Digital Digital Payment SystemsPayment Systems

Learning ObjectivesLearning Objectives

Most common payment systems

General types of payment systems

Need for e-commerce payment systems

Digital wallets

Types of e-commerce payment systems

Credit cards

Digital cash

Online stored value system

Digital accumulating balance payment system

Electronic billing presentment and payment systems

Most Common Payment Systems, Based on Number or TransactionsMost Common Payment Systems, Based on Number or Transactions

Most Common Payment Systems, Based on Dollar AmountMost Common Payment Systems, Based on Dollar Amount

General Types of Payment SystemsGeneral Types of Payment Systems

Cash Checking Transfer

Funds transferred directly via a signed draft or check from a consumer’s checking account to a merchant or other individual

Credit card Processing centers or clearing houses handle verification of

accounts and balances Stored value payments systems

accounts created by depositing funds into an account and from which funds are paid out or withdrawn as needed

Accumulating balance payment systems accounts that accumulate expenditures and to which consumers

make periodic payments

e-Commerce Payment Systemse-Commerce Payment Systems

Credit card

Digital cash

generate a private form of currency that can be spent at e-

commerce sites

Online store value systems

rely on prepayments, debit cards, or checking accounts to

create value in an account that can be used for e-commerce

shopping

Digital accumulating balance payment systems

accumulate small charges and bill the consumer periodically.

These systems are especially suited for processing

micropayments for digital accounts

How an Online Credit Card Transaction WorksHow an Online Credit Card Transaction Works

Limitations of Online Credit Card Payment SystemsLimitations of Online Credit Card Payment Systems

Security Neither the merchant not the consumer can be fully

authenticated

Merchant Risk Consumers can repudiate charges

Cost Roughly 3.5% of purchase plus transaction fee

Social Equity Young adults do not have credit cards

Almost 100 million adult Americans cannot afford cards or are

considered poor risks

B2C Digital Payment Systems

Digital Wallets

Digital Cash Online Stored Value Systems

Smart Card Stored Value Systems

Digital Accumulating Balance Payment Systems

Digital Credit Card Payment Systems

Digital Checking Payment Systems

Digital Wallets

Authenticates the consumer through the use of digital

certificates or other encryption methods,

stores and transfers value, and

secures the payment process from the consumer to the

merchant

Fill out order forms

Promised Functionality of Digital WalletsPromised Functionality of Digital Wallets

Types of Digital WalletsTypes of Digital Wallets

Types of Digital WalletsTypes of Digital Wallets

Client-based digital wallets software applications that consumers install on their computer, and that

offer consumer convenience by automatically filling out forms at online

stores

Server-based digital wallets software-based authentication and payment services and products sold

to financial institutions that market the systems to merchants either

directly or as a part of their financial service package

eeWalletWallet

Developed by Launchpad Technologies

Free wallet software that stores credit card and personal

information on users’ computer, not on a central server;

information is dragged into payment form from eWallet

Information is encrypted and password protected

Works with Netscape and Internet Explorer

MicrosoftMicrosoft Wallets Wallets

Comes pre-installed in Internet Explorer 4.0, but not in

Netscape

All information is encrypted and password protected

Microsoft Wallet Merchant directory shows merchants

setup to accept Microsoft Wallet

Microsoft WalletMicrosoft Wallet

How Microsoft’s Passport Wallet WorksHow Microsoft’s Passport Wallet Works

W3C Proposed Standard for Electronic WalletsW3C Proposed Standard for Electronic Wallets

World Wide Web Consortium (W3C) is attempting

to create an extensible and interoperable method

of embedding micropayment information on a

web page

Extensible systems allow improvement of the

system without eliminating previous work

W3C Proposed Standard for Electronic WalletsW3C Proposed Standard for Electronic Wallets

Merchants to accept several payment options to insure

the widest possible Internet audience

Merchants must embed in their Web page payment

information specific to each payment system

This redundancy spurred W3C to develop common

standards for Web page markup for all payment

systems

Must move quickly to prevent current methods from

becoming entrenched

Digital CashDigital Cash

Also called e-cash

Digital forms of value storage or value exchange that have

limited convertibility into other forms of value and require

intermediaries to convert

Examples of Digital CashExamples of Digital Cash

Digicash: How First Generation Digital Cash WorkedDigicash: How First Generation Digital Cash Worked

Online stored value systemsOnline stored value systems

permit consumers to make instant, online payments to

merchants and other individuals based on value stored in an

online account

Smart cards as store value systems are based on credit-card-

sized plastic cards that have embedded chips that store

personal information

Online Stored Value SystemsOnline Stored Value Systems

How Ecount.com Works: A Stored Value SystemHow Ecount.com Works: A Stored Value System

Digital Accumulating Balance Payment SystemsDigital Accumulating Balance Payment Systems

Allow users to make micropayments and purchases on the

Web, accumulating a debit balance for which they are billed

at the end of the month

Digital Accumulating Balance Payment SystemsDigital Accumulating Balance Payment Systems

Digital Credit Card Payment SystemsDigital Credit Card Payment Systems

Seek to extend the functionality of existing credit

cards for use as online shopping payment tools

How a Digital Credit Card Payment System WorksHow a Digital Credit Card Payment System Works

Digital Checking Payment SystemsDigital Checking Payment Systems

Seek to extend the functionality of existing checking

accounts for use as online shopping payment tools

How Digital Checking Works: EcheckHow Digital Checking Works: Echeck

Smart CardsSmart Cards

Available for over 10 years So far not successful in U.S., but popular in Europe, Australia, and

Japan Unsuccessful in U.S. partly because few card readers available Smart cards gradually reappearing in U.S.; their success depends on:

Critical mass of smart cards that support applications Compatibility between smart cards, card-reader devices, and

applications

Mondex Smart CardMondex Smart Card

Holds and dispenses electronic cash

Developed by MasterCard International

Requires specific card reader for the merchants

and/or customers to use card over Internet

Supports micro-payments as small as 3 cents and

works both online and off-line at stores or over the

telephone

Mondex Smart CardMondex Smart Card

Disadvantages

Card carries real cash in electronic form,

creating the possibility of theft

No deferred payment as with credit cards.

Cash is dispensed immediately

Mondex Smart Card ProcessingMondex Smart Card Processing

B2B Payment SystemsB2B Payment Systems

More complex than B2C systems

Must link into exist ERP and EDI systems

Two main types Systems that replace traditional banks

Existing banking systems extending to the B2B marketplace

Key Features of B2B Payment SystemsKey Features of B2B Payment Systems

Electronic Billing Presentation and PaymentElectronic Billing Presentation and Payment

New forms of online payment systems for monthly bills

Allow consumers to view bills electronically and pay

them through electronic funds transfers from bank or

credit card accounts

Electronic Billing Presentation and PaymentElectronic Billing Presentation and Payment Growth of EBPP MarketGrowth of EBPP Market

Electronic Billing Presentation and PaymentElectronic Billing Presentation and Payment Types of EBPP SystemsTypes of EBPP Systems