Chapter 12

Electronic Payment Systems

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Learning Objectives

1. Understand the shifts that are occurring with regard to noncash and online payments.

2. Discuss the players and processes involved in using credit cards online.

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

4. Discuss various online alternatives to credit card payments and identify under what circumstances they are best used.

5. Describe the processes and parties involved in e-checking.

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Learning Objectives

6. Describe payment methods in B2B EC, including payments for global trade.

7. Discuss electronic bill and invoice present and payment.

8. Understand the sales tax implications of e-payments.

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12.1 The Payment Revolution

Crucial factors that determine whether a method of e-payment achieves critical mass:IndependenceInteroperability and PortabilitySecurityAnonymityDivisibilityEase of UseTransaction FeesRegulations

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12.2 Using Payment Cards Online

payment card

Electronic card that contains information that can be used for payment purposes.Credit cardsCharge cardsDebit cards

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Using Payment Cards Online

PROCESSING CARDS ONLINEauthorization

Determines whether a buyer’s card is active and whether the customer has sufficient funds.

settlementTransferring money from the buyer’s to the merchant’s account.

payment service provider (PSP)A third-party service connecting a merchant’s EC systems to the appropriate acquirers; PSPs must be registered with the various card associations they support.

Using Payment Cards Online

FRAUDULENT CARD TRANSACTIONS Card verification number (CVN)

Detects fraud by comparing the verification number printed on the signature strip on the back of the card with the information on file with the cardholder’s issuing bank.Address Verification System (AVS)

VIRTUAL CREDIT CARDS

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12.3 Smart Cards

smart card

An electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card.

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Smart Cards

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Smart Cards

SECURING SMART CARDS

Smart cards store or provide access to either valuable assets or to sensitive information. Because of this, they must be secured against theft, fraud, or misuse. In general, smart card are more secure than conventional payment cards.

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12.4 Stored-Value Cards

stored-value card

A card that has monetary value loaded onto it and that usually is rechargeable.

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12.5 E-Micropayments

e-micropaymentsSmall online payments, typically under $5.

Five basic micropayment models:AggregationDirect paymentStored valueSubscriptionsÁ la carte

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12.6 E-Checking

e-check

A legally valid electronic version or representation of a paper check.

Automated Clearing House (ACH) Network

A nationwide batch-oriented electronic funds transfer system that provides for the interbank clearing of electronic payments for participating financial institutions.

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E-Checking

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12.7 Electronic Bill presentment and Payment

Electronic Bill presentment and Payment (EBPP)

One area where e-checks and the ACH play a prominent role is the area of e-billing; Paying recurring bills via the Internet. E-billing also is known as Electronic Bill presentment and Payment (EBPP).

Electronic Bill presentment and Payment

Types of E-billing

1) Online banking

2) Biller direct

3) Bill consolidator

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Exhibit 12.5

Exhibit 12.6

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12.8 B2B Electronic Payments

Current B2B payment practices

Enterprise invoice presentment and payment(EIPP)

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B2B Electronic Payments

EIPP ModelsSeller DirectBuyer DirectConsolidator

EIPP OptionsACH Networkpurchasing cards (p-cards)

Special-purpose payment cards issued to a company’s employees to be used solely for purchasing nonstrategic materials and services up to a preset dollar limit.

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B2B Electronic Payments

Fedwireletter of credit (L/C)

A written agreement by a bank to pay the seller, on account of the buyer, a sum of money upon presentation of certain documents.

12.9 The sales tax issue

Salestax.com.Sales tax clearinghouse.CyberSource.

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Exercises

Key teams

1. Automated clearing house

2. E-micropayment

3. Enterprise invoice presentment and payment

4. Letter of creditInternet exercises

1. Go to cybersource.com. Identify the services it provides for B2B e-payments. Describe the features of CyberSource’s major products that provide these merchant services.

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