter 11Electronic Commerce Payment

Systems

Learning Objectives1. Describe the situations where micropayments

are used and alternative ways to handle these situations.

2. Discuss the different payment cards used online and processing methods.

3. Discuss the different categories and potential uses of smart cards.

4. Discuss stored-value cards and identify under what circumstances they are used best.

Learning Objectives5. Describe micropayments online.6. Describe the processes and parties involved in e-

checking.7. Understand the major types and methods of

mobile payments.8. Describe payment methods in B2B EC, including

payments for global trade.9. Describe emerging EC payment systems.

The Payment Revolution

• The success of any e-payment system depends on:o Independenceo Interoperability and portabilityo Securityo Anonymityo Divisibilityo Ease of useo Transaction feeso International supporto Regulations

• The PayPal Alternativeo Person-to-Person (P2P) Payments

• Digital Currencieso *Digital (virtual) currency

Using Payment Cards Online

• *Payment cardso Credit cardso Charge cardso Debit cards

• Processing Cards Onlineo *Authorizationo *Settlement

Using Payment Cards Online

• The following are the processing options:o Own the payment softwareo Use a point-of-sale (POS) system operated by a

card acquirero Use a POS system operated by a payment

service provider• *Payment service providers (PSPs)

Using Payment Cards Online

• The major parties in processing card payments online are: o Customero Merchanto Issuing banko Acquiring banko Credit card associationo Payment service providero Credit Card Reading

• Stationary card readers• Portable card readers• Mobile readers• Image readers

Credit Card Payment Procedure

(Drawn by J. K. Lee)

Using Payment Cards Online

• Fraudulent Card Transactions—key tools used in combating fraud are:o Certificate and Digital Signatureo Address verification

• *Address Verification System (AVS)o Manual reviewo Fraud screens and automated decision

modelso *Card verification number (CVN)o Card association payer authentication

serviceso Negative lists

Smart Cards• *Smart Cards• Types of Smart Cards

o *Contact cardo *Contactless (proximity) cardo *Smart card reader

• *Stored-Value Cards• Applications of Smart Cards

o Retail Purchaseso Transit Fares

Singapore Electronic Road Pricing

System

Photo taken by J. K. Lee March 2013

Micropayments• *Micropayments or e-micropayments• Five basic micropayment models:

1. Aggregation2. Direct payment3. Stored value4. Subscriptions5. À la carte

E-Checking• *Electronic check (e-check)• *Automated Clearing House (ACH) Network• E-check processing provides a number of benefits:

o It expedites the checkout time during shopping. o It reduces the merchant’s processing costs. o Merchants receive funds more quickly. o It is more secure than a paper system with less

probability of fraud. o It reduces the processing time of bounced checks.o There are fewer errors.

Processing E-Checks with Authorize.net

Drawn by J. K. Lee

Mobile Payments• *Mobile Payments• Mobile Proximity Payments

o *Mobile (digital) walleto The Near Field Communication Standardso The Bluetooth Low Energy

• Mobile Remote Payments

Process of Mobile Payment Service

Drawn by J. K. Lee

Mobile Payments• Mobile Payment Participants and Issues

o To successfully implement mobile payments, it is necessary to overcome the following issues:• For Buyer: Security (fraud protection), privacy, ease of

use, choice of mobile device.• For Seller: Security (getting paid on time), low cost of

operations, adoption by sufficient number of users, improved speed of transactions.

• For Network Operator: Availability of open standards, cost of operation, inter-operability, and flexibility and roaming.

• For Financial Institutions: Fraud protection and reduction, security (authentication, integrity, non-repudiation; see Chapter 10), and reputation.

Mobile Payments• Mobile POS Payments

o Innovative POS Mobile Payments Systems• MasterPass™: Automating the Shopping

and Payment Processeso Eliminating Credit Cardso Innovative Social Commerce Paymentso Apple and Mobile Payment Processing

B2B and International

Electronic Payments• B2B Payment Practices in the Financial

Supply Chain• Enterprise Invoice Presentment and

Paymento *Electronic Invoice Presentment and Payment

(EIPP)o The EIPP Models

• Seller Direct• Buyer Direct• Consolidator

o EIPP Options• ACH Network• *Purchasing cards (p-cards)• Fedwire or Wire Transfer

B2B and International

Electronic Payments• International Payments

o Letters of Credit for Global Payments • *Letter of credit (L/C)

o Digital River’s World Payment

Emerging EC Payment Systems

and Issues• Bitcoin: Ups and Downs but Alive

o *Bitcoin

• Other Interesting Systemso Coin (the “All in One” Credit Card)o TrialPay o Amazon Payments o Miscellaneous Systems

Managerial Issues1. What payment methods should your B2C site

support? 2. What micropayment strategy should your e-

marketplace support? 3. Which mobile systems could influence your

business? 4. Should we outsource our payment gateway

service? 5. How secure are e-payments? 6. What B2B payment methods should we use?

Summary1. Payment revolution and micropayments. 2. Using payment cards online. 3. Smart cards. 4. Stored-value cards. 5. Micropayments.6. E-checking. 7. Mobile payments. 8. B2B electronic payments. 9. Emerging EC payment systems.