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Chapter 7

Chapter 7. Electronic Payment Systems. Learning Objectives. In this chapter, you will learn about: Distinct methods to collect payments from customers The history and near-term future for electronic cash The implementation of electronic cash systems Electronic wallets and how they work.

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Chapter 7

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  1. Chapter 7 Electronic Payment Systems

  2. Learning Objectives In this chapter, you will learn about: • Distinct methods to collect payments from customers • The history and near-term future for electronic cash • The implementation of electronic cash systems • Electronic wallets and how they work

  3. Learning Objectives • The role of smart cards in electronic commerce • Credit and debit card processing for electronic commerce transactions • The most popular electronic payment systems • The SET protocol and how it protects credit card transactions

  4. The Basics of Electronic Payment Systems • Electronic commerce involves the exchange of some form of money for goods and services. • Implementation of electronic payment systems is in its infancy and still evolving. • Four technologies to be used: electronic cash, software wallets, smart cards, and credit/debit cards.

  5. Electronic Cash • Electronic cash is attractive in two arenas: • in the sale of goods and services of less than $10 • in the sale of higher-priced goods and services to those without access to credit cards • Internet payments for items costing from a few cents to approximately $10 are called micropayments. • Companies offer micropayment systems include iPin, eChange, Qpass, 1ClickBrands, and PayPal.com.

  6. Electronic Cash • Concerns about electronic payment methods include: • privacy and security • independence • portability • divisibility • convenience

  7. Electronic Cash • Electronic cash should have two important characteristics in common with real currency: • it must be possible to spend electronic cash only once • electronic cash ought to be anonymous • Beenz is a kind of scrip that consumers can earn and exchange for goods and services. Click to see Figure 7-1:

  8. Online and Offline Cash • Two approaches to holding cash: online storage and offline storage. • Online cash storage means that an online bank is involved in all transfers of electronic cash. • Offline cash storage is the virtual equivalent of money you keep in your wallet. However, it must prevent double or fraudulent spending.

  9. Advantages of Electronic Cash • Electronic cash transactions are more efficient and less costly than other methods. • The distance that an electronic transaction must travel does not affect cost. • The fixed cost of hardware to handle electronic cash is nearly zero. • Electronic cash does not require that one party have any special authorization.

  10. Disadvantages of Electronic Cash • The concept of an Internet tax poses many problems and questions. • Because true electronic cash is not traceable, money laundering is a problem. • Electronic cash is susceptible to forgery. • Electronic cash is, so far, a commercial flop.

  11. How Electronic Cash Works • To establish electronic cash, a consumer goes in person to open an account with a bank. • The consumer uses a digital certificate to access the bank through the Internet to make a purchase. • Consumers can spend their electronic cash at sites that accept electronic cash for payment. • The electronic cash must be protected from both theft and alteration.

  12. Providing Security for Electronic Cash • To prevent double spending, the main security feature is the threat of prosecution. • A complicated two-part lock provides anonymous security that also signals when someone is attempting to double spend cash. • One way to trace electronic cash is to attach a serial number to each electronic cash transaction. Click to see Figure 7-3:

  13. Electronic Cash Systems • Compaq Computer’s electronic cash technology allows users to use its NetCoin electronic cash. • CyberCash created CyberCoin for micropayments. • No standards were ever developed for the entire electronic cash system.

  14. CheckFree • CheckFree provides online payment processing services to both large corporations and individual Internet users. • CheckFree permits users to pay all their bills with online electronic checks. • CheckFree signed an agreement with Yahoo! to provide Yahoo! customers the option of paying directly from the Yahoo! site. Click to see Figure 7-4: Click to see Figure 7-5:

  15. Clickshare • Clickshare is an electronic cash system aimed at magazine and newspaper publishers. • Users with an ISP that supports Clickshare are automatically registered with Clickshare. • Clickshare tracks users with the standard HTTP Web protocol. Click to see Figure 7-6:

  16. DigiCash (eCash) • DigiCash was a trailblazer in the electronic cash field. • DigiCash made software products that allowed users to purchase goods and services on the Internet and pay for them using anonymous electronic cash. Click to see Figure 7-7:

  17. eCoin.Net • ECoins are electronic tokens issued by eCoin.net. • Consumers can use the tokens to pay for online goods. • The electronic cash is stored in an eCoin wallet on the consumer’s computer. • The eCoin system uses a three-link chain consisting of a consumer, a merchant, and the eCoin server. Click to see Figure 7-8:

  18. InternetCash • InternetCash provides electronic currency that is very similar to traditional cash. • Customers must first purchase an InternetCash card from stores such as Circle K. • Customers then go online and activate their cards by entering a 20-digit code and creating a PIN. • Once their card is activated, customers can pay for purchases using the InternetCash card at any site accepting them. Click to see Figure 7-9:

  19. MilliCent • MilliCent is an electronic scrip system that does not issue one standard currency. • Each participating merchant creates and sells its own scrip to a broker at discount. • Consumers register with one broker and buy broker scrip in bulk. • Paying for an item involves simply transferring a merchant’s scrip to the merchant in exchange for a purchased item.

  20. PayPal • PayPal.com is a free service that earns a profit on the float, which is money that is deposited in PayPal account. • PayPal is very popular with eBay auction customers. • PayPal allows customers to send money instantly and securely to anyone with an e-mail address, including an online merchant. Click to see Figure 7-10: Click to see Figure 7-11:

  21. Loyalty and Rewards Systems • Scrip is a form of electronic cash that is stored on your computer or on the server of the scrip vendor. • Loyalty and rewards programs endorsed by various Web stores frequently use scrip to reward Web visitors. • Flooz and beenz are two most popular brands of scrip.

  22. Beenz • Beenz is a brand of scrip that is marketed as a loyalty reward program for Internet consumers. • Consumers collect beenz and later redeem them for merchandise at participating merchant Web sites. • On average, on beenz is worth approximately one cent.

  23. Flooz • Flooz is scrip that you purchase using a credit card and either use for your own purchases or send to a recipient as a gift or payment. • Flooz is redeemable for purchases at any merchant that accepts it. • The Flooz exchange rate is one Flooz equals to one dollar. Click to see Figure 7-12:

  24. Electronic Wallets • An electronic wallet serves a function similar to a physical wallet, also: • Holds credit cards, electronic cash, owner identification, and owner contact information • Provides owner contact information at an electronic commerce site’s checkout counter • Contains an address book

  25. Electronic Wallets • Electronic wallets make shopping more efficient. • Electronic wallets fall into two categories based on where they are stored: • Server-side electronic wallet • Client-side electronic wallet

  26. Electronic Wallets • Electronic wallets are particularly useful and save a lot of time to fill out electronic checkout counter form. • Electronic wallets can enter required information into checkout forms automatically. • MasterCard offers its own electronic wallet, called the MasterCard e-wallet. Click to see Figure 7-13:

  27. eWallet • EntryPoint produces eWallet, a free wallet software that consumers download and install on their computer. • eWallet stores personal and payment information inside the electronic wallet. • To protect your information, eWallet is encrypted and password protected. Click to see Figure 7-14:

  28. Microsoft Passport • Microsoft Passport Wallet comes preinstalled in Internet Explorer 4.0 and higher versions. • All the personal data you enter into your Microsoft Passport, including your name, address, and credit card information, are encrypted and password-protected. • Passport consists of four integrated services: Passport single sign-in service, Passport Wallet Service, Kids Passport service, and public profiles. Click to see Figure 7-15:

  29. The W3C Proposed Standard • The W3C proposed standards for electronic wallets will impact every vendor’s wallet offerings. • The W3C Electronic Commerce Interest Group (ECIG) developed the Common Markup for Web Micropayment Systems public working draft. Click to see Figure 7-16:

  30. The ECML Standard • The consortium of America Online, Brodia, Compaq, CyberCash, Dell, IBM, Microsoft, Visa USA, and MasterCard has agreed on a technology called ECML, or electronic commerce modeling language. • The ECML standard will expedite online processing for customers by simplifying the form-filling procedure. Click to see Figure 7-17:

  31. Stored-Value Cards • A stored-value card can be an elaborate smart card or a simple plastic card with a magnetic strip that records the currency balance. • A smart card is better suited for Internet payment transactions because it has limited processing capability.

  32. What is a Smart Card? • A smart card is a plastic card with an embedded microchip containing information about you. • A smart card contains private user information such as financial facts, private encryption keys, account information, credit card numbers, health insurance information, etc.

  33. Mondex Smart Card • Mondex is a smart card that holds and dispenses electronic cash. • Mondex requires special equipment such as card reader to process. • Containing a microcomputer chip, Mondex cards can accept electronic cash directly from a user’s bank account. Click to see Figure 7-18:

  34. Credit and Charge Cards • A credit card, such as a Visa or a MasterCard, has a preset spending limit based on the user’s credit limit. • A charge card, such as one from American Express, carries no preset spending limit. • The collective term “payment card” will refer to both types of card.

  35. Advantages and Disadvantages of Payment Cards • Advantages: • Payment cards provide fraud protection • Their worldwide acceptance • They are good for online transactions • Disadvantages: • Payment card service companies charge merchants per-transaction fee and monthly processing fee

  36. Payment Acceptance and Processing • Open and closed loop systems will accept and process payment cards. • A merchant bank or acquiring bank is a bank that does business with merchants who want to accept payment cards. • Software packaged with your electronic commerce software can handle payment card processing automatically. Click to see Figure 7-19:

  37. Secure Electronic Transaction (SET) Protocol • SET is a secure protocol jointly designed by MasterCard and Visa with the backing of Microsoft, Netscape, IBM, GTE, SAIC, and other companies. • The purpose of SET is to provide security for card payments as they traverse the Internet between merchant sites and processing banks.

  38. Secure Electronic Transaction (SET) Protocol • The SET specification uses public key cryptography and digital certificates for validating both consumers and merchants. • The SET protocol provides confidentiality, data integrity, user and merchant authentication, and consumer nonrepudiation.

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