Electronic Commerce

Semester 1 Term 1 Lecture 22

Other Emerging Financial Instruments

• Several other electronic payment systems are currently being developed and tested

• These include:– Debit cards– Electronic benefit transfer cards– Smart cards

Debit Cards at Point of Sale (POS)

• The fastest growing number of electronic transactions today are debit card point of sale transactions

• Such a transaction occurs when a customer uses a debit card to make a purchase from a merchant (supermarket, petrol station, shop or other store that accepts such cards instead of using cash, cheques or credit card)

How Debit Card Transactions Work

• The transaction works much like a credit card transaction

• For example, a customer gives an ATM card to the merchant for the purchase

How Debit Card Transactions Work (Contd.)

• The merchant swipes the card through a transaction terminal, which reads the information; the customer enters his PIN and the terminal routes the transaction through the ATM network back to the customer’s bank for authorisation against the customer’s deposit account

• The funds, once approved, are transferred from the customer bank to the merchant’s bank

Debit Cards and Electronic Benefits Transfer

• Debit cards are being used extensively for electronic benefits transfer (EBT)

• Electronic benefits transfer uses debit cards for the electronic delivery of benefits and entitlements to individuals who otherwise may not have bank accounts

• In an EBT system, recipients access their benefits in the same way that consumers use debit cards to access their bank accounts electronically

Advantages of EBT• Electronic benefits transfer has several advantages over

paper-based benefit distribution systems

• It is less costly - it is designed to provide a low cost alternative to cashing cheques

• EBT is more convenient than paper methods and is safer than carrying cash

• It is convenient for retailers, by reducing the losses associated with theft, fraud and forgery of cheques

• It is convenient for governments due to its easy tracking

Smart Cards

• Smart cards use magnetic stripe technology or integrated circuit chips to store customer-specific information, including electronic money

• The cards can be used to purchase goods or services, store information , control access to accounts and perform many other functions

Benefits of Smart Cards• Smart cards offer clear benefits to both merchants and

consumers• They reduce cash-handling expenses and losses

caused by fraud, expedite customer transactions at the checkout counter and enhance consumer convenience and safety

• One reason for the success of smart cards is that their application focus is narrow and they build upon existing infrastructure e.g. credit, debit and ATM cards

Consumer Issues & Payment Systems

• The consumer, assisted by the press and political influence can exert considerable influence in the development of payment systems

• The key consumer issues associated with payment systems include:

– Consumer protection from fraud arising from efficiency in record keeping

– Transportation privacy and safety

– Competitive pricing of payment services to ensure equal access to all consumers

– Right to choice of institutions and payment methods