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Lecture 4 e commerce 2 payment systems

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  • 1. E-commerce business. technology. society. Second Edition Kenneth C. Laudon Carol Guercio TraverCopyright © 2004 Pearson Education, Inc. Slide 6-1
  • 2. Chapter 6 E-commerce Payment SystemsCopyright © 2004 Pearson Education, Inc. Slide 6-2
  • 3. Learning Objectives  Describe the features of traditional payment systems  Discuss the current limitations of online credit card payment systems  Understand the features and functionality of digital wallets  Describe the features and functionality of the major types of digital payment systems in the B2C arena  Describe the features and functionality of the major types of digital payment systems in the B2B arena  Describe the features and functionality of electronic billing presentment and payment systemsCopyright © 2004 Pearson Education, Inc. Slide 6-3
  • 4. PayPal: The Money’s in the E-mailPage 305Copyright © 2004 Pearson Education, Inc. Slide 6-4
  • 5. PayPal: The Money’s in the E-mail  One of e-commerce’s major success stories:  Went public in 2002; acquired by eBay October 2002 for $1.5 billion  An example of a “peer-to-peer” payment system  Fills a niche that credit card companies avoided – individuals and small merchants  Piggybacks on existing credit card and checking payment systems  Weakness: suffers from relatively high levels of fraud  Competitors include Western Union (MoneyZap), AOL (AOLQuickcash) and Citibank (C2it)Copyright © 2004 Pearson Education, Inc. Slide 6-5
  • 6. Types of Payment Systems  Cash  Checking Transfer  Credit Card  Stored Value  Accumulating BalanceCopyright © 2004 Pearson Education, Inc. Slide 6-6
  • 7. Cash  Legal tender defined by a national authority to represent value  Most common form of payment in terms of number of transactions  Instantly convertible into other forms of value without intermediation of any kind  Portable, requires no authentication, and provides instant purchasing power  “Free” (no transaction fee), anonymous, low cognitive demands  Limitations: easily stolen, limited to smaller transaction, does not provide any floatCopyright © 2004 Pearson Education, Inc. Slide 6-7
  • 8. Checking Transfer  Funds transferred directly via a signed draft or check from a consumer’s checking account to a merchant or other individual  Most common form of payment in terms of amount spend  Can be used for both small and large transactions  Some float  Not anonymous, require third-party intervention (banks)  Introduce security risks for merchants (forgeries, stopped payments), so authentication typically requiredCopyright © 2004 Pearson Education, Inc. Slide 6-8
  • 9. Most Common Payment Systems, Based on NumberOf Transactions Figure 6.1, Page 309Copyright © 2004 Pearson Education, Inc. Slide 6-9
  • 10. Most Common Payment Systems, Basedon Dollar AmountFigure 6.2, Page 310Copyright © 2004 Pearson Education, Inc. Slide 6-10
  • 11. Credit Card  Represents an account that extends credit to consumers, permitting consumers to purchase items while deferring payment, and allows consumers to make payments to multiple vendors at one time  Credit card associations – Nonprofit associations (Visa, MasterCard) that set standards for issuing banks  Issuing banks – Issue cards and process transactions  Processing centers (clearinghouses) – Handle verification of accounts and balancesCopyright © 2004 Pearson Education, Inc. Slide 6-11
  • 12. Stored Value  Accounts created by depositing funds into an account and from which funds are paid out or withdrawn as needed  Examples: Debit cards, gift certificates, prepaid cards, smart cards  Debit cards: Immediately debit a checking or other demand-deposit account  Peer-to-peer payment systems such as PayPal a variationCopyright © 2004 Pearson Education, Inc. Slide 6-12
  • 13. Accumulating Balance  Accounts that accumulate expenditures and to which consumers make period payments  Examples: utility, phone, American Express accountsCopyright © 2004 Pearson Education, Inc. Slide 6-13
  • 14. Dimensions of Payment SystemsTable 6.1,Page 313Copyright © 2004 Pearson Education, Inc. Slide 6-14
  • 15. Current Online Payment Systems  Credit cards are dominant form of online payment, accounting for around 80% of online payments in 2002  New forms of electronic payment include:  Digital cash  Online stored value systems  Digital accumulating balance payment systems  Digital credit accounts  Digital checkingCopyright © 2004 Pearson Education, Inc. Slide 6-15
  • 16. Online Merchants’ Actual andPreferred Online PaymentsFigure 6.3, Page 315Copyright © 2004 Pearson Education, Inc. Slide 6-16
  • 17. How an Online Credit Card Transaction Works  Processed in much the same way that in- store purchases are  Major difference is that online merchants do not see or take impression of card, and no signature is available (CNP transactions)  Participants include consumer, merchant, clearinghouse, merchant bank (acquiring bank) and consumer’s card issuing bankCopyright © 2004 Pearson Education, Inc. Slide 6-17
  • 18. How an Online Credit TransactionWorksFigure 6.4,Page 317Copyright © 2004 Pearson Education, Inc. Slide 6-18
  • 19. Limitations of Online Credit Card Payment Systems  Security – neither merchant nor consumer can be fully authenticated  Cost – for merchants, around 3.5% of purchase price plus transaction fee of 20-30 cents per transaction  Social equity – many people do not have access to credit cards (young adults, plus almost 100 million other adult Americans who cannot afford cards or are considered poor risk)Copyright © 2004 Pearson Education, Inc. Slide 6-19
  • 20. Insight on Society: The Right to Shop  Digital Divide: Some groups don’t have same access to computers and Internet that others do  Digital “have nots” include:  Households with incomes below $35,000  Those without college educations  People living in rural areas  African-Americans and Hispanics  Seniors over 65  Disabled  Most recent Department of Commerce study --most of above groups gaining access to computers and Internet due to falling computer prices and free or low cost ISPsCopyright © 2004 Pearson Education, Inc.credit cards, still hard for people to shop  But without Slide 6-20
  • 21. The SET (Secure Electronic Transaction) Protocol  Authenticates cardholder and merchant identity through use of digital certificates  An open standard developed by MasterCard and Visa  Transaction process similar to standard online credit card transaction, with more identity verification  Thus far, has not caught on much, due to costs involved in integrating SET into existing systems, and lack of interest among consumersCopyright © 2004 Pearson Education, Inc. Slide 6-21
  • 22. How SET Transactions WorkFigure 6.5,Page 320Copyright © 2004 Pearson Education, Inc. Slide 6-22
  • 23. Digital Wallets  Concept of digital wallet relevant to many of the new digital payment systems  Seeks to emulate the functionality of traditional wallet  Most important functions:  Authenticate consumer through use of digital certificates or other encryption methods  Store and transfer value  Secure payment process from consumer to merchant  Two major categories:  Client-based digital wallets – Gator.com, MasterCard Wallet  Server-based digital wallets – MSN WalletCopyright © 2004 Pearson Education, Inc. Slide 6-23
  • 24. Promised Functionality ofDigital WalletsTable 6.2,Page 323Copyright © 2004 Pearson Education, Inc. Slide 6-24
  • 25. Types of Digital WalletsFigure 6.5, Page 324Copyright © 2004 Pearson Education, Inc. Slide 6-25
  • 26. Digital Cash  One of the first forms of alternative payment systems  Not really “cash” – rather, are forms of value storage and value exchange that have limited convertibility into other forms of value, and require intermediaries to convert  Many of early examples have disappear; concepts survive as part of P2P payment systemsCopyright © 2004 Pearson Education, Inc. Slide 6-26
  • 27. Examples of Digital CashTable 6.3, Page 326Copyright © 2004 Pearson Education, Inc. Slide 6-27
  • 28. Digicash: How First GenerationDigital Cash WorkedFigure 6.7,Page 327Copyright © 2004 Pearson Education, Inc. Slide 6-28
  • 29. Online Stored Value Systems  Permit consumers to make instant, online payments to merchants and other individuals based on value stored in an online account  Rely on value stored in a consumer’s bank, checking or credit card accountCopyright © 2004 Pearson Education, Inc. Slide 6-29
  • 30. Online Stored Value SystemsTable 6.4, Page 328Copyright © 2004 Pearson Education, Inc. Slide 6-30
  • 31. How Ecount.com Works: AStored Value SystemFigure 6.8,Page 330Copyright © 2004 Pearson Education, Inc. Slide 6-31
  • 32. Insight on Business: Rocketcash.com  An example of an online stored value system  Aimed at teenagers  Funds can be deposited in a RocketCash account, which functions like a credit card and allows teens to buy products onlineCopyright © 2004 Pearson Education, Inc. Slide 6-32
  • 33. Smart Cards as Stored Value Systems  Another kind of stored value system based on credit-card sized plastic cards that have embedded chips that store personal information  Two types:  Contact  Contactless  Examples: Mondex, American Express BlueCopyright © 2004 Pearson Education, Inc. Slide 6-33
  • 34. Digital Accumulating Balance Payment Systems  Allows users to make micropayments and purchases on the Web, accumulating a debit balance for which they are billed at the end of the month  Examples: Qpass and iPinCopyright © 2004 Pearson Education, Inc. Slide 6-34
  • 35. Digital Accumulating BalancePayment SystemsTable 6.5, Page 332Copyright © 2004 Pearson Education, Inc. Slide 6-35
  • 36. Digital Credit Card Payment Systems  Extend the functionality of existing credit cards for use as online shopping payment tools  Focus specifically on making use of credit cards safer and more convenient for online merchants and consumers  Example: eChargeCopyright © 2004 Pearson Education, Inc. Slide 6-36
  • 37. Digital Credit Card Payment SystemsTable 6.6, Page 333Copyright © 2004 Pearson Education, Inc. Slide 6-37
  • 38. How a Digital Credit Card PaymentSystems Works: eChargeFigure 6.9, Page 334Copyright © 2004 Pearson Education, Inc. Slide 6-38
  • 39. Digital Checking Payment Systems  Extend the functionality of existing checking accounts for use as online shopping payment tools  Examples: eCheck, Achex (MoneyZap)Copyright © 2004 Pearson Education, Inc. Slide 6-39
  • 40. Digital Checking Payment SystemsTable 6.7, Page 335Copyright © 2004 Pearson Education, Inc. Slide 6-40
  • 41. How Digital Checking Works: eCheckFigure 6.10, Page 336Copyright © 2004 Pearson Education, Inc. Slide 6-41
  • 42. Digital Payment Systems andthe Wireless Web  Mobile payment (m-payments) systems not very well established yet in U.S, but with growth in Wi-Fi and 3G cellular phone systems, this is beginning to change  Example: Qpass, AT&T and Wayport venture to provide mobile payment and billing called GoPort  Gartner predicts m-payments worldwide will total at least $30 billion by 2002; majority of transactions will be micro-m-paymentsCopyright © 2004 Pearson Education, Inc. Slide 6-42
  • 43. Insight on Technology: Wireless Payments Follow Wi-Fi and Cellular Growth  In Europe, already a number of phone-based transaction systems  In U.S., development of Wi-Fi and Bluetooth expected to drive growth  Prerequisites:  Development of the technology  Technology must become widely available  Technology needs backing of most of major stakeholders  Challenge: Getting all the players to agree on a common secure platform for wireless e-commerce payment systemsCopyright © 2004 Pearson Education, Inc. Slide 6-43
  • 44. B2B Payment Systems  More complex than B2C  Two main types:  Systems that replace traditional banks (example: Actrade)  Existing banking systems extending to B2B marketplace (example: Orbian)Copyright © 2004 Pearson Education, Inc. Slide 6-44
  • 45. Key Features of B2B Payment SystemsTable 6.8,Page 340Copyright © 2004 Pearson Education, Inc. Slide 6-45
  • 46. Electronic Billing Presentment and Payment  Online payment systems for monthly bills  EBPP expected to grow rapidly, to nearly half all U.S. households by 2006  Different types of business models in EBPP market include:  Biller-direct  Consolidator  PortalCopyright © 2004 Pearson Education, Inc. Slide 6-46
  • 47. Growth of the EBPP MarketFigure 6.11, Page 342Copyright © 2004 Pearson Education, Inc. Slide 6-47
  • 48. Types of EBPP SystemsFigure 6.12, Page 344Copyright © 2004 Pearson Education, Inc. Slide 6-48
  • 49. Case Study: CheckFree – On Top of Electronic Billing, for Now  Market leader in online billing and payment  Faces a number of challenges:  Industry changing fast and leadership precarious  Although market is growing, consumers have traditionally resisted online bill payment  Conflict strategic goals of stakeholders (merchants, banks, credit companies, billing firms and consumers)  Technology changes: XML-based vs. proprietary  Competitors: PayPal, MetaventaCopyright © 2004 Pearson Education, Inc. Slide 6-49
  • 50. CheckFree: On Top ofElectronic Billing, for NowPage 346Copyright © 2004 Pearson Education, Inc. Slide 6-50

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