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1Chunle i L iuValdosta State University

CS 3700: Introduction to E Commerce

10. Electronic Payment Systems

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Traditional Payment Methods

How do you pay? What are the cost and risks? Cash (20%)

Checks (60%)

o Clearinghouses

o Magnetic Ink Characters Recognition (MICR)o Costs: 1% of U.S. Gross Domestic Product

Payment cards (20%)

o Credit cards

o Cost: 2.5% to issuer, 0.16% to association, 1.34% to acquirer

o Charge cards

o Debit cards

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Electronic Payment Methods

How do you pay electronically? Payment cards: Credit cards/Debit cards

Electronic fund transfer

Smart cards

Digital cash and script E-wallets

Digital checks

Electronic billing

What are the problems with electronic payment? Many youths do not have credit or debit cards Credit cards are not prevalent outside US

Transaction fees (~4%) is not suitable for B2B

Fraud and chargeback

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What Is a Good E payment Method?

What characteristics a successful e-payment methodshould have? Independence

Interoperability and portability Security

Anonymity

Divisibility

Ease of use Transaction fees

International support

Regulations

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Processing cards online authorization

Determines whether a buyers card is active and whether

the customer has sufficient funds.

settlement

Transferring money from the buyers to the merchants

account.

Using Payment Cards Online

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Merchants use three basic configurations for processingonline payments:1. Own the payment software

2. Use a point of sale system (POS) operated by an acquirer

3. Use a POS operated by a payment service providero payment service provider (PSP)

A third-party service connecting a merchants EC systemto the appropriate acquiring bank or financial institution.PSPs must be registered with the various card associationsthey support.

Using Payment Cards Online

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7/137Chunle i L iuValdosta State University

Processing Card Payments

Participants in processing card payments online Acquiring bank

Credit card association

Customer Issuing bank

Merchant

Payment processing service

Processor

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Address Verification System (AVS)Detects fraud by comparing the address entered on a Web

page with the address information on file with thecardholders 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 theinformation on file with the cardholders issuing bank.

Card association payer authentication services

Negative lists

Key Tools Used In Combating Fraud

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Smart Cards

Smart card:An electronic card containing an embeddedmicrochip that enables predefined operations or theaddition, deletion, or manipulation of information on thecard.

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Smart Cards

Types of smart cards contact card

A smart card containing a smallgold plate on the face that wheninserted in a smart card reader

makes contact and passes data toand from the embedded microchip.

contactless (proximity) card

A smart card with an embeddedantenna, by means of which dataand applications are passed to andfrom a card reader unit or otherdevice without contact between thecard and the card reader.

Operations of Smart cards smart card reader

Activates and reads the contents ofthe chip on a smart card, usuallypassing the information on to a host

system. smart card operating system

Special system that handles filemanagement, security, input/output(I/O), and command execution andprovides an applicationprogramming interface (API) for asmart card.

Applications of smart cards

Retail purchases

Transit fares

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e-micropaymentsSmall online payments, typically under $10.

Five basic micropayment models that do not dependsolely or directly on credit or debit cards:

1. Aggregation2. Direct payment3. Stored value4. Subscriptions

5. la carte

E Micropayments

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e-checkA legally valid electronic version or representation ofa paper check.

E Checking

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