ch12-electronic payment sys.ppt

7/28/2019 CH12-Electronic payment sys.ppt

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2008 Pearson Prentice Hall, Electronic Commerce 2008, Efraim Turban, et al.

Chapter 12

Electronic Payment Systems


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Learning Objectives

1. Understand the shifts that are occurring withregard to noncash and online payments.

2. Discuss the players and processes involved

in using credit cards online.3. Discuss the different categories and potential

uses of smart cards.

4. Discuss various online alternatives to creditcard payments and identify under whatcircumstances they are best used.


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Learning Objectives

5. Describe the processes and partiesinvolved in e-checking.

6. Describe payment methods in B2B EC,including payments for global trade.

7. Discuss electronic bill and invoicepresentment and payment.

8. Understand the sales tax implicationsof e-payments.


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The Payment Revolution

Some crucial factors come into play indetermining whether a particular method ofe-payment achieves critical mass: Independence Interoperability and portabilitySecurityEase of use Transaction fees

Regulations


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Using Payment Cards Online

payment card

Electronic card that contains informationthat can be used for payment purposes

Payment cards come in three types:

Credit cards

Charge cardsDebit cards


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Processing Cards Online

authorization

Determines whether a buyers card is active

and whether the customer has sufficientfunds

settlement

Transferring money from the buyers to themerchants account


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Three basic configurations for processingonline payments. Merchants may:

Own the payment software

Use a point of sale system (POS) operated by anacquirerpayment service provider (PSP)

A third-party service connecting a merchants EC systemsto the appropriate acquirers. PSPs must be registered withthe various card associations they support

Use a POS operated by a payment service provider


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The key participants in processing cardpayments online include:Acquiring bank

Credit card associationCustomer

Issuing bank

MerchantPayment processing service

Processor


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Fraudulent Card Transactions

In the online world, merchants are heldliable for fraudulent transactions

Merchants can incur additional fees andpenalties imposed by the card associations

Costs associated with combating fraudulent

transactions are also the merchantsresponsibility


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The key tools used in combating fraud:

Address Verification System (AVS)

Detects fraud by comparing the addressentered on a Web page with the addressinformation on file with the cardholders

issuing bank

Manual reviewFraud screens and automated decision

models


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The key tools used in combating fraud:

card verification number (CVN)

Detects fraud by comparing the verificationnumber printed on the signature strip on theback of the card with the information on filewith the cardholders issuing bank

Card association payer authenticationservices

Negative files


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virtual credit card

An e-payment system in which a credit cardissuer gives a special transaction number that

can be used online in place of regular creditcard numbers

smart card

An electronic card containing an embedded

microchip that enables predefined operationsor the addition, deletion, or manipulation ofinformation on the card


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Smart Cards

contact card

A smart card containing a small gold plate onthe face that when inserted in a smart card

reader makes contact and passes data to andfrom the embedded microchip

contactless (proximity) card

A smart card with an embedded antenna, by

means of which data and applications arepassed to and from a card reader unit or otherdevice without contact between the card andthe card reader


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Smart Cards


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Smart Cards

smart card reader

Activates and reads the contents of the chipon a smart card, usually passing the

information on to a host system smart card operating system

Special system that handles file management,

security, input/output (I/O), and commandexecution and provides an applicationprogramming interface (API) for a smart card


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Smart Cards

Applications of Smart Cards

Retail Purchases

Transit Fares

E-Identification

Health Care

Securing Smart Cards

Smart cards are more secure thanconventional payment cards


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Stored-Value Cards

stored-value card

A card that has monetary value loadedonto it and that is usually rechargeable

Anyone can obtain a stored-value cardwithout regard to prior financial standing orhaving an existing bank account as

collateralThe stored-value card market is growing

rapidly


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E-Micropayments

e-micropayments

Small online payments, typically under$10


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E-Micropayments

Five basic micropayment models that donot depend solely or directly on credit ordebit cards:

Aggregation

Direct payment

Stored value

Subscriptions


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E-Checking

e-check

A legally valid electronic version orrepresentation of a paper check


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E-Checking


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E-Checking

Automated Clearing House (ACH)

Network

A nationwide batch-oriented electronicfunds transfer system that provides forthe interbank clearing of electronicpayments for participating financial

institutions


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E-Checking

Benefits of E-Checks

Reduces the merchants administrative costs

Improves the efficiency of the deposit process for

merchants and financial institutionsSpeedier during the checkout process for

consumers

Provides consumers with more information about

their purchases on their account statementsReduces the float period and the number of checks

that bounce because of insufficient funds .


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Electronic Bill Presentment

and Payment

electronic bill presentment and

payment (EBPP)

Presenting and enabling payment of abill online. Usually refers to a B2Ctransaction


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and Payment


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and Payment

Types of E-Billing

Online banking

Biller direct


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and Payment


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and Payment

Advantages of E-Billing

The reduction in expenses related to billingand processing payments

Advertising: electronic inserts can becustomized to the individual customer


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and Payment

Reduces the customers expenses by

eliminating the cost of checks, postage, andenvelopes

Simplifies and centralizes paymentprocessing and facilitates better recordkeeping

Customers can review and pay bills atvirtually any time


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B2B Electronic Payments

Current B2B Payment PracticesB2B payments are part of a much larger financial supply

chain that includes:ProcurementContract administration

FulfillmentFinancing InsuranceCredit ratingsShipment validation

Order matchingPayment authorizationRemittance matchingGeneral ledger accounting


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More organizations have indicated awillingness to migrate from checks toelectronic payments in the future because of:

Current payment practicesElectronic payments

Role of EDI

Integration of electronic payment and accounting

systemsBarriers to electronic payment

Prospects for electronic payments


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enterprise invoice presentment and

payment (EIPP)

Presenting and paying B2B invoicesonline


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EIPP Models

Seller direct

Buyer direct

Consolidator


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EIPP Options

ACH network

Purchasing cards (p-cards)

Letters of credit for global payments


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purchasing cards (p-cards)

Special-purpose payment cards issued to acompanys employees to be used solely forpurchasing nonstrategic materials andservices up to a preset dollar limit

letter of credit (LC)

A written agreement by a bank to pay the

seller, on account of the buyer, a sum ofmoney upon presentation of certaindocuments


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The Sales Tax Issue

Because of the complexities, manyonline businesses (B2C and B2B) relyon specialized third-party software and

services to calculate the taxesassociated with a sale


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The Sales Tax Issue

Representative companies that offersoftware and services to handle thedetailed computations and keep abreast

of tax law changes include:Salestax.com

Sales Tax Clearinghouse

Cybersource

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