Topic 7: E-Payment Systems

BBED 4103
E-Commerce
 Payments
There are five basic ways for purchases:

Cash
Checks
Credit cards
Debit cards
Electronic transfer
 Technologies

Payments cards
Electronic cash
Software wallets
Smart cards
Digital accumulating balance payment system
Digital checking
Payment Cards
 Advantages & Disadvantages
Merchant Customer

Advantages

Fraud protection – payment guarantee Worldwide acceptance

Disadvantages

Payment card service companies

charge merchants per-transaction fees
and monthly processing fees
Credit Card Payment Mechanism
Open & Closed Loop Systems
Merchant Bank
 Processing Payment Cards Online
• Software packaged with your electronic
commerce software can handle card
processing automatically, or merchants can
contract with a third party to handle payment
card processing.
• ICVERIFY: is intended for small retailers that use Microsoft
Windows electronic cash registers and point-of-sales
terminal systems

• PCAuthorise: is intended for smaller online stores (unlike

ICVERIFY, it does not require any point-of-sales
hardware)

• WebAuthorise: is for large, enterprise-class merchant sites

which automatically accepts merchant forms containing
consumers’ payment card information, captures the data,
and deposits the amount in the merchant’s payment cards
account.
ELECTRONIC CASH aka DIGITAL CASH
• is a general term that describes any value
storage and exchange system created by a
private (non-governmental) entity that does
not use paper documents or coins and that
can serve as a substitute for government
issued physical currency.
 Micropayment
• Internet payments for items costing from a
few cents to approximately a dollar.
Security Problems with Electronic Cash
Electronic cash should have two important
characteristics in common with physical
currency:
• First, it must be possible to spend electronic
cash online once, just as with traditional
currency; and
• Second, electronic cash ought to be
anonymous, just as hard currency is.
 Characteristics of E-Cash
Characteristic Meaning

Independent •It is unrelated to any network or storage

device

•Should ideally be able to pass

transparently across international borders
and be converted automatically to the
recipient country’s currency

Portable •It must be freely transferable between

any two parties.
 Pros & Cons of E-Cash
Advantages Disadvantages

Efficient (less costly) No audit trail – “Money laundering”

Doesn’t need authorization

Electronic Wallets /Digital Wallets
• Serves the function similar to a physical
wallet, holds credit card numbers, electronic
cash, owner identification, and owner contact
information and provides that information at
an electronic commerce site’s checkout
counter.
Electronic wallets fall into two categories based
on where they are stored:
• Server-side electronic wallet: stores a
customer’s information on a remote server
belonging to a particular merchant or wallet
publisher.

• Client-side electronic wallet: stores a

consumer’s information on his or her own
computer.
Differences between Server & Client Side
Server-side electronic wallet Client-side electronic wallet

Info remains on a server and thus require Need to download software onto every
no download time or installation on a computer used to make purchases
user’s computer. continues to be a chief disadvantage of
client-side wallets.

Each wallet vendor must convince a large Shifts the responsibility for maintaining
number of merchants to enable its wallet security to the user.
before it will be accepted by consumers.

Not portable.
 Survivors in the E-wallet Arena
• Microsoft.NET Passport

• Yahoo! Wallet
 Stored Valued Cards
Can be an elaborate smart card with a microchip
or a plastic card with a magnetic strip that
records the currency balance.
• Magnetic Strip Cards: hold value that can be
recharged by inserting them into the
appropriate machines, inserting currency into
the machine, and withdrawing the card; the
card’s strip stores the increased cash value.
Smart Cards: a plastic card with an embedded
microchip that can store information.
Mondex: a smart card that holds and dispenses
electronic cash.
– can accept electronic cash directly from a user’s bank
account.
– Cardholders can spend their electronic cash with any
merchant who has a Mondex card reader.
– Two cardholders can even transfer cash between their
cards over a telephone line.
– will work both in the online world of the Internet and the
offline world of ordinary merchant stores, while
simultaneously being less susceptible than cards to threats
of theft.
– the cardholder always has the correct change for vending
machines of various types.
• The card carries real cash in electronic form, and the risk of
theft of the card may deter users from loading it with very
much money.
• Does not allow the deferred payment you can obtain with a
credit card you can defer paying your charge or credit card bill
for almost a month without incurring any interest charges.
 Other E-Commerce Payments Systems
Digital accumulating balance payment systems allow
users to make micropayments and purchases on the
Web, accumulating a debit balance for which they are
billed at the end of the month.
• qPass is an integrated platform for the
marketing, sale, distribution, and transaction
processing of digital content.
– It is the leading micropayment solution for media
companies such as the New York Times, Wall
Street Journal, and many other newspapers and
journals that are seeking to convert their analog
content into easily sold digital content, ranging in
price from few cents to thousands of dollars.
• IPin is a newer entrant to the micropayment
accumulated balance marketspace.
– provides its services either as an application
service provider or as a merchant-owned solution.
With iPin, merchants can choose the level of
security and authentication they want, from
simple login and password protection to digital
wallet protection.
Digital Checking Payment Systems
• seek to extend the functionality of existing
checking accounts for use as online shopping
payment tools.
– They do not require consumers to reveal account
information to other individuals when settling an
auction;
– They do not require consumers to continually send
sensitive financial information over the web;
– They are less expensive than credit cards for
merchants; and
– They are much faster than paper-based traditional
checking.
Digital Checking Payment Systems
 Electronic Billing Presentment and
Payment
• Direct system
• Consolidator model
– Biller direct: Telephone, Utilities, Credit card
companies and service bureaus such as
Billserv.com, Priceton eCom and DigiCash.
– Consolidators: CheckFree and PayTrust.
– Portals: Yahoo, AOL, Excite, Cyberbills.com,
PayMyBills.com and Banks.