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E-Commerce online payment information
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Traditional and Electronic Payment Methods
Chapter 3
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
Check Processing
Encryption/Decryption of Transactions
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
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
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
Charge Cards
• Similar to credit cards
• Customer pays bill in full each month
• AMEX card is a popular example
Debit Cards
• Similar to credit card in operation from merchant’s perspective
• Similar to a check from customer’s perspective
Payment Processing
• A merchant must have– A merchant account– Payment processing software– Procedures to protect customers and guard
against fraud
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
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.”
High Risk Factors• Customer not present (telephone and
Internet sales_
• High risk products or services (gambling, “politically incorrect,” or non-traditional products)
Payment Processing Software
• Software to facilitate authorization of customer charges to credit or debit charge account.
• Alternative is to outsource to 3rd party for a fee.
Verification Software
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.
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.
A Digital Certificate
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.
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.
Electronic Payment Forms• Various alternative payment forms include:
• Electronic Cash– Electronic checks– Smart cards– Person-to-person payment systems
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
Smart Cards
• A store value card
• Popular in Europe; not yet common in North America
• Needs special equipment to work with a PC
Electronic Checks
• An electronic version of a paper check
• Essentially a form of Electronic Funds Transfer (EFT)
Person to Person Systems
• A way to send money, a funds transfer
Person to Person Payment
Person to Person (P2P) System