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LECTURE 6: E-COMMERCE PAYMENT SYSTEMS 1. TYPE OF PAYMENT SYSTEMS
_________________________
Most common form of payment in terms of number of transactions
Instantly convertible into other forms of value without intermediation
_________________________
Funds transferred directly via a signed draft or check from a consumer’s checking account to a merchant or other individual.
Second most common payment form in U.S. in terms of number of transactions
_________________________
Credit card associations (Visa, Master)
Issuing banks (City bank)
Processing centers (Verification of accounts and balances)
_________________________
Funds deposited into account, from which funds are paid out or withdrawn as needed, e.g. debit cards, gift certificates
Peer-to-peer payment systems (PayPal)
_________________________
Accounts that accumulate expenditures and to which consumers make period payments
E.g. Utility, phone, etc.
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2. E-COMMERCE PAYMENT SYSTEMS 2.1. ONLINE CREDIT CARD TRANSACTION
____________________: A financial intermediary that authenticates credit cards and verifies account balances.
Limitations of online credit card payment
Security
Nether merchant nor the consumer can be fully authenticated (fake website, consumers’ repudiation)
Cost
Transaction costs (particularly for the micro payment, less than $10)
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iTunes Store: Apple aggregates your purchases a 24-hour period and posted to your credit card account as a total for the period, not as an individual song purchases.
Social equity
Are the credit cards democratic?
Poor risks because of low incomes.
2.2. DIGITAL WALLETS
Emulates functionality of wallet by
____________________________________,
____________________________________, and
____________________________________
Early efforts to popularize failed
Newest effort: Google Checkout
eBay’s refusal to allow merchants to use Google Checkout.
2.3. DIGITAL CASH
Value storage and exchange using tokens that represents cash value.
Most early examples have disappeared; protocols and practices too complex
2.4. ONLINE STORED VALUE SYSTEMS
Based on value stored in a consumer’s bank, checking, or credit card account
______________________
Purchased by eBay in 2002
Process $71 billion in 2009
87 million registered users
“No personal credit information” has to be shared among the users
The service can be used by individuals to pay one another even in small amounts
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_________________________
Embedded chip that stores personal information
Contact & Contactless type (that use RFID)
Mass transit system, Highway toll payment system
Integrated with the mobile wireless e-commerce payments
2.5. DIGITAL ACCUMULATING BALANCE PAYMENT SYSTEM
Users accumulate a debit balance for which they are billed at the end of the month
Ideal for purchasing intellectual property on the Web such as single music tracks, chapters of books, or articles from a newspaper
___________________________ (owned by eBay) – Consumers do not enter their credit card information online. Instead use the birth date and last four digits of SSN.
2.6. MOBILE PAYMENT SYSTEMS
Use of mobile handsets as payment devices well-established in Europe, Japan, South Korea
E-money (stored value)
Mobile debit cards
Mobile credit cards
Not as well established yet in U.S
Two ways to use the smartphone as a contactless payment system.
Embedded ____________ chips
____________ (Near Field Communication)
RFID sticker
SMS Texting
Register the phone with PayPal by entering the authentication code received by the phone.
Text to PayPal requesting the payment.
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PayPal calls them back to confirm, and after confirmation, sends the money to the recipient.
3. ELECTRONIC BILLING PRESENTMENT AND PAYMENT (EBPP)
3.1. EBPP SYSTEM
Cost of paper bill: $3 - $7 v.s. Cos of online payment: 20 to 30 cents
EBPP
Online payment systems for monthly bills
Improvement of cash flow
65% + of households in 2010 used some EBPP; expected to continue to grow
3.2. EBPP BUSINESS MODELS
Two competing EBPP business models:
Telephone
Utilities
Credit card companies
Financial institutions
Portals
Yahoo! Bill Pay
Bills.com
Paytrust.com