1. Digital Payment Systems

2. Learning Objectives Most common payment systems
General types of payment systems
Need for e-commerce payment systems
Digital wallets
Types of e-commerce payment systems
Credit cards
Digital cash
Online stored value system
Digital accumulating balance payment system
Electronic billing presentment and payment systems

3. Most Common Payment Systems, Based on Number or Transactions

4. Most Common Payment Systems, Based on Dollar Amount

5. General Types of Payment Systems
Cash
Checking Transfer
Funds transferred directly via a signed draft or check from a consumer’s checking account to a merchant or other individual
Credit card
Processing centers or clearing houses handle verification of accounts and balances
Stored value payments systems
accounts created by depositing funds into an account and from which funds are paid out or withdrawn as needed
Accumulating balance payment systems
accounts that accumulate expenditures and to which consumers make periodic payments

6. e-Commerce Payment Systems
Credit card
Digital cash
generate a private form of currency that can be spent at e-commerce sites
Online store value systems
rely on prepayments, debit cards, or checking accounts to create value in an account that can be used for e-commerce shopping
Digital accumulating balance payment systems
accumulate small charges and bill the consumer periodically.
These systems are especially suited for processing micropayments for digital accounts

7. How an Online Credit Card Transaction Works

8. Limitations of Online Credit Card Payment Systems
Security
Neither the merchant not the consumer can be fully authenticated
Merchant Risk
Consumers can repudiate charges
Cost
Roughly 3.5% of purchase plus transaction fee
Social Equity
Young adults do not have credit cards
Almost 100 million adult Americans cannot afford cards or are considered poor risks

9. B2C Digital Payment Systems
Digital Wallets
Digital Cash
Online Stored Value Systems
Smart Card Stored Value Systems
Digital Accumulating Balance Payment Systems
Digital Credit Card Payment Systems
Digital Checking Payment Systems

10. Digital Wallets
Authenticates the consumer through the use of digital certificates or other encryption methods,
stores and transfers value, and
secures the payment process from the consumer to the merchant
Fill out order forms

11. Promised Functionality of Digital Wallets

12. Types of Digital Wallets

13. Types of Digital Wallets
Client-based digital wallets
software applications that consumers install on their computer, and that offer consumer convenience by automatically filling out forms at online stores
Server-based digital wallets
software-based authentication and payment services and products sold to financial institutions that market the systems to merchants either directly or as a part of their financial service package

14. eWallet Developed by Launchpad Technologies
Free wallet software that stores credit card and personal information on users’ computer, not on a central server; information is dragged into payment form from eWallet
Information is encrypted and password protected
Works with Netscape and Internet Explorer

15. Microsoft Wallets
Comes pre-installed in Internet Explorer 4.0, but not in Netscape
All information is encrypted and password protected
Microsoft Wallet Merchant directory shows merchants setup to accept Microsoft Wallet

16. Microsoft Wallet

17. How Microsoft’s Passport Wallet Works

18. W3C Proposed Standard for Electronic Wallets
World Wide Web Consortium (W3C) is attempting to create an extensible and interoperable method of embedding micropayment information on a web page
Extensible systems allow improvement of the system without eliminating previous work

19. W3C Proposed Standard for Electronic Wallets
Merchants to accept several payment options to insure the widest possible Internet audience
Merchants must embed in their Web page payment information specific to each payment system
This redundancy spurred W3C to develop common standards for Web page markup for all payment systems
Must move quickly to prevent current methods from becoming entrenched

20. Digital Cash Also called e-cash
Digital forms of value storage or value exchange that have limited convertibility into other forms of value and require intermediaries to convert

21. Examples of Digital Cash

22. Digicash: How First Generation Digital Cash Worked

23. Online stored value systems
permit consumers to make instant, online payments to merchants and other individuals based on value stored in an online account
Smart cards as store value systems are based on credit-card-sized plastic cards that have embedded chips that store personal information

24. Online Stored Value Systems

25. How Ecount.com Works: A Stored Value System

26. Digital Accumulating Balance Payment Systems
Allow users to make micropayments and purchases on the Web, accumulating a debit balance for which they are billed at the end of the month

27. Digital Accumulating Balance Payment Systems

28. Digital Credit Card Payment Systems
Seek to extend the functionality of existing credit cards for use as online shopping payment tools

29. How a Digital Credit Card Payment System Works

30. Digital Checking Payment Systems
Seek to extend the functionality of existing checking accounts for use as online shopping payment tools

31. How Digital Checking Works: Echeck

32. Smart Cards Critical mass of smart cards that support applications
Available for over 10 years
So far not successful in U.S., but popular in Europe, Australia, and Japan
Unsuccessful in U.S. partly because few card readers available
Smart cards gradually reappearing in U.S.; their success depends on:
Critical mass of smart cards that support applications
Compatibility between smart cards, card-reader devices, and applications

33. Mondex Smart Card Holds and dispenses electronic cash
Developed by MasterCard International
Requires specific card reader for the merchants and/or customers to use card over Internet
Supports micro-payments as small as 3 cents and works both online and off-line at stores or over the telephone

34. Mondex Smart Card Disadvantages
Card carries real cash in electronic form, creating the possibility of theft
No deferred payment as with credit cards. Cash is dispensed immediately

35. Mondex Smart Card Processing

36. B2B Payment Systems More complex than B2C systems
Must link into exist ERP and EDI systems
Two main types
Systems that replace traditional banks
Existing banking systems extending to the B2B marketplace

37. Key Features of B2B Payment Systems

38. Electronic Billing Presentation and Payment
New forms of online payment systems for monthly bills
Allow consumers to view bills electronically and pay them through electronic funds transfers from bank or credit card accounts

39. Electronic Billing Presentation and Payment Growth of EBPP Market

40. Electronic Billing Presentation and Payment Types of EBPP Systems