traditional and electronic payment methods chapter 3
TRANSCRIPT
Traditional and Electronic Payment Methods
Chapter 3
Money and Banking
Money serves as a measure of value, a medium of exchange
Money exists in a number of forms Cash
– Coin, paper money
Near Cash– Checks, drafts, money orders, credit cards
Check Processing
Encryption/Decryption of Transactions
Check
A written order on a bank or other financial institution to pay money belonging to the signer to the presenter of the check
The most popular offline settlement method Good for e-commerce?
What is a cashier’s check? Checks have been around how long?
Money Order
An order for the payment of a specified amount of money
Usually issued by the post office or a bank or other financial institution
Popular with people who do not have bank accounts or where checks are not acceptable
Good for e-commerce?
Credit Card
Used to settle charges for goods or services Card holders pay their bills monthly and pay
interest on unpaid account balances Issued by banks or financial institutions Visa and MasterCard are clearinghouses for
member institutions Other credit card types?
Charge Cards
Similar to credit cards Customer pays bill in full each month AMEX card is a popular example Diners Club another example
Debit Cards
Similar to credit card in operation from merchant’s perspective
Similar to a check from customer’s perspective
Pros & Cons
Payment Processing
A merchant must have– A merchant account– Payment processing software– Procedures to protect customers and guard
against fraud
Merchant Account
An account with a financial institution to accept charges
Must apply for account and be accepted Supply bank with financial information (p. 73)
about anticipated transaction volume and type of business
The bank charges for this service
Merchant Account
Chargebacks result from customer refusal to pay a charge for a number of reasons, including returned goods, billing errors, and fraudulent charges.
Chargebacks can be expensive and the bank may charge higher fees for higher risk enterprises and “situations.”
High Risk Factors
Customer not present (telephone and Internet sales)
High risk products or services (gambling, “politically incorrect,” or non-traditional products)
Payment Processing Software
Software to facilitate authorization of customer charges to credit or debit charge account.
Alternative is to outsource to 3rd party for a fee.– Authorize.Net– CyberCash– ICVerify
Verification Software
Security for Charge Settlement
Security must be provided for customer transaction.
Secure Sockets Layer (SSL) technology provides encrypted transmission of data between customer and a secure server.– Encryption terms p. 76
Authentication
SSL requires a digital certificate that verifies a sender’s identity.
An e-business obtains its certificate from a certificate authority such as VeriSign.
Secure Electronic Transactions (SET) – p. 77 E-wallet – p. 78
A Digital Certificate
Fraud
Credit card fraud is a major problem– Online CC fraud 12x more than traditional
As high as 1.15% of online transactions were found to be fraudulent vs. .06-.09% traditional
Charge backs– Online – 64% ; Traditional – 44%
Security: how much do you want? – Too much will cost sales but reduce fraud to nearly nothing,
and too little will result in higher losses.
Security Measures – p. 79
Verify validity of charge. Ship via currier and require receipt signature. Require and verify the complete address and
telephone number of customer. Reject orders from anonymous email
addresses.
Disposable credit card numbers
Electronic Payment Forms
Various alternative payment forms include: Electronic Cash
– Electronic checks– Smart cards– Person-to-person payment systems
2001 – CC 95% of online purchases Projected 2003 – CC 75-81% - reality?
Electronic Cash
Variety of products available Allow for online purchases without a credit
account Allow customer to avoid sharing account data
while guaranteeing payment to vendor Examples
– Beenz– Cybergold– Flooz
Smart Cards
A store value card Popular in Europe (Mondex); not yet
common in North America Needs special equipment to work with a PC
Electronic Checks
An electronic version of a paper check Essentially a form of Electronic Funds
Transfer (EFT) $.50 vs. $.75-$3.00 processing costs
Scanned via MICR – account #, routing #, & check serial #
www.paybycheck.com
Person to Person Systems
A way to send money, a funds transfer
www.paypal.com
Person to Person Payment
Person to Person (P2P) System