Chapter 4 provides knowledge of online monetary transactions. This chapter includes contents: Credit-card transactions, online credit-card fraud, digital currency, e-wallets, alternate consumer payment options, peer-to-peer payment, smart cards, business-to-business (B2B) transactions, e-billing, developing payment standards.
Chapter 4, Online Monetary Transactions Outline 4.1 Introduction 4.2 CreditCard Transactions 4.2.1 Anatomy of a CreditCard Transaction 4.2.2 CreditCard Transaction Enablers 4.3 Online CreditCard Fraud 4.4 Digital Currency 4.5 EWallets 4.6 Alternate Consumer Payment Options 4.7 PeerToPeer Payment 4.8 Smart Cards 4.9 Micropayments 4.10 BusinessToBusiness (B2B) Transactions 4.11 EBilling 4.12 Developing Payment Standards 2001 Prentice Hall, Inc. All rights reserved 4.1 Introduction • Secure electronic funds transfer is crucial to e commerce • Examination of how individuals and organizations conduct monetary transactions on the Internet • Creditcard transactions, digital cash and e wallets, smart cards, micropayments and electronic bill presentment and payment • Electronicpayment enablers 2001 Prentice Hall, Inc. All rights reserved 4.2 CreditCard Transactions • Popular form of payment for online purchases • Resistance due to security concerns • Many cards offer capabilities for online and offline purchases – Prodigy Internet Mastercard – American Express Blue 2001 Prentice Hall, Inc. All rights reserved 4.2 American Express: Enabling Secure Payments on the Web • Small business transactions • Blue for Business – Blue allows business owners to carry a balance and conduct secure online and offline transactions • American Express Purchase Protection Program – Protects buyers against damaged goods • Buyers Assurance Plan – Offers an extended warranty on purchases made with the Blue card • Online WalletSM – ExpressFormSM – AutobuySM 2001 Prentice Hall, Inc. All rights reserved 4.2 American Express: Enabling Secure Payments on the Web • Private Payments – Provides a unique account number for each individual purchase • American Express @ WorkSM – Facilitates larger corporations with enhanced integration technologies • Online Program Management – Allows corporations to manage the corporate accounts of a large number of employees 2001 Prentice Hall, Inc. All rights reserved 4.2.1 Anatomy of an Online Credit Card Transaction • To accept creditcard payments, a merchant must have a merchant account • Traditional merchant accounts accept only POS (pointofsale) transactions – Transactions that occur when you present your credit card at a store • Cardnotpresent (CNP) transaction – Merchant does not see actual card being used in the purchase • Authentication – The person is, in fact, who they say they are 2001 Prentice Hall, Inc. All rights reserved 4.2.1 Anatomy of an Online Credit Card Transaction • Authorization – The money is available to complete the transaction • Acquiring bank – The bank with which the merchant holds an account • Issuing bank – The bank from which the buyer obtained the credit card, and the creditcard association • Verification • Money issued to merchant after product/service is distributed 2001 Prentice Hall, Inc. All rights reserved 4.2.1 Anatomy of an Online Credit Card Transaction • Step 1 – Consumer makes a purchase at an online store, credit card information received by estore • Step 2 – Credit card information is sent from the merchant to the acquiring bank • Step 3 and Step 4 – The credit card association and the issuing bank certify the transaction and the verification is sent to the acquiring bank • Step 5 – The merchant ships the product and payment is issued 2001 Prentice Hall, Inc. All rights reserved 4.2.2 CreditCard Transaction Enablers • CreditCard Transaction Enablers – Companies that have established business relationships with financial institutions that will accept online creditcard payments for merchant clients • • • • iCat Trintech Cybercash NextCard, Inc. 2001 Prentice Hall, Inc. All rights reserved 4.2.2 CyberCash Feature • Enables businesses to receive payments through Internet – CashRegister • Makes it possible for merchants to receive credit-card numbers, offer the numbers to the appropriate financial institution for validation and accept credit-card payments in a secure environment over the Web • Establishes direct connection between its servers and the Web sites of its e-business customers • Customer enters credit-card and shipping information • Information sent to CyberCash for validation, once validation is received, purchase can be completed and funds are transferred electronically from customer accounts to merchant’s account 2001 Prentice Hall, Inc. All rights reserved 4.8 Smart Cards • Smart card – Card with computer chip embedded on its face, holds more information than ordinary credit card with magnetic strip – Contact smart cards • To read information on smart cards and update information, contact smart cards need to be placed in a smart card reader – Contactless smart cards • Have both a coiled antenna and a computer chip inside, enabling the cards to transmit information – Can require the user to have a password, giving the smart card a security advantage over credit cards • Information can be designated as "read only" or as "no access" • Possibility of personal identity theft 2001 Prentice Hall, Inc. All rights reserved 4.9 Micropayments • Merchants pay fee for each creditcard transaction • Micropayments – Payments that generally do not exceed $10, allows companies offering nominally priced products to profit • To offer micropayments, some companies form strategic partnerships with utility companies – eCharge enables companies to offer this option to customers • eCharge uses ANI (Automatic Number Identification) to verify the identity of the customer and the purchases they make • Outsource paymentmanagement systems (Qpass) 2001 Prentice Hall, Inc. All rights reserved 4.9 Millicent Feature • Millicent is a micropayment technology provider • Companies using Millicent payment technology allow customers to make micropayments using credit or debit cards, prepaid purchasing cards or by adding purchases to a monthly Internet Service Provider bill or phone bill • Millicent handles all payment processing needed for the operation of an e-business, customer support and distribution services 2001 Prentice Hall, Inc. All rights reserved 4.10 BusinesstoBusiness (B2B) Transactions • Business-to-business (B2B) transactions – Fastest growing sector of e-commerce payments – Payments are often larger than B2C transactions and involve complex business accounting systems • PaymentechTM – Payment solution provider for Internet point-of-sale transactions – Brick-and-mortar and electronic merchants choose from transaction-processing options including debit cards, credit cards, checks and EBT authorization and settlement • EBT (Electronic Benefits Transfer) – Defined by the USDA as the electronic transfer of government funds to retailers for the benefit of the needy 2001 Prentice Hall, Inc. All rights reserved 4.10 BusinesstoBusiness (B2B) Transactions • eCredit provides real-time, credit-transaction capabilities of B2B size • Clareon facilitates B2B transactions by providing digital payment and settlement services – Payment is digitally signed, secured and authenticated via digital payment authentication (DPA) – Compatible with all enterprise resource planning (ERP) systems and can adapt electronic records for companies, banks and each member of a given transaction 2001 Prentice Hall, Inc. All rights reserved 4.10 BusinesstoBusiness (B2B) Transactions • Electronic consolidation and reconciliation of the business transaction process – Companies can keep track of a transaction from orderto cash settlement while reducing administrative costs, errors, waste and complexity in the supply chain • eTime Capital • Orderfulfillment providers – Companies attempting to bring supply chain expertise and logistical services to Internet businesses • Internetbased electronic B2B transactions will augment, but not replace, traditional Electronic Data Interchange (EDI) systems 2001 Prentice Hall, Inc. All rights reserved 4.10 BusinesstoBusiness (B2B) Transactions PAYTRUST SmartBalance™ screen shot. (Courtesy of Paytrust, Inc.) 2001 Prentice Hall, Inc. All rights reserved 4.10 TradeCard Feature • Provides a global B2B ecommerce infrastructure – Crossborder data management and payment • Buyer creates preformatted electronic purchase order and presents document to seller • Purchase order data stored electronically in TradeCard database, and electronic invoices and packing slips are produced from data • Uses a patented "data compliance engine" to check documents against original purchase order – If discrepancies are found, concerned parties are notified immediately and can negotiate to resolve the conflict 2001 Prentice Hall, Inc. All rights reserved 4.10 TradeCard Feature • TradeCard awaits delivery confirmation from a third-party logistics services provider (3PL) – Industry terminology for a shipping company • When confirmation is received and compliance met, TradeCard completes the financial transaction by sending request for payment to the buyer’s financial institution • TradeCard enables large-scale and large-dollar commerce without credit-card payment through direct interaction with existing financial institutions 2001 Prentice Hall, Inc. All rights reserved 4.10 TradeCard Feature 2001 Prentice Hall, Inc. All rights reserved 4.11 EBilling • Electronic Bill Presentment and Payment (EBPP) – Offers ability to present a company’s bill on multiple platforms online and actual payment processes – Payments are generally electronic transfers from consumer checking accounts, conducted through the ACH (Automated Clearing House) • Current method for processing electronic monetary transfers – Paytrust • Users send bills directly to Paytrust which scans them and places them online • Emails customers about newly arrived bills and paymentdue dates • Makes automatic payments on any bill up to a threshold amount 2001 Prentice Hall, Inc. All rights reserved 4.11 EBilling • Services to enable EBPP on a company’s site – Derivion • Provides billers with electronic capabilities in conjunction with Paytrust’s service • Offers billing companies the technology and expertise needed to transfer from paper to electronic billing through iNetBillerSM – Encirq • Partners with banks that issue credit cards, presenting the consumer with an illuminated statement (interactive statement, placing special offers from retail merchants to correspond with the itemized charges on a credit-card statement) • Builds highly specific consumer profiles each time charges is received 2001 Prentice Hall, Inc. All rights reserved 4.11 CheckFree Feature • CheckFree is a consolidation service – Can service any biller and present consumers with all their bills in one interactive online environment • If the company or person you wish to pay does not offer electronic billing, you can still set up payment to them from any bank account using the pay everyone service • For billers, the e-billing option adds convenience and lower costs • All payments and outstanding bills can be tracked online and consumers have interactive access to their entire payment histories 2001 Prentice Hall, Inc. All rights reserved 4.12 Developing Payment Standards • Essential to the success of ecommerce • Businesses offering domestic and international services must have assurance that payment will be received, that it is secure and that it is valid • Open Financial Exchange (OFX) – Developed and presented by Intuit, Microsoft and Checkfree in 1997 – To serve as a standard mechanism for the exchange of financial information 2001 Prentice Hall, Inc. All rights reserved 4.12 Jalda Feature • Developed by Ericsson • An open standard online payment system that connects content providers (anyone selling a good or service on the Internet) with an Internet Payment Provider (IPP) • Accommodates transactions involving small fees • Purchases can be made through the Web and using wireless devices • A PIN code authorizes the transaction 2001 Prentice Hall, Inc. All rights reserved ... participating sites – Store e-checks, e-cash and credit-card information • Credit-card companies offer a variety of e-wallets – Visa e-wallets – MBNA e-wallet allows one-click shopping at member... solution provider for Internet point-of-sale transactions – Brick -and- mortar and electronic merchants choose from transaction-processing options including debit cards, credit cards, checks and EBT authorization... 4.10 BusinesstoBusiness (B2B) Transactions • Business-to-business (B2B) transactions – Fastest growing sector of e-commerce payments – Payments are often larger than B2C transactions and involve complex