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Chapter 5, Online Monetary Transactions – Internet

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Chapter 4, Online Monetary
Transactions
Outline
4.1
Introduction
4.2
Credit-Card Transactions
4.2.1
Anatomy of a Credit-Card Transaction
4.2.2
Credit-Card Transaction Enablers
4.3
Online Credit-Card Fraud
4.4
Digital Currency
4.5
E-Wallets
4.6
Alternate Consumer Payment Options
4.7
Peer-To-Peer Payment
4.8
Smart Cards
4.9
Micropayments
4.10
Business-To-Business (B2B) Transactions
4.11
E-Billing
4.12
Developing Payment Standards
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.1 Introduction
• Secure electronic funds transfer is crucial to ecommerce
• Examination of how individuals and organizations
conduct monetary transactions on the Internet
• Credit-card transactions, digital cash and ewallets, smart cards, micropayments and
electronic bill presentment and payment
• Electronic-payment enablers
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.2 Credit-Card Transactions
• Popular form of payment for online purchases
• Resistance due to security concerns
• Many cards offer capabilities for online and
offline purchases
– Prodigy Internet Mastercard
– American Express Blue
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.2 American Express: Enabling
Secure Payments on the Web
• Small business transactions
• Blue for Business
– Blue allows business owners to carry a balance and conduct
secure online and offline transactions
• American Express Purchase Protection Program
– Protects buyers against damaged goods
• Buyers Assurance Plan
– Offers an extended warranty on purchases made with the
Blue card
• Online WalletSM
– ExpressFormSM
– AutobuySM
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.2 American Express: Enabling
Secure Payments on the Web
• Private Payments
– Provides a unique account number for each individual
purchase
• American Express @ WorkSM
– Facilitates larger corporations with enhanced integration
technologies
• Online Program Management
– Allows corporations to manage the corporate accounts of a
large number of employees
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.2.1 Anatomy of an Online CreditCard 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.2.1 Anatomy of an Online CreditCard 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.2.1 Anatomy of an Online CreditCard Transaction
• Step 1
– Consumer makes a purchase at an online store, credit card
information received by e-store
• 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.2.2 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.
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.2.2 CyberCash Feature
• Enables businesses to receive payments through
Internet
– CashRegister
• Makes it possible for merchants to receive credit-card
numbers, offer the numbers to the appropriate financial
institution for validation and accept credit-card payments in a
secure environment over the Web
• Establishes direct connection between its servers and the Web
sites of its e-business customers
• Customer enters credit-card and shipping information
• Information sent to CyberCash for validation, once validation
is received, purchase can be completed and funds are
transferred electronically from customer accounts to
merchant’s account
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.2.2 CyberCash Feature
• CyberCash Instabuy allows customers to store
their purchasing information in an Instabuy ewallet
– An e-wallet electronically stores purchasing information
• Using redundant servers, or identical servers for
back up if one server fails, CyberCash is able to
minimize downtime
• CashRegister keeps track of transactions
• All financial information transmitted via the
Internet is encrypted and digitally signed
• CyberCash offers fraud detection to protect
merchants
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.2.2 CyberCash Feature
CyberCash FraudPatrol. (Courtesy of CyberCashв„ў, Inc.
CyberCash is a registered trademark of CyberCash Inc.,
in the United States and other countries.)
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.3 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”
• Mastercard
– Uses the three digit pin code on the back of the card
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.4 Digital Currency
• Digital 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.4 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
– Flooz
• Points-based rewards
– Points are acquired for completing specified tasks including
visiting Web sites, registering or buying products
– Points can then be redeemed
– Beenz
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.4 Digital Currency
Using eCash on the Web. (Courtesy of eCash Technologies, Inc.
and В©2000 eCash.)
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.5 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)
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.6 Alternate Consumer Payment
Options
• Checks or money orders through the mail
• Cash on delivery (COD)
• Debit cards
– Offer an alternative for card-holders to access their accounts
– Funds are instantly deducted from checking account
– Can withdraw cash from Automatic Teller Machines (ATMs)
• Checking-account numbers
– Companies such as AmeriNet allow merchants to accept
checking-account numbers as a valid form of payment
• AmeriNet provides authorization, account settlement,
distribution and shipping (fulfillment) and customer service
inquiries
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.6 Alternate Consumer Payment
Options
EntryPoint Internet Toolbar. (Courtesy of EntryPoint. Inc.)
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.7 Peer-To-Peer Payments
• Peer-to-peer transactions
– Allow online monetary transfers between consumers
– eCash allows the transfer of digital cash via e-mail between
two people who have accounts at eCash-enabled banks
– PayPal offers X payments
• Allows user to send money to anyone with an e-mail address
• Can be used to enable credit-card payment for auction items in
real time (the transaction begins processing immediately after
it is initiated), reducing the risk of fraud or overdrawn accounts
– BillPoint
• Allows buyers to submit electronic payments to sellers’
checking accounts
– Tradesafe.com (larger transactions, B2B)
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.8 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.9 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 enables companies to offer this option to customers
• eCharge uses ANI (Automatic Number Identification) to verify
the identity of the customer and the purchases they make
• Outsource payment-management systems (Qpass)
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.9 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.10 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
– Brick-and-mortar and electronic merchants choose from
transaction-processing options including debit cards, credit
cards, checks and EBT authorization and settlement
• EBT (Electronic Benefits Transfer)
– Defined by the USDA as the electronic transfer of
government funds to retailers for the benefit of the needy
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.10 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.10 Business-to-Business (B2B)
Transactions
• Electronic consolidation and reconciliation of the
business transaction process
– Companies can keep track of a transaction from order-tocash settlement while reducing administrative costs, errors,
waste and complexity in the supply chain
• eTime Capital
• 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.10 Business-to-Business (B2B)
Transactions
PAYTRUST SmartBalanceв„ў screen shot. (Courtesy of Paytrust, Inc.)
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.10 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.10 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.10 TradeCard Feature
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.11 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.11 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.11 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
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.12 Developing Payment Standards
• Essential to the success of e-commerce
• Businesses offering domestic and international
services must have assurance that payment will be
received, that it is secure and that it is valid
• Open Financial Exchange (OFX)
– Developed and presented by Intuit, Microsoft and Checkfree
in 1997
– To serve as a standard mechanism for the exchange of
financial information
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
4.12 Jalda Feature
• Developed by Ericsson
• An open standard online payment system that
connects content providers (anyone selling a good
or service on the Internet) with an Internet
Payment Provider (IPP)
• Accommodates transactions involving small fees
• Purchases can be made through the Web and using
wireless devices
• A PIN code authorizes the transaction
пѓ“ 2001 Prentice Hall, Inc. All rights reserved.
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