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Online payments

• How do we purchase on the web?

• What choices of payment have we?

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Online payments

• Looking at ….– Credit Card Transactions– Digital Currency– E-Wallets– Smart Cards– Micropayments– Business to Business (B2B) transactions– E-Billing

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Introduction

• Secure electronic funds transfer is crucial to e-commerce

• Examination of how individuals and organizations conduct monetary transactions on the Internet

• Credit-card transactions, digital cash and e-wallets, smart cards, micropayments and electronic bill presentment and payment

• Electronic-payment enablers

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Credit-Card Transactions

• Popular form of payment for online purchases

• Resistance due to security concerns• Many cards offer capabilities for online and

offline purchases– MasterCard– Visa– American Express Blue

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Anatomy of an Online Credit-Card Transaction

• To accept credit-card payments, a merchant must have a merchant account

• Traditional merchant accounts accept only POS (point-of-sale) transactions– Transactions that occur when you present your credit card at

a store

• Card-not-present (CNP) transaction– Merchant does not see actual card being used in the

purchase

• Authentication– The person is, in fact, who they say they are

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Anatomy of an Online Credit-Card Transaction

• Authorization– The money is available to complete the transaction

• Acquiring bank – The bank with which the merchant holds an account

• Issuing bank– The bank from which the buyer obtained the credit card,

and the credit-card association

• Verification• Money issued to merchant after product/service is

distributed

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Anatomy of an Online Credit-Card Transaction

• Step 1– Consumer makes a purchase at an online store, credit card

information received by e-store (merchant)

• Step 2– Credit card information is sent from the merchant to the

acquiring bank

• Step 3 and Step 4– The credit card association and the issuing bank certify the

transaction and the verification is sent to the acquiring bank

• Step 5– The merchant ships the product and payment is issued

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Credit-Card Transaction Enablers

• Credit-Card Transaction Enablers– Companies that have established business

relationships with financial institutions that will accept online credit-card payments for merchant clients

• iCat• Trintech• Cybercash• NextCard, Inc.

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Online Credit-Card Fraud• Chargeback

– When a credit-card holder claims a purchase was made by an unauthorized individual, or when a purchase was not received

– The charges in question are not the responsibility of the credit-card holder

– On the Internet, neither a scan of the card nor a signature is registered and the cost is incurred by the merchant

• Visa– High-risk business models– “Best Practices” policy

• Mastercard– Uses the three digit pin code on the back of the card

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Digital Currency• Digital cash

– Cash stored electronically, used to make online electronic payments

– Similar to traditional bank accounts– Used with other payment technologies (digital wallets) – Alleviates some security fears online credit-card

transactions– Allows those with no credit cards to shop online– Merchants accepting digital-cash payments avoid

credit-card transaction fees– eCash Technologies, Inc. is a secure digital-cash

provider that allows you to withdraw funds from your traditional bank account

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Digital Currency

• Gift cash, often sold as points, can be redeemed at leading shopping sites – An effective way of giving those without credit

cards, the ability to make purchases on the Web

• Points-based rewards – Points are acquired for completing specified

tasks including visiting Web sites, registering or buying products

– Points can then be redeemed

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Digital Currency

Using eCash on the Web. (Courtesy of eCash Technologies, Inc.and ©2000 eCash.)

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E-Wallets• E-wallets

– Keep track of your billing and shipping information so that it can be entered with one click at participating sites

– Store e-checks, e-cash and credit-card information

• Credit-card companies offer a variety of e-wallets – Visa e-wallets – MBNA e-wallet allows one-click shopping at member

sites– Entrypoint.com offers a personalized desktop

toolbar that includes an e-wallet

• A group of e-wallet vendors have standardized technology with Electronic Commerce Modeling Language (ECML)

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Smart Cards

• Smart card– Card with computer chip embedded on its face, holds more

information than ordinary credit card with magnetic strip– Contact smart cards

• To read information on smart cards and update information, contact smart cards need to be placed in a smart card reader

– Contactless smart cards • Have both a coiled antenna and a computer chip inside, enabling the

cards to transmit information

– Can require the user to have a password, giving the smart card a security advantage over credit cards• Information can be designated as "read only" or as "no access" • Possibility of personal identity theft

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Micropayments

• Merchants pay fee for each credit-card transaction • Micropayments

– Payments that generally do not exceed $10, allows companies offering nominally priced products to profit

• To offer micropayments, some companies form strategic partnerships with utility companies – eCharge uses ANI (Automatic Number Identification) to

verify the identity of the customer and the purchases they make

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Millicent Feature

• Millicent is a micropayment technology provider• Companies using Millicent payment technology

allow customers to make micropayments using credit or debit cards, prepaid purchasing cards or by adding purchases to a monthly Internet Service Provider bill or phone bill

• Millicent handles all payment processing needed for the operation of an e-business, customer support and distribution services

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Business-to-Business (B2B) Transactions

• Business-to-business (B2B) transactions– Fastest growing sector of e-commerce payments – Payments are often larger than B2C transactions and

involve complex business accounting systems

• PaymentechTM – Payment solution provider for Internet point-of-sale

transactions– Electronic merchants choose from transaction-

processing options including debit cards, credit cards, checks and EBT authorization and settlement

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Business-to-Business (B2B) Transactions

• eCredit provides real-time, credit-transaction capabilities of B2B size

• Clareon facilitates B2B transactions by providing digital payment and settlement services– Payment is digitally signed, secured and authenticated

via digital payment authentication (DPA) – Compatible with all enterprise resource planning

(ERP) systems and can adapt electronic records for companies, banks and each member of a given transaction 

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Business-to-Business (B2B) Transactions

• Electronic consolidation and reconciliation of the business transaction process– Companies can keep track of a transaction from order-to-

cash settlement while reducing administrative costs, errors, waste and complexity in the supply chain

• Order-fulfillment providers– Companies attempting to bring supply chain expertise

and logistical services to Internet businesses 

• Internet-based electronic B2B transactions will augment, but not replace, traditional Electronic Data Interchange (EDI) systems

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B2B Transactions

PAYTRUST SmartBalance™ screen shot. (Courtesy of Paytrust, Inc.)

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TradeCard Feature

• Provides a global B2B e-commerce infrastructure – Cross-border data management and payment

• Buyer creates pre-formatted electronic purchase order and presents document to seller

• Purchase order data stored electronically in TradeCard database, and electronic invoices and packing slips are produced from data

• Uses a patented "data compliance engine" to check documents against original purchase order– If discrepancies are found, concerned parties are notified

immediately and can negotiate to resolve the conflict

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TradeCard Feature

• TradeCard awaits delivery confirmation from a third-party logistics services provider (3PL)– Industry terminology for a shipping company

• When confirmation is received and compliance met, TradeCard completes the financial transaction by sending request for payment to the buyer’s financial institution

• TradeCard enables large-scale and large-dollar commerce without credit-card payment through direct interaction with existing financial institutions

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4.10 TradeCard Feature

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E-Billing• Electronic Bill Presentment and Payment (EBPP)

– Offers ability to present a company’s bill on multiple platforms online and actual payment processes

– Payments are generally electronic transfers from consumer checking accounts, conducted through the ACH (Automated Clearing House)

• Current method for processing electronic monetary transfers

– Paytrust • Users send bills directly to Paytrust which scans them and

places them online • E-mails customers about newly arrived bills and payment-due

dates• Makes automatic payments on any bill up to a threshold

amount

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E-Billing• Services to enable EBPP on a company’s site

– Derivion • Provides billers with electronic capabilities in conjunction with

Paytrust’s service

• Offers billing companies the technology and expertise needed to transfer from paper to electronic billing through iNetBillerSM

– Encirq • Partners with banks that issue credit cards, presenting the

consumer with an illuminated statement (interactive statement, placing special offers from retail merchants to correspond with the itemized charges on a credit-card statement)  

• Builds highly specific consumer profiles each time charges is received

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CheckFree Feature• CheckFree is a consolidation service

– Can service any biller and present consumers with all their bills in one interactive online environment

• If the company or person you wish to pay does not offer electronic billing, you can still set up payment to them from any bank account using the pay everyone service

• For billers, the e-billing option adds convenience and lower costs

• All payments and outstanding bills can be tracked online and consumers have interactive access to their entire payment histories

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Summary

• We have looked at:– Credit Card Transactions– Digital Currency– E-Wallets– Smart Cards– Micropayments– Business to Business (B2B) transactions– E-Billing