Chapter 11 Electronic Commerce Payment Systems

Learning Objectives 1.Describe the situations where micropayments are used and alternative ways to handle these situations. 2.Discuss the different payment cards used online and processing methods. 3.Discuss the different categories and potential uses of smart cards. 4.Discuss stored-value cards and identify under what circumstances they are used best.

Learning Objectives 5.Describe micropayments online. 6.Describe the processes and parties involved in e- checking. 7.Understand the major types and methods of mobile payments. 8.Describe payment methods in B2B EC, including payments for global trade. 9.Describe emerging EC payment systems.

The Payment Revolution The success of any e-payment system depends on: o Independence o Interoperability and portability o Security o Anonymity o Divisibility o Ease of use o Transaction fees o International support o Regulations The PayPal Alternative o Person-to-Person (P2P) Payments Digital Currencies o *Digital (virtual) currency

Using Payment Cards Online * Payment cards o Credit cards o Charge cards o Debit cards Processing Cards Online o *Authorization o *Settlement

Using Payment Cards Online The following are the processing options: o Own the payment software o Use a point-of-sale (POS) system operated by a card acquirer o Use a POS system operated by a payment service provider *Payment service providers (PSPs)

Using Payment Cards Online The major parties in processing card payments online are: o Customer o Merchant o Issuing bank o Acquiring bank o Credit card association o Payment service provider o Credit Card Reading Stationary card readers Portable card readers Mobile readers Image readers

Credit Card Payment Procedure (Drawn by J. K. Lee)

Using Payment Cards Online Fraudulent Card Transactions—key tools used in combating fraud are: o Certificate and Digital Signature o Address verification *Address Verification System (AVS) o Manual review o Fraud screens and automated decision models o *Card verification number (CVN ) o Card association payer authentication services o Negative lists

Smart Cards * Smart Cards Types of Smart Cards o *Contact card o *Contactless (proximity) card o *Smart card reader *Stored-Value Cards Applications of Smart Cards o Retail Purchases o Transit Fares

Singapore Electronic Road Pricing System Photo taken by J. K. Lee March 2013

Micropayments *Micropayments or e-micropayments Five basic micropayment models: 1.Aggregation 2.Direct payment 3.Stored value 4.Subscriptions 5.À la carte

E-Checking *Electronic check (e-check) *Automated Clearing House (ACH) Network E-check processing provides a number of benefits: o It expedites the checkout time during shopping. o It reduces the merchant’s processing costs. o Merchants receive funds more quickly. o It is more secure than a paper system with less probability of fraud. o It reduces the processing time of bounced checks. o There are fewer errors.

Processing E-Checks with Authorize.net Drawn by J. K. Lee

Mobile Payments * Mobile Payments Mobile Proximity Payments o *Mobile (digital) wallet o The Near Field Communication Standards o The Bluetooth Low Energy Mobile Remote Payments

Process of Mobile Payment Service Drawn by J. K. Lee

Mobile Payments Mobile Payment Participants and Issues o To successfully implement mobile payments, it is necessary to overcome the following issues: For Buyer: Security (fraud protection), privacy, ease of use, choice of mobile device. For Seller: Security (getting paid on time), low cost of operations, adoption by sufficient number of users, improved speed of transactions. For Network Operator: Availability of open standards, cost of operation, inter-operability, and flexibility and roaming. For Financial Institutions: Fraud protection and reduction, security (authentication, integrity, non- repudiation; see Chapter 10), and reputation.

Mobile Payments Mobile POS Payments o Innovative POS Mobile Payments Systems MasterPass ™ : Automating the Shopping and Payment Processes o Eliminating Credit Cards o Innovative Social Commerce Payments o Apple and Mobile Payment Processing

B2B and International Electronic Payments B2B Payment Practices in the Financial Supply Chain Enterprise Invoice Presentment and Payment o *Electronic Invoice Presentment and Payment (EIPP) o The EIPP Models Seller Direct Buyer Direct Consolidator o EIPP Options ACH Network *Purchasing cards (p-cards) Fedwire or Wire Transfer

B2B and International Electronic Payments International Payments o Letters of Credit for Global Payments *Letter of credit (L/C ) o Digital River’s World Payment

Emerging EC Payment Systems and Issues Bitcoin: Ups and Downs but Alive o *Bitcoin Other Interesting Systems o Coin (the “All in One” Credit Card) o TrialPay o Amazon Payments o Miscellaneous Systems

Managerial Issues 1.What payment methods should your B2C site support? 2.What micropayment strategy should your e- marketplace support? 3.Which mobile systems could influence your business? 4.Should we outsource our payment gateway service? 5.How secure are e-payments? 6. What B2B payment methods should we use?

Summary 1.Payment revolution and micropayments. 2.Using payment cards online. 3.Smart cards. 4.Stored-value cards. 5.Micropayments. 6.E-checking. 7.Mobile payments. 8.B2B electronic payments. 9.Emerging EC payment systems.