1. Chapter 5 Electronic Commerce | Payment Methods
Source: E-Commerce by K.C Laudon
Organize by - Qasim Rafique System Analyst (Hailey College of Commerce | University of the Punjab

2. E-Commerce Payment Methods
Cash On Delivery
Advance Payment
Check Payment
Branchless Banking Payments
Internet Banking
Stored Value Payment Systems
Credit Card Payments
Online stored value systems
Digital Wallet
Wireless Payment Systems
Electronic Billing Presentment and Payment (EBPP)
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3. Advance Payment
For more expensive purchases, the seller may require you to make an advance payment before he will dispatch the product. In this case, the advance payment has to be made to the seller’s bank account.
Upon receiving the payment, the seller will dispatch the product and the remaining amount has to be paid once you have received the item.
Example:
kaymu.pk
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4. Check Payment
Funds transferred directly via a signed draft or check from a consumer’s checking account to a merchant or other individual.
For Example: tcsconnect.com accept ….
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5. Branchless Banking Payments
Branchless banking is a payment strategy used for accepting payments without relying on bank branches.
For example tcsconnect.com accept payments through
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6. Internet Banking Payments
Online banking is also known as "Internet banking" or "Web banking”.
Accept Payments through Internet Banking such tcsconnect.com
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7. Stored Value Payment Systems
Accounts created by depositing funds into an account and from which funds are paid out or withdrawn as needed
Examples: Debit cards, PSO Cards, Phone prepaid cards, smart cards
Debit cards: Immediately debit a card holder account.
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8. Credit Card Payments
A credit card represents an account that extends credit to consumers, permits consumers to purchase items while deferring (postpone) payments.
Credit card associations or CCN such as Visa and MasterCard are organizations that set the standards for the banks that issue the credit cards.
The banks (issuing banks) are the institutions that actually issue the cards, process the transactions, receive and calculate the payments, and charge and receive the interest.
Third party processing centers (Payment Processors)or clearinghouses usually handle verification of accounts and balances.
On E-Commerce website SSL is required for accepting CC payments
Example: HBL Credit Card
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9. How Online Credit Cards Work
Parties Involve in Credit Card Transaction
Customer
Customer Bank
Merchant
Merchant Bank
Payment Gateway
Payment Processor
Credit Card Network
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10. Authorization Process
Merchant Receives Payment Information The first step involved in a transaction is the acceptance of credit card information by a merchant as a means of payment for products or services. The merchant can receive this payment through such methods as an Retail via ecommerce website shopping cart software, Wireless Retail via Mobile Phone, Retail via Software, Retail via Terminal.
Merchant Requests Authorization Once the merchant receives the credit card, an authorization must be given for the funds to be properly held for the merchant. This authorization request is performed by the “gateway” or “point-of-sale” terminal which requests an authorization (through Payment Process & CCN) from the issuing bank of the credit card.
Cardholders Bank Gives Authorization If the card is approved, meaning the account is in good standing and their is sufficient credit available, the Card Issuing Bank generates an authorization code. The code is sent back through the gateway or point-of-sale terminal. This authorization, along with other security verification such as address verification (AVS) and card ID Verification (CVV), is communicated back to the merchant.
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11. Settlement Process
Settlement of Transaction Upon completion of the transaction and transfer of goods or services, the merchant must settle the transaction in order to complete the sale and initiate the transfer of funds from the consumer's credit card account to the merchant's account. Most retail merchants will Authorize and Settle the transaction in one step. Many online merchants will use a two-step process, authorize first, then make sure the product is in stock, calculate shipping and then, settle the transaction.
"Batching Out“ All of the days transactions are then sent to the Merchant Processing Bank. Using the Authorization Codes and the Credit Card number, the transactions are sent to the corresponding Card Issuing Bank for payment.
Transfer of Funds The Card Issuing Bank verifies the Authorization Code and deducts the funds from the Cardholders Account and initiates a transfer of funds to the Merchant Processing Bank.
Merchant Deposit Upon verification from the issuing bank, approximately days after the transaction, funds are transfered to the Merchant's hometown deposit account.
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12. Payment Gateway Example
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13. Online Stored Value System
Online stored value systems allow customers to make instantaneous payments to various merchants contingent on the value they have stored in the system.
One of the most prominent examples of an online stored value system would be PayPal. PayPal works by linking the user’s online account with a credit, debit or checking account that he/she currently possesses.
When a transaction is processed, PayPal automatically debits the user’s account and credits the merchant’s account, without having to transfer any sensitive customer credit information. 
Other Examples
Alert Pay
Web Money
2Checkout
Google Checkout
Payza
Sage Pay
Dwolla
Open Pay
Go cardless
Net Banx
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14. Digital Wallet
Digital wallets strive to imitate the functionality of one’s everyday wallet. It strives to provide: 
The means to store and transfer value
The means to provide identification and authentication via encryption or certification
Security for the transaction process between merchant and consumer
Digital wallets make paying for purchases over the Web more efficient by eliminating the need for shoppers to enter their address and credit card information repeatedly each time they buy something.
A few examples of digital wallets are MSN wallet and Google’s Checkout.
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15. Wireless Payment Systems
Mean payments through wireless devices such as mobiles. Use of mobile handsets as payment devices well-established in Europe, Japan and South Korea.
Japanese mobile payment systems
E-money (stored value) , Mobile debit cards ,Mobile credit cards
Japanese cell phones act like mobile wallets, containing a variety of payment mechanisms. Also Consumers can pay merchants by simply waving the cell phone at a merchants payment device that accept payments. Because Japanese cell phones can act as bar code reader.
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18. Electronic Billing Presentment and Payment (EBPP)
Electronic billing presentment and payment systems EBPPS are used for paying routine monthly bills. They enable users to view their bills electronically and pay them through electronic fund transfers from bank or credit card accounts.
These services support payment for online and physical store purchases of goods or services after the purchase has taken place. They notify purchasers about bills that are due, present the bills, and process the payments.
Companies implementing a biller – direct system can either develop their own system in-house, install a system acquired from a third-party (outsource) EBPP software vendor or by other mean such as from Application Service Provider.
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20. Two competing EBPP business models:
Biller-direct (dominant model) Model
The biller – direct system was originally created by utility companies that send millions fo bills each month. Their purpose is to make it easier for their customers to pay their utility bills routinely online. Today, telephone and credit card companies also often offer this service, as well as number of individual stores (such as in USA).
Consolidator Model
In this model, a third party, such as a financial institution (banks) or portal, aggregates all bills for consumers and ideally permits on – stop bill payment. Financial institutions have been more successful than portals (such as Yahoo! Bill Pay) in attracting online bill payers.
There are two types of Consolidators
i. Think Consolidator
In thick consolidation, both the bill summary and bill detail are stored at the consolidator's site.
ii. Thin Consolidator
In thin Consolidation , only the summary bill information is available, and the consumer must click on a link to access a detailed bill that is stored at another location, such as the biller’s site or elsewhere.
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21. Biller’s Direct Model
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22. Consolidator Model
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23. The consolidator Model faces several challenges.
For billers, using the consolidator model means an increased time lag between billing an payment, and also inserts an intermediary b/w the company and its customer.
For consumers, security continues to be major issue. Most consumers are unwilling to pay any kind of fee to pay bills online, and many are concerned about sharing personal financial information with non – financial institutions.
Today more and more banks are offering online bill payment free to some or all of their customers as an enticement.
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