The document discusses traditional and electronic payment methods. It covers cash, checks, money orders, credit cards, debit cards, and merchant accounts. It then discusses payment processing software and security measures needed to protect customer information during electronic transactions, including digital certificates and encryption. Alternative electronic payment forms mentioned include electronic cash, smart cards, electronic checks, and person-to-person payment systems. Fraud is a major problem and merchants must balance security measures with potential loss of sales.

1. Traditional and Electronic Payment Methods Chapter 3

2. Money and Banking Money serves as a measure of value, a medium of exchange Money exists in a number of forms Cash Coin, paper money Near Cash Checks, drafts, money orders, credit cards

3. Check Processing

4. Encryption/Decryption of Transactions

5. Check A written order on a bank or other financial institution to pay money belonging to the signer to the presenter of the check The most popular offline settlement method Not efficient for e-commerce

6. Money Order An order for the payment of a specified amount of money Usually issued by the post office or a bank or other financial institution Popular with people who do not have bank accounts or where checks are not acceptable

7. Credit Card Used to settle charges for goods or services Card holders pay their bills monthly and pay interest on unpaid account balances Issued by banks or financial institutions Visa and MasterCard are clearing houses for member institutions

8. Charge Cards Similar to credit cards Customer pays bill in full each month AMEX card is a popular example

9. Debit Cards Similar to credit card in operation from merchant’s perspective Similar to a check from customer’s perspective

10. Payment Processing A merchant must have A merchant account Payment processing software Procedures to protect customers and guard against fraud

11. Merchant Account An account with a financial institution to accept charges Must apply for account and be accepted Supply bank with financial information about anticipated transaction volume and type of business The bank charges for this service

12. Merchant Account Charge-backs result from customer refusal to pay a charge for a number of reasons, including returned goods, billing errors, and fraudulent charges. Charge-backs can be expensive and the bank may charge higher fees for higher risk enterprises and “situations.”

13. High Risk Factors Customer not present (telephone and Internet sales_ High risk products or services (gambling, “politically incorrect,” or non-traditional products)

14. Payment Processing Software Software to facilitate authorization of customer charges to credit or debit charge account. Alternative is to outsource to 3 rd party for a fee.

15. Verification Software

16. Security for Charge Settlement Security must be provided for customer transaction. Secure Sockets Layer (SSL) technology provides encrypted transmission of data between customer and a secure server.

17. Authentication SSL requires a digital certificate that verifies a sender’s identity. An e-business obtains its certificate from a certificate authority such as VeriSign.

18. A Digital Certificate

19. Fraud Credit card fraud is a major problem As high as 1.15 percent of transactions were found to be fraudulent Security: how much do you want? Too much will cost sales but reduce fraud to nearly nothing, and too little will result in higher losses.

20. Security Measures Verify validity of charge. Ship via currier and require receipt signature. Require and verify the complete address and telephone number of customer. Reject orders from anonymous email addresses.

21. Electronic Payment Forms Various alternative payment forms include: Electronic Cash Electronic checks Smart cards Person-to-person payment systems

22. Electronic Cash Variety of products available Allow for online purchases without a credit account Allow customer to avoid sharing account data while guaranteeing payment to vendor

23. Smart Cards A store value card Popular in Europe; not yet common in North America Needs special equipment to work with a PC

24. Electronic Checks An electronic version of a paper check Essentially a form of Electronic Funds Transfer (EFT)

25. Person to Person Systems A way to send money, a funds transfer

26. Person to Person Payment

27. Person to Person (P2P) System