Key Concept
This chapter focuses on the variety of forms of payment that are available online and the advantages and disadvantages of some different options. Electronic cash is used a lot online and there are advantages and disadvantages for it as well. Electronic wallets are also used in e-commerce, along with stored-value cards. This chapter explains how transactions work online and what is more beneficial.
Payment Cards
- credit cards, debit cards, charge cards
- credit card: VIsa, Mastercard - spending limit based on users credit history
- card not present transactions: online and telephone purchases
- debit card: removes $$ from cardholder's bank
- charge card: American Express, no spending limit
- single-use cards: valid for only one transaction
Advantages and Disadvantages
A:
- provide fraud protection
- worldwide acceptance
D:
- charge merchants per-transaction fees and monthly processing fees
Payment Acceptance and Processing
Opened and Closed Loop Systems
- closed: card issuer pays merchangts that accept the dard directly and does not use intermediary (bank)
- open loop: third party processes a transaction
- credit card associations: visa, m/c, operated by banks who are members in associations
- custoemr issuing banks: issue credit cards to individual consumers, responsible for establishing customer credit limits
Merchant Accounts
- merchant bank: bank that does business with sellers that want to accept payment cards
Processing Payment Cards Online
- payment processing service providers: software that handles payment card processing automatically
- automated clearing house: services connect to this and a credit card authorization company
Electronic Cash
- any value storage and exchange system created by private entity that doesn't use paper documents or coins, serve as a substitute for govn't issued physical currency
Micropayments and Small Payments
- internet payments for items costing from a few cents to approx a dollar
- small payments: less than $10
Advanatages:
- more efficient
- costs less than processing credit card transactions
- additional costs are nearly zero
Disadvantages
- no audit trail
- money laundering: convert money that they have obtained illegally into cash that they can spend without having it identified as proceeds of illegal activity
- susceptible to forgery
_ not a global commercial success
Providing Security for Electronic Cash
- anonymous electronic cash: cannot be traced back to the person who spent it
- cryptographic algorithms create tamperproof electronic cash that can be traved back to its origins
Electronic Cash Systems
- interoperable software: runs transparently on variety of hardware configurations and on diff software systems
CheckFree: largest online billing processor, provide online payment processing services to large corporations and individual internet users
Clickshare: aimed at magazine and newspaper publishers
Paypal: earns profit on the float: money deposited in paypal accounts and not used immediately
Electronic Wallets
- holds credit card numbers, electronic cash, owner identification, and owner contact info and provides that info at an electronic commerce site's checkout counter
- stores customers info on remote server belonging to particular merchant
- client-side electronic wallet: stores consumers info on his or her own computer - not portable
Microsoft . NET Passport
- server-side e-wallet operated by microsoft
Yahoo Wallet
- completing order forms automatically with identifying info and credit card payment info
Stored-Value Cards
- elaborate smart card with a microchip or plastic card with magnetic strip that records the currency balance - smart card can store larger amounts of info and includes processor ship on card
Magnetic Strip Cards
- hold value that can be recharged by inserting them into the appropriate machines, inserting cuurency into the machine, withdrawing the card, strip stores increased cash value
Smart Cards:
- stored-value card that is plastic with an embedded microchip that can store info, can store 100 x's the amount of info that a magnetic strip can store
- safer than conventional credit cards, info is encrypted
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