1. Understand the shifts that are occurring with regard to online payments.

2. Discuss the players and processes involved in using credit cards online.

3. Discuss the different categories and potential uses of smart cards.

4. Discuss various online alternatives to credit card payments and identify under what circumstances they are best used.

5. Describe the situations where e-micropayments are used and the alternative ways for handling these situations.

6. Describe the processes and parties involved in e-checking.10-2Copyright © 2011 Pearson Education, Inc.

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• Crucial factors in determining whether a particular method of e-payment achieves critical mass:– Independence– Interoperability and Portability– Security– Anonymity– Divisibility– Ease of Use– Transaction Fees– International Support– Regulations

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• payment cardElectronic card that contains information that can be used for payment purposes.

• Three forms of payment cards:1. Credit cards2. Charge cards3. Debit cards

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• PROCESSING CARDS ONLINE– authorization

Determines whether a buyer’s card is active and whether the customer has sufficient funds.

– settlementTransferring money from the buyer’s to the merchant’s account.

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• Merchants use three basic configurations for processing online payments:1. Own the payment software2. Use a point of sale system (POS) operated by an acquirer3. Use a POS operated by a payment service provider• payment service provider (PSP)

A third-party service connecting a merchant’s EC system to the appropriate acquiring bank or financial institution. PSPs must be registered with the various card associations they support.

• The key participants in processing card payments online:– Acquiring bank-credit card association-customer-issuing

bank-merchant-payment processing service-processor

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• Fraudulent card transactions – In the online world ,merchants are held liable for fraudulent transactions

• Key tools used in combating fraud:– Address Verification System (AVS)

Detects fraud by comparing the address entered on a Web page with the address information on file with the cardholder’s issuing bank.

– Manual review– Fraud screens and automated decision models– card verification number (CVN)

Detects fraud by comparing the verification number printed on the signature strip on the back of the card with the information on file with the cardholder’s issuing bank.

– Card association payer authentication services– Negative lists

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• smart cardAn electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card.

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• TYPES OF SMART CARDS– contact card

A smart card containing a small gold plate on the face that when inserted in a smart card reader makes contact and passes data to and from the embedded microchip.

– contactless (proximity) cardA smart card with an embedded antenna, by means of which data and applications are passed to and from a card reader unit or other device without contact between the card and the card reader.

– smart card readerActivates and reads the contents of the chip on a smart card, usually passing the information on to a host system.

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• APPLICATIONS OF SMART CARDS– Retail Purchases EMV smart card :has chip that capable to store financial

information, authentication ,and digital signatures The 31 European countries have agreed to shift all their

magnetic strip cards to EMV smart cards by 2010 Smart cards more secure than standard cards Smart cards can be extended with other payment

services(gas station, fast-food, quick –service restaurants, and cinemas)

– Transit Fares Contactless smart cards are used in parking lot,

trains ,subways, buses

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• stored-value cardA card that has monetary value loaded onto it and that is usually rechargeable.– The magnetic strip stores the monetary value of the card – With smart cards ,the chip stores the value – Consumers can use stored-value cards offline or online, in the same

way that they use credit and debit cards – The difference is that anyone Can obtain one without bank account – Cloesd loop or single-purpose : issued by a specific merchant or

merchant group like mall cards, store cards, gift cards, and prepaid telephone cards

– Open-loop or multipurpose :can be used to make debit transactions at a variety of retailers or for receiving direct deposits or withdrawing cash from ATM machines

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• e-micropaymentsSmall online payments, typically under $10/$5.

• Five basic micropayment models that do not depend solely or directly on credit or debit cards:1. Aggregation2. Direct payment3. Stored value4. Subscriptions5. À la carte

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• e-checkA legally valid electronic version or representation of a paper check.

E- checks contain the same information as a paper check ,can be used wherever paper checks are used

Web merchants hope that e-check will raise sales by reaching consumers who do not have credit cards or who are unwilling to provide credit card numbers online

Most businesses rely on third-part software to handle e-check payments

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1. What payment methods should your B2C site support?

2. What e-micropayment strategy should your e-marketplace support?

3. What payment methods should the C2C marketplace support?

4. Should we outsource our payment gateway service?

5. How secure are e-payments? What is the required security to use Internet banking?

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