Oz – Foundations of Electronic Commerce © 2002 Prentice Hall E-money

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall2 Learning Objectives Explain how a digital cash system is set up and used List and compare online alternatives to traditional payment methods Discuss the challenges of online micropayments Explain how online person-to-person payments are executed Appreciate the economic value of points programs on the Web

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall3 Money: it’s what we trust it is Two main purposes: A medium for storing value A medium of payment Money does not have to be represented by tangible objects electronic money is a viable alternative

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall E-money? What e-money?

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall5 Much of the world’s money is in electronic form In addition to the use of credit cards for online payments, purely electronic forms of payment are becoming increasingly popular

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall6 Digital coins DigiCash - the electronic version of cash Known as electronic cash, e-cash, or digital coins Both merchant and customer: must open an account with a bank that issues e-cash Must register with DigiCash to obtain the cyberwallet software (generates digital coins)

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall7 Advantages of e-cash It is simultaneously a payment mechanism and a system that protects personal information Difficult to forge secure

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall8 Disadvantages of e-cash huge databases The need to maintain huge databases of spent coins Inflexible Inflexible system Preset amounts No mechanism for giving change networking effect Not enough users to create a networking effect Government agencies and many financial institutions are so far unwilling to adopt it

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall A spin on traditional credit cards

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall10 E-wallet E-wallet - a variety of electronic information that aids in delivering personal and financial information for online purchases Software provided free of charge Some security measures

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall11 Virtual credit card A virtual credit card is linked to the digital information of a real credit card, but has no physical link to any plastic card Virtual credit cards use digital certificates

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall12 One-time credit cards one-time credit card The one-time credit card is a virtual card for which a new number is generated each time a purchase is made The number becomes invalid immediately after use

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall13 Metered payments Metered payments Metered payments are charged to an existing account with a provider of regular, metered services, e.g., Utility companies Telephone companies ISPs

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall14 Smart cards Payment cards that use computer technology to store/process information

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall15 stored value The major vehicle for the stored value model The holder pays to store value either: On a physical smart card, or In an electronic account

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall16 Two smart card technologies CONTACT CONTACT cards Must be inserted into a card reader NONCONTACT NONCONTACT cards Must pass near a reader antenna to carry out the transaction

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall17 Special readers Special devices must be attached to the computer from which one makes purchases Can be used for e-commerce only if such devices are hooked to individual computers

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall18 Confidentiality Cards designed for payments are such that usually the merchant cannot see the cardholder’s account number

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall19 Micropayments Micropayments - transactions worth “small money”, typically less than $5 Also known as microcash Several payment alternatives exist Metered bills Qpass – accumulates micropayments into an online account paid at the end of the month

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall20 Person-to-person (P2P) payments Service offered by several companies Some serious doubts about the validity of the business model Security challenges

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall21 Online stored value services Online account in which you can store value Replenished using a credit card or checking account Advantage to merchants Fees are lower than for credit cards Model is convenient for parents Limit children’s spending

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall22 Points “electronic coupons” Points can be gained by purchasing from many sources

Oz – Foundations of Electronic Commerce © 2002 Prentice Hall E-money