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 вЂў Secure electronic funds transfer is crucial to ecommerce вЂў Examination of how individuals and organizations conduct monetary transactions on the Internet вЂў Credit-card transactions, digital cash and ewallets, smart cards, micropayments and electronic bill presentment and payment вЂў Electronic-payment enablers пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.2 Credit-Card Transactions вЂў Popular form of payment for online purchases вЂў Resistance due to security concerns вЂў Many cards offer capabilities for online and offline purchases вЂ“ Prodigy Internet Mastercard вЂ“ American Express Blue пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.2 American Express: Enabling Secure Payments on the Web вЂў Small business transactions вЂў Blue for Business вЂ“ Blue allows business owners to carry a balance and conduct secure online and offline transactions вЂў American Express Purchase Protection Program вЂ“ Protects buyers against damaged goods вЂў Buyers Assurance Plan вЂ“ Offers an extended warranty on purchases made with the Blue card вЂў Online WalletSM вЂ“ ExpressFormSM вЂ“ AutobuySM пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.2 American Express: Enabling Secure Payments on the Web вЂў Private Payments вЂ“ Provides a unique account number for each individual purchase вЂў American Express @ WorkSM вЂ“ Facilitates larger corporations with enhanced integration technologies вЂў Online Program Management вЂ“ 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 вЂў To accept credit-card payments, a merchant must have a merchant account вЂў Traditional merchant accounts accept only POS (point-of-sale) transactions вЂ“ Transactions that occur when you present your credit card at a store вЂў Card-not-present (CNP) transaction вЂ“ Merchant does not see actual card being used in the purchase вЂў Authentication вЂ“ 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 вЂў Authorization вЂ“ The money is available to complete the transaction вЂў Acquiring bank вЂ“ The bank with which the merchant holds an account вЂў Issuing bank вЂ“ The bank from which the buyer obtained the credit card, and the credit-card association вЂў Verification вЂў 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 вЂў Step 1 вЂ“ Consumer makes a purchase at an online store, credit card information received by e-store вЂў Step 2 вЂ“ Credit card information is sent from the merchant to the acquiring bank вЂў Step 3 and Step 4 вЂ“ The credit card association and the issuing bank certify the transaction and the verification is sent to the acquiring bank вЂў Step 5 вЂ“ The merchant ships the product and payment is issued пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.2.2 Credit-Card Transaction Enablers вЂў Credit-Card Transaction Enablers вЂ“ Companies that have established business relationships with financial institutions that will accept online credit-card payments for merchant clients вЂў вЂў вЂў вЂў iCat Trintech Cybercash NextCard, Inc. пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.2.2 CyberCash Feature вЂў Enables businesses to receive payments through Internet вЂ“ CashRegister вЂў 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 вЂў Establishes direct connection between its servers and the Web sites of its e-business customers вЂў Customer enters credit-card and shipping information вЂў Information sent to CyberCash for validation, once validation is received, purchase can be completed and funds are transferred electronically from customer accounts to merchantвЂ™s account пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.2.2 CyberCash Feature вЂў CyberCash Instabuy allows customers to store their purchasing information in an Instabuy ewallet вЂ“ An e-wallet electronically stores purchasing information вЂў Using redundant servers, or identical servers for back up if one server fails, CyberCash is able to minimize downtime вЂў CashRegister keeps track of transactions вЂў All financial information transmitted via the Internet is encrypted and digitally signed вЂў 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 вЂў Chargeback вЂ“ When a credit-card holder claims a purchase was made by an unauthorized individual, or when a purchase was not received вЂ“ The charges in question are not the responsibility of the credit-card holder вЂ“ On the Internet, neither a scan of the card nor a signature is registered and the cost is incurred by the merchant вЂў Visa вЂ“ High-risk business models вЂ“ вЂњBest PracticesвЂќ вЂў Mastercard вЂ“ Uses the three digit pin code on the back of the card пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.4 Digital Currency вЂў Digital cash вЂ“ Stored electronically, used to make online electronic payments вЂ“ Similar to traditional bank accounts вЂ“ Used with other payment technologies (digital wallets) вЂ“ Alleviates some security fears online credit-card transactions вЂ“ Allows those with no credit cards to shop online вЂ“ Merchants accepting digital-cash payments avoid credit-card transaction fees вЂ“ 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 вЂў Gift cash, often sold as points, can be redeemed at leading shopping sites вЂ“ An effective way of giving those without credit cards, the ability to make purchases on the Web вЂ“ Flooz вЂў Points-based rewards вЂ“ Points are acquired for completing specified tasks including visiting Web sites, registering or buying products вЂ“ Points can then be redeemed вЂ“ 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 вЂў E-wallets вЂ“ Keep track of your billing and shipping information so that it can be entered with one click at participating sites вЂ“ Store e-checks, e-cash and credit-card information вЂў Credit-card companies offer a variety of e-wallets вЂ“ Visa e-wallets вЂ“ MBNA e-wallet allows one-click shopping at member sites вЂ“ Entrypoint.com offers a personalized desktop toolbar that includes an e-wallet вЂў 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 вЂў Checks or money orders through the mail вЂў Cash on delivery (COD) вЂў Debit cards вЂ“ Offer an alternative for card-holders to access their accounts вЂ“ Funds are instantly deducted from checking account вЂ“ Can withdraw cash from Automatic Teller Machines (ATMs) вЂў Checking-account numbers вЂ“ Companies such as AmeriNet allow merchants to accept checking-account numbers as a valid form of payment вЂў 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 вЂў Peer-to-peer transactions вЂ“ Allow online monetary transfers between consumers вЂ“ eCash allows the transfer of digital cash via e-mail between two people who have accounts at eCash-enabled banks вЂ“ PayPal offers X payments вЂў Allows user to send money to anyone with an e-mail address вЂў 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 вЂ“ BillPoint вЂў Allows buyers to submit electronic payments to sellersвЂ™ checking accounts вЂ“ Tradesafe.com (larger transactions, B2B) пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.8 Smart Cards вЂў Smart card вЂ“ Card with computer chip embedded on its face, holds more information than ordinary credit card with magnetic strip вЂ“ Contact smart cards вЂў To read information on smart cards and update information, contact smart cards need to be placed in a smart card reader вЂ“ Contactless smart cards вЂў Have both a coiled antenna and a computer chip inside, enabling the cards to transmit information вЂ“ Can require the user to have a password, giving the smart card a security advantage over credit cards вЂў Information can be designated as "read only" or as "no access" вЂў Possibility of personal identity theft пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.9 Micropayments вЂў Merchants pay fee for each credit-card transaction вЂў Micropayments вЂ“ Payments that generally do not exceed $10, allows companies offering nominally priced products to profit вЂў To offer micropayments, some companies form strategic partnerships with utility companies вЂ“ eCharge enables companies to offer this option to customers вЂў eCharge uses ANI (Automatic Number Identification) to verify the identity of the customer and the purchases they make вЂў Outsource payment-management systems (Qpass) пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.9 Millicent Feature вЂў Millicent is a micropayment technology provider вЂў 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 вЂў 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 вЂў Business-to-business (B2B) transactions вЂ“ Fastest growing sector of e-commerce payments вЂ“ Payments are often larger than B2C transactions and involve complex business accounting systems вЂў PaymentechTM вЂ“ Payment solution provider for Internet point-of-sale transactions вЂ“ Brick-and-mortar and electronic merchants choose from transaction-processing options including debit cards, credit cards, checks and EBT authorization and settlement вЂў EBT (Electronic Benefits Transfer) вЂ“ 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 вЂў eCredit provides real-time, credit-transaction capabilities of B2B size вЂў Clareon facilitates B2B transactions by providing digital payment and settlement services вЂ“ Payment is digitally signed, secured and authenticated via digital payment authentication (DPA) вЂ“ 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 вЂў Electronic consolidation and reconciliation of the business transaction process вЂ“ Companies can keep track of a transaction from order-tocash settlement while reducing administrative costs, errors, waste and complexity in the supply chain вЂў eTime Capital вЂў Order-fulfillment providers вЂ“ Companies attempting to bring supply chain expertise and logistical services to Internet businesses вЂў 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 вЂў Provides a global B2B e-commerce infrastructure вЂ“ Cross-border data management and payment вЂў Buyer creates pre-formatted electronic purchase order and presents document to seller вЂў Purchase order data stored electronically in TradeCard database, and electronic invoices and packing slips are produced from data вЂў Uses a patented "data compliance engine" to check documents against original purchase order вЂ“ 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 вЂў TradeCard awaits delivery confirmation from a third-party logistics services provider (3PL) вЂ“ Industry terminology for a shipping company вЂў When confirmation is received and compliance met, TradeCard completes the financial transaction by sending request for payment to the buyerвЂ™s financial institution вЂў 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 вЂў Electronic Bill Presentment and Payment (EBPP) вЂ“ Offers ability to present a companyвЂ™s bill on multiple platforms online and actual payment processes вЂ“ Payments are generally electronic transfers from consumer checking accounts, conducted through the ACH (Automated Clearing House) вЂў Current method for processing electronic monetary transfers вЂ“ Paytrust вЂў Users send bills directly to Paytrust which scans them and places them online вЂў E-mails customers about newly arrived bills and payment-due dates вЂў Makes automatic payments on any bill up to a threshold amount пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.11 E-Billing вЂў Services to enable EBPP on a companyвЂ™s site вЂ“ Derivion вЂў Provides billers with electronic capabilities in conjunction with PaytrustвЂ™s service вЂў Offers billing companies the technology and expertise needed to transfer from paper to electronic billing through iNetBillerSM вЂ“ Encirq вЂў 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) вЂў Builds highly specific consumer profiles each time charges is received пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.11 CheckFree Feature вЂў CheckFree is a consolidation service вЂ“ Can service any biller and present consumers with all their bills in one interactive online environment вЂў 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 вЂў For billers, the e-billing option adds convenience and lower costs вЂў 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 вЂў Essential to the success of e-commerce вЂў Businesses offering domestic and international services must have assurance that payment will be received, that it is secure and that it is valid вЂў Open Financial Exchange (OFX) вЂ“ Developed and presented by Intuit, Microsoft and Checkfree in 1997 вЂ“ To serve as a standard mechanism for the exchange of financial information пѓ“ 2001 Prentice Hall, Inc. All rights reserved. 4.12 Jalda Feature вЂў Developed by Ericsson вЂў 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) вЂў Accommodates transactions involving small fees вЂў Purchases can be made through the Web and using wireless devices вЂў A PIN code authorizes the transaction пѓ“ 2001 Prentice Hall, Inc. All rights reserved.