Payment Systems for Electronic Commerce
Week of July 21 – July 27
§ Online Payment Basics:
o Electronic payments are cheaper than mailing payments. E-payments cost half as much as mailed payments (p. 495).
o Four payment methods dominate both traditional and electronic B2C commerce accounting for 95% of all payments (p. 495):
§ Cash
§ Checks
§ Credit cards – 96% of all online payments in the United States
§ Debit cards
§ Other Payment Methods:
o A scrip is digital cash minted by a company. It must be exchanged for goods and services by the company that issued the scrip. Its basically like an online gift certificate (p. 496).
o A merchant bank is a bank that does business with sellers that want to accept payment cards. To process payment cards for Internet transactions, an online merchant must set up a merchant account with the merchant bank (p. 501).
o A payment card is a general term used to describe all types of plastic cards that consumers (and some businesses) used to make purchases. Examples include credit cards, debit cards, and charge cards (p. 497).
§ Advantages:
· Fraud protection
· Worldwide acceptance
§ Disadvantages:
· Merchant has to pay a fee to the merchant bank for each transaction.
o Electronic cash is a general term that describes any value storage and exchange system created by a private entity that does not use paper documents or coins that serve as a substitute for currency (p. 503).
§ Electronic cash can be exchanged for physical cash (p. 503).
§ Electronic cash can be used by those unable to obtain credit cards (p. 503).
§ Advantages:
· More efficient than credit cards – no transmission fees
· Can be used worldwide
§ Disadvantages:
· Cannot be easily traced
· Susceptible to counterfeiting
· Measures should be taken to prevent double-spending. Double-spending is spending a particular piece of electronic cash by submitting the same piece of electronic cash to two different vendors. (pp. 505,507).
o An electronic wallet serves a similar function to a physical wallet. It holds credit card numbers, electronic cash, owner identification, and owner contact information and provides that information at an e-commerce site’s checkout counter. E-wallets give consumers the benefit of entering their information just once, instead of having to enter their information at every site with which they want to do business (p. 513).
§ A server-side e-wallet stores a customer’s information on a remote server belonging to a particular merchant or wallet publisher (p. 513).
§ A client-side e-wallet stores a consumer’s information on his or her own computer. A disadvantage of client-side wallets is that they are not portable is made from a computer other than the computer on which the wallet resides (p. 513).
o For a wallet to be useful at many online sites, it should contain the fields (ex. name, address, credit card information) that any merchant would need to process a transaction (p. 514).
o A stored-valued card is a card that records the currency balance in a microchip or on a magnetic strip. Examples include phone, copy, subway, and bus cards. In other words, the card is pre-loaded with minutes, miles, cash, etc. and keeps up with the balance as you spend them (p. 517).