© Gene Yelle - & Prentice-Hall All rights reserved. CHAPTER 11 E-Commerce Payment Systems

© Gene Yelle - & Prentice-Hall All rights reserved. E-Commerce Payment Technology Electronic Checking Credit Cards Stored Value Cards & Systems Electronic Cash Electronic Bill Presentment & Payment (EBPP)

© Gene Yelle - & Prentice-Hall All rights reserved. E-Commerce Payment Technology  No Universal System  Still in Infancy  E-Commerce Site Owner must make decision on which payment types to employ.  World Wide Web Consortium (W3C) develops fundamental standards.(W3C)  Use – determines public acceptance.

© Gene Yelle - & Prentice-Hall All rights reserved. Micro-payment Issues Micro-payments are small denomination transactions (generally less than $5.00). Not profitable to use credit card technology (Cost relative to value of the sale) Best accommodated by systems like eCharge & Valista that work via telephone systems.

© Gene Yelle - & Prentice-Hall All rights reserved. CHECKS Can be used for both small and large transactions Introduce security risks for merchants (forgeries, stopped payments), so authentication typically required

© Gene Yelle - & Prentice-Hall All rights reserved. CREDIT CARDS Most Used for E-Commerce (80% in 2005) Most practical for transactions over $5.00 Some float Introduce security risks for merchants (Stolen Cards, Stolen Account Numbers, etc)

© Gene Yelle - & Prentice-Hall All rights reserved. STORED VALUE CARDS & SYSTEMS Accounts created by depositing funds into an account and from which funds are paid out as needed –Examples: Debit cards, gift certificates, prepaid cards, smart cards, PayPal-Online System –Debit cards: Immediately debit a checking or other demand-deposit account

© Gene Yelle - & Prentice-Hall All rights reserved. ELECTRONIC CASH Must be Convenient Should not be easily forged or re-used One Solution is e-Charge which bills the transaction to your Telephone Bill.

© Gene Yelle - & Prentice-Hall All rights reserved. Electronic Bill Presentment & Payment (EBPP) Enables electronic bill payment (EBPP) through your bank (e.g., utilities, phone, etc.) CheckFree is the primary operator in US (Recently Acquired by Fserve) Checkfree is the “transparent application used to facilitate EBPP by many financial institutionsCheckFree

© Gene Yelle - & Prentice-Hall All rights reserved. Electronic Bill Presentment & Payment (EBPP) EBPP has grown from 12 Million U.S. households (11%) in 2001 to 61 million households (50%) in 2007

© Gene Yelle - & Prentice-Hall All rights reserved.

Major Players in the Electronic Bill Presentment & Placement (EBPP) Market Space Company facilitates its own transactions Consolidator facilitates transactions

© Gene Yelle - & Prentice-Hall All rights reserved. Electronic (Digital) Wallets  Holds Electronic Information Related to: (Credit Cards, Owner Identification, Digital Certificate, Address, etc.)  Provides Information to the E-Commerce Site at Checkout.  Reduces Need to enter Repetitive Information.  Examples: Microsoft Passport, Yahoo! Wallet, Visa Wallet.Passport

© Gene Yelle - & Prentice-Hall All rights reserved. Credit Card Transactions  Web Site must be “Transaction Enabled” (AKA an “E-commerce” site)  E-Commerce firm establishes a Merchant Account with an Acquiring Bank (Merchant Bank)  E-Commerce Site is configured to route transaction to Merchant Bank, using a Payment Processor (e.g., Paymentech, AuthorizeNet, Verisign).  Funds are Drawn on Buyer’s Issuing Bank – (Bank That Issues Card to Purchaser)

© Gene Yelle - & Prentice-Hall All rights reserved. An On-Line Credit Card Transaction Using SSL (Acquiring Bank)

© Gene Yelle - & Prentice-Hall All rights reserved.  Security - The consumer can be fully Authenticated.  Merchant Risk - Repudiated charges (Charge backs), Fraud, etc.  Merchant Cost - Set-up Fees, Monthly Fees, Transaction Fees.  Social Issues - Some people do not have credit cards. - Almost 100 million adult Americans are considered poor credit risks. Online Credit Card Issues

© Gene Yelle - & Prentice-Hall All rights reserved. Debit Cards  Issued by your local bank.  Provides a Secure, PIN-Protected Transaction.  Fast-Growing Segment for E-Commerce.

© Gene Yelle - & Prentice-Hall All rights reserved. Smart Cards as Stored-Value Systems Credit-card sized plastic cards that have embedded chips that can store “digital cash” and/or personal information. Still in infancy in U.S.

© Gene Yelle - & Prentice-Hall All rights reserved.  - Fusion Smart VISA  Mondex Mondex  American Express - Blue American Express - Blue Major Smart Card Providers

© Gene Yelle - & Prentice-Hall All rights reserved. Online Systems - 3 rd Party Payment Processors  Example: (Paypal owned by eBay).Paypal  Transaction is Processed by 3 rd -Party Processor.  Seller Pays Transaction Fee.  Seller does not need a Merchant Account.

© Gene Yelle - & Prentice-Hall All rights reserved. Future Applications Wireless Payment Systems using Cell Phone Technology (Already well established in Europe, Japan & S. Korea)

© Gene Yelle - & Prentice-Hall All rights reserved. Online Payment Methods Source: CyberSource Corp, 2007, U.S. Census Bureau. Adapted from E-Commerce – Laudon & Traver Text © 2008 Prentice-Hall

© Gene Yelle - & Prentice-Hall All rights reserved. Business-to-Business (B2B)  Transaction Elements - (Purchase Order, Invoice, Statement, etc.)  Trending towards Electronic Bill Presentation & Payment (EBPP).  Electronic Payments are More Efficient & have a Lower Cost per Transaction.  Often involve EDI and/or XML based systems.