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Electronic Commerce

Electronic Payments

15/07/2009 10:00:18

Academic Excellence in Technology Education


Session Objectives
Topics to be Covered 
To analyse the properties of cash, cheques and credit cards  To describe the requirements for Internet-based payment System Models  To discuss the following electronic payment systems: 
Payment cards  Paypal  And E-Wallets 

To discuss the order fulfillment phase

Payment Systems
After creating a Web site that allows a customer to choose an item for purchase, a payment must be made before the item is shipped When we walk into a ³real world´ store we basically have three ways to pay for an item. These are:  Cash (most common form of payment)  Cheques  Payment card (i.e. debit cards, credit cards, smart cards or automated teller machine (ATM) cards)  These account for more than 85% of consumer transactions worldwide

to carry and easy to handle in small quantities It is widely accepted It provides anonymity It does not have associated processing fees It has no audit trail (maintains privacy) .Payment Systems Cont¶d Cash has some important properties: It is convenient since it is easy to use.

organise and manage .Payment Systems Cont¶d There are several problems associated with the use of cash.g. however which include: It is easy to lose It is difficult to trace (e. when used in criminal activities) It introduces a security risk when being transported It is time-consuming to count.

on the other hand is ³« a written order by an account holder to his banker to pay a specified sum of money to the bearer or named recipient.´3 .Payment Systems Cont¶d A Cheque.

Payment Systems Cont¶d  Day 1: Any cheque collected during the first day will be processed by the collecting bank that evening  This information is passed electronically through the Inter Bank Data Exchange (a secure network) to the paying bank clearing centre.  Day 2: Cheques are delivered to an Exchange centre  Day 3: Cheques are reviewed by the paying bank and a decision is made whether to pay or return them Clearly one of the problems associated with cheques is the clearing time .

Payment Systems Cont¶d Electronic Payments An e-commerce payment environment requires a more complex design which includes:  Payment security  Transaction privacy  System integrity  Customer authentication  The purchaser¶s promise to pay .

Payment Systems Cont¶d Electronic Payments Cont¶d Electronic payments are financial transactions that do not require paper Electronic payments are far cheaper than mailing paper checks Cost of billing a person by mail ranges from US$1 to US$1.50 Billing a person electronically cost about US$0.50 Replacing paper bills also saves on trees .

by customers and merchants alike Ease of Integration: Effective Web interface Customer base: It should be financially viable Ease of use and access .Payment Systems Cont¶d Electronic Payments Cont¶d Four properties should be considered: Acceptability: Must be widely accepted.

htm .Payment Systems Cont¶d Payment Cards Payment cards include: Credit Cards Debit Cards Charge Cards credit_cards.paylessbills.

Visa) Debit cards Charge Cards .g.Payment Systems Cont¶d Payment Cards Cont¶d The main categories of payment cards are: Credit cards (e.

Payment Systems Cont¶d Payment Cards Cont¶d If a merchant wants to sell merchandise on the Web they must accept credit cards because: It is the most widely accepted form of payment It is the most popular .

.Payment Systems Cont¶d Payment Cards Cont¶d To be able to accept payments via credit cards: The seller must open a merchant account  A search can be made online for a list of credit and merchant services (some US banks include Bank of America and National Data Corporation) With this account the seller can accept and process credit cards  During processing only the card numbers and transactions are known (normally authorisation is provided through a customer signing a payment slip).

Payment Systems Cont¶d Payment Cards Cont¶d To be able to accept payments via credit cards: A secure and encrypted line is required to accept payments  The most popular solution used is Secure Socket Layer (SSL) which is built into Netscape Navigator and Microsoft¶s Internet Explore browser A shopping cart is also required to allow users to collect their purchase  The shopping cart connects to a payment processing system. calculates costs and taxes and generates a bill .

Payment Systems Cont¶d Payment Cards Cont¶d The processing of credit cards is complicated. however the following diagram highlights the important steps .

Payment Systems Cont¶d Payment Cards Cont¶d .

The payment server receives the payment information. The customer verifies the order 3. takes it behind a firewall. reformats it and forwards to to the merchant bank over a secure.Payment Systems Cont¶d Payment Cards Cont¶d 1. The customer places the order on the merchant¶s Web site (shipping and payment information is included) 2. The encrypted order is sent to the payment server by the merchant 4. dedicated line .

Payment Systems Cont¶d Payment Cards Cont¶d 5. The approval or denial is communicated back to the merchant and delivered to the customer . The merchant bank forwards an authorisation request to the issuing bank for approval or denial and the decision is sent back to the payment server 6.

Payment Systems Cont¶d Payment Cards Cont¶d Some of the characteristics of credit cards include: Interest is charged on outstanding balances not paid off within a given time The merchant¶s account is credited immediately Cardholders are only liable for $50 (by law) if their card is stolen or lost Cardholders can dispute charges or purchases for the 30-day period after the purchase The spending limit is based on credit history .

Payment Systems Cont¶d Payment Cards Cont¶d Several charges are associated with credit card processing  Firstly. a set-up fee that might cost a few hundred dollars (US$)  A fee of 2-4% of the value of each transaction processed  Statement fees  And a minimum monthly charge of US$20-$50 .

Payment Systems Cont¶d Payment Cards Cont¶d Some of the issues associated with credit cards are:  They leave a complete audit trail  They are insecure  A signature does not get verified which makes it difficult to assure the identity of a person  Merchant accounts are difficulty to get from banks  The banks review financial records and business history  Credit card are not economical for small payments .

g. iBill (http://ibill.Payment Systems Cont¶d Payment Cards Cont¶d The difficult of securing a merchant account may be overcome through the use of third parties who are willing to process credit cards iBill charges 15% of the company¶s total revenue for a two week period (this charge will not exceed US$10.000) .

American Express)  Has no spending limit  The amount due on the card is due at the end of the billing period  They do not accumulate interest payments .g.Payment Systems Cont¶d Payment Cards Cont¶d Debit cards  The sale amount is removed from user¶s account and transferred to the sellers account  Limited by funds in account plus overdraft (if present) Charge cards (e.

Payment Systems Cont¶d Payment Cards Cont¶d Some vendors provide single-use-cards which are valid for a single transaction A unique card number is issued This helps with card details security .

Payment Systems Cont¶d Payment Cards Cont¶d Some advantages of Payment Cards In the US card holder¶s liability is limited to US$50 when used fraudulently Accepted worldwide  Currency conversion handled by card issuer Ease of use. no special hardware required .

g.Payment Systems Cont¶d Payment Cards Cont¶d Some disadvantages of Payment Cards Service companies charge merchants pertransaction and monthly processing fees Price of goods for the consumer might be slightly higher as a result  A limit is placed on the minimum amount allowed to spend (e. 5 pounds in the UK) .

ppt  E-Wallets ations/DanaBabb.ppt  Metered Payments http://scitec.Other Payment Methods For other payment methods read the following presentations:  PayPal ations/LeeHarvey.ppt .bb/cmp/online/comp3210/present ations/ShawnHolder.

The Fulfilment Phase2 After the customer has paid for the product(s) then it is the merchant¶s responsibility to deliver it The customer generally expects that the product(s) will be delivered in a quick and timely fashion .

The Fulfilment Phase Cont¶d The fulfilment process includes: Sourcing items from a warehouse Packing these items Shipping Answering questions about the order  This might be done online through order management software where the customer is able to track their order .

The Fulfilment Phase Cont¶d The fulfilment process includes (cont¶d): Giving the customer a bill or verifying an online payment Determining whether the customer is satisfied with the delivery .

Toys R Us during Christmas 1999 failed to deliver items. it can really damage the merchant¶s reputation E. a costly mistake .g.The Fulfilment Phase Cont¶d From the customer¶s point of view fulfilment is the most critical part of the shopping experience If the customer is dissatisfied with the fulfilment process.

g. state. in the US).The Fulfilment Phase Cont¶d Tax is also a part of the fulfilment phase Different countries and even different States in the USA have different tax rules E. while in California there is In some cases (e. city and county tax must be considered .g. in New Jersey there is no tax on clothing.

The Fulfilment Phase Cont¶d One further issue that must be considered is inventory fulfilment Some of the questions that must be asked are:  Are the required products available?  Are the products offered for sale (on the Web site) linked to the inventory?  Should customers be notified of out-of-stock items? .

such as Paypal whose focus is primarily C2C e-commerce and small businesses It should also be clear that the order fulfilment phase is an extremely important part of the shopping experience If a merchant fails to deliver. or fails to deliver on time then it can badly damage their reputation . credit cards are the most widely used method of payment on the Internet  There are some alternatives for niche markets.The Fulfilment Phase Cont¶d In conclusion.

Thomson Course Technology. M. Prentice Hall. 2004 [2] Awad. Elias. Online document available at www. ³Electronic Commerce: From Vision to Fulfillment´. ³Electronic Commerce: The second wave´..apacs. 2004 [3] APACS. 2000. Second Edition.htm . ³Cheque and Credit Clearing Company´. Gary.References [1] Schneider. Fifth Annual