Online Payment Transactions


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Online Payment Transactions

  1. 1. Traditional and Electronic Payment Methods Chapter 3
  2. 2. Money and Banking <ul><li>Money serves as a measure of value, a medium of exchange </li></ul><ul><li>Money exists in a number of forms </li></ul><ul><li>Cash </li></ul><ul><ul><li>Coin, paper money </li></ul></ul><ul><li>Near Cash </li></ul><ul><ul><li>Checks, drafts, money orders, credit cards </li></ul></ul>
  3. 3. Check Processing
  4. 4. Encryption/Decryption of Transactions
  5. 5. Check <ul><li>A written order on a bank or other financial institution to pay money belonging to the signer to the presenter of the check </li></ul><ul><li>The most popular offline settlement method </li></ul><ul><li>Not efficient for e-commerce </li></ul>
  6. 6. Money Order <ul><li>An order for the payment of a specified amount of money </li></ul><ul><li>Usually issued by the post office or a bank or other financial institution </li></ul><ul><li>Popular with people who do not have bank accounts or where checks are not acceptable </li></ul>
  7. 7. Credit Card <ul><li>Used to settle charges for goods or services </li></ul><ul><li>Card holders pay their bills monthly and pay interest on unpaid account balances </li></ul><ul><li>Issued by banks or financial institutions </li></ul><ul><li>Visa and MasterCard are clearing houses for member institutions </li></ul>
  8. 8. Charge Cards <ul><li>Similar to credit cards </li></ul><ul><li>Customer pays bill in full each month </li></ul><ul><li>AMEX card is a popular example </li></ul>
  9. 9. Debit Cards <ul><li>Similar to credit card in operation from merchant’s perspective </li></ul><ul><li>Similar to a check from customer’s perspective </li></ul>
  10. 10. Payment Processing <ul><li>A merchant must have </li></ul><ul><ul><li>A merchant account </li></ul></ul><ul><ul><li>Payment processing software </li></ul></ul><ul><ul><li>Procedures to protect customers and guard against fraud </li></ul></ul>
  11. 11. Merchant Account <ul><li>An account with a financial institution to accept charges </li></ul><ul><li>Must apply for account and be accepted </li></ul><ul><li>Supply bank with financial information about anticipated transaction volume and type of business </li></ul><ul><li>The bank charges for this service </li></ul>
  12. 12. Merchant Account <ul><li>Charge-backs result from customer refusal to pay a charge for a number of reasons, including returned goods, billing errors, and fraudulent charges. </li></ul><ul><li>Charge-backs can be expensive and the bank may charge higher fees for higher risk enterprises and “situations.” </li></ul>
  13. 13. High Risk Factors <ul><li>Customer not present (telephone and Internet sales_ </li></ul><ul><li>High risk products or services (gambling, “politically incorrect,” or non-traditional products) </li></ul>
  14. 14. Payment Processing Software <ul><li>Software to facilitate authorization of customer charges to credit or debit charge account. </li></ul><ul><li>Alternative is to outsource to 3 rd party for a fee. </li></ul>
  15. 15. Verification Software
  16. 16. Security for Charge Settlement <ul><li>Security must be provided for customer transaction. </li></ul><ul><li>Secure Sockets Layer (SSL) technology provides encrypted transmission of data between customer and a secure server. </li></ul>
  17. 17. Authentication <ul><li>SSL requires a digital certificate that verifies a sender’s identity. </li></ul><ul><li>An e-business obtains its certificate from a certificate authority such as VeriSign. </li></ul>
  18. 18. A Digital Certificate
  19. 19. Fraud <ul><li>Credit card fraud is a major problem </li></ul><ul><li>As high as 1.15 percent of transactions were found to be fraudulent </li></ul><ul><li>Security: how much do you want? </li></ul><ul><ul><li>Too much will cost sales but reduce fraud to nearly nothing, and too little will result in higher losses. </li></ul></ul>
  20. 20. Security Measures <ul><li>Verify validity of charge. </li></ul><ul><li>Ship via currier and require receipt signature. </li></ul><ul><li>Require and verify the complete address and telephone number of customer. </li></ul><ul><li>Reject orders from anonymous email addresses. </li></ul>
  21. 21. Electronic Payment Forms <ul><li>Various alternative payment forms include: </li></ul><ul><li>Electronic Cash </li></ul><ul><ul><li>Electronic checks </li></ul></ul><ul><ul><li>Smart cards </li></ul></ul><ul><ul><li>Person-to-person payment systems </li></ul></ul>
  22. 22. Electronic Cash <ul><li>Variety of products available </li></ul><ul><li>Allow for online purchases without a credit account </li></ul><ul><li>Allow customer to avoid sharing account data while guaranteeing payment to vendor </li></ul>
  23. 23. Smart Cards <ul><li>A store value card </li></ul><ul><li>Popular in Europe; not yet common in North America </li></ul><ul><li>Needs special equipment to work with a PC </li></ul>
  24. 24. Electronic Checks <ul><li>An electronic version of a paper check </li></ul><ul><li>Essentially a form of Electronic Funds Transfer (EFT) </li></ul>
  25. 25. Person to Person Systems <ul><li>A way to send money, a funds transfer </li></ul>
  26. 26. Person to Person Payment
  27. 27. Person to Person (P2P) System