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E-money

E-money. Chapter 12. Learning Objectives. Explain how a digital cash system is set up and used List and compare online alternatives to traditional payment methods Discuss the challenges of online micropayments Explain how online person-to-person payments are executed

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E-money

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  1. E-money Chapter 12

  2. Learning Objectives • Explain how a digital cash system is set up and used • List and compare online alternatives to traditional payment methods • Discuss the challenges of online micropayments • Explain how online person-to-person payments are executed • Appreciate the economic value of points programs on the Web

  3. Money: it’s what we trust it is • Two main purposes: • A medium for storing value • A medium of payment • Money does not have to be represented by tangible objects electronic money is a viable alternative

  4. E-money? What e-money?

  5. Much of the world’s money is in electronic form • In addition to the use of credit cards for online payments, purely electronic forms of payment are becoming increasingly popular

  6. Digital coins • DigiCash - the electronic version of cash • Known as electronic cash, e-cash, or digital coins • Both merchant and customer: • must open an account with a bank that issues e-cash • Must register with DigiCash to obtain the cyberwallet software (generates digital coins)

  7. Advantages of e-cash • It is simultaneously a payment mechanism and a system that protects personal information • Difficult to forge secure

  8. Disadvantages of e-cash • The need to maintain huge databases of spent coins • Inflexible system • Preset amounts • No mechanism for giving change • Not enough users to create a networking effect • Government agencies and many financial institutions are so far unwilling to adopt it

  9. A spin on traditional credit cards

  10. E-wallet • E-wallet - a variety of electronic information that aids in delivering personal and financial information for online purchases • Software provided free of charge • Some security measures

  11. Virtual credit card • A virtual credit card is linked to the digital information of a real credit card, but has no physical link to any plastic card • Virtual credit cards use digital certificates

  12. One-time credit cards • The one-time credit card is a virtual card for which a new number is generated each time a purchase is made • The number becomes invalid immediately after use

  13. Metered payments • Metered payments are charged to an existing account with a provider of regular, metered services, e.g., • Utility companies • Telephone companies • ISPs

  14. Smart cards • Payment cards that use computer technology to store/process information

  15. The major vehicle for the stored value model • The holder pays to store value either: • On a physical smart card, or • In an electronic account

  16. Two smart card technologies • CONTACT cards • Must be inserted into a card reader • NONCONTACT cards • Must pass near a reader antenna to carry out the transaction

  17. Special readers • Special devices must be attached to the computer from which one makes purchases • Can be used for e-commerce only if such devices are hooked to individual computers

  18. Confidentiality • Cards designed for payments are such that usually the merchant cannot see the cardholder’s account number

  19. Micropayments • Micropayments - transactions worth “small money”, typically less than $5 • Also known as microcash • Several payment alternatives exist • Metered bills • Qpass – accumulates micropayments into an online account paid at the end of the month

  20. Person-to-person (P2P) payments • Service offered by several companies • Some serious doubts about the validity of the business model • Security challenges

  21. Online stored value services • Online account in which you can store value • Replenished using a credit card or checking account • Advantage to merchants • Fees are lower than for credit cards • Model is convenient for parents • Limit children’s spending

  22. Points • “electronic coupons” • Points can be gained by purchasing from many sources

  23. E-money Chapter 12

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