Chapter 5, Online Monetary Transactions - Internet

2001 Prentice Hall, Inc. All rights reserved.

Chapter 4, Online Monetary Transactions

Outline4.1 Introduction4.2 Credit-Card Transactions

4.2.1 Anatomy of a Credit-Card Transaction4.2.2 Credit-Card Transaction Enablers

4.3 Online Credit-Card Fraud4.4 Digital Currency4.5 E-Wallets4.6 Alternate Consumer Payment Options4.7 Peer-To-Peer Payment4.8 Smart Cards4.9 Micropayments4.10 Business-To-Business (B2B) Transactions4.11 E-Billing4.12 Developing Payment Standards


4.1 Introduction• Secure electronic funds transfer is crucial to e-

commerce • Examination of how individuals and organizations

conduct monetary transactions on the Internet • Credit-card transactions, digital cash and e-

wallets, smart cards, micropayments and electronic bill presentment and payment

• Electronic-payment enablers


4.2 Credit-Card Transactions• Popular form of payment for online purchases • Resistance due to security concerns• Many cards offer capabilities for online and

offline purchases– Prodigy Internet Mastercard– American Express Blue


4.2 American Express: Enabling Secure Payments on the Web

• Small business transactions• Blue for Business

– Blue allows business owners to carry a balance and conduct secure online and offline transactions

• American Express Purchase Protection Program – Protects buyers against damaged goods

• Buyers Assurance Plan – Offers an extended warranty on purchases made with the

Blue card

• Online WalletSM

– ExpressFormSM

– AutobuySM


4.2 American Express: Enabling Secure Payments on the Web

• Private Payments– Provides a unique account number for each individual

purchase

• American Express @ WorkSM – Facilitates larger corporations with enhanced integration

technologies

• Online Program Management – Allows corporations to manage the corporate accounts of a

large number of employees


4.2.1 Anatomy of an Online Credit-Card Transaction

• To accept credit-card payments, a merchant must have a merchant account

• Traditional merchant accounts accept only POS (point-of-sale) transactions– Transactions that occur when you present your credit card at

a store

• Card-not-present (CNP) transaction– Merchant does not see actual card being used in the purchase

• Authentication– The person is, in fact, who they say they are



• Authorization– The money is available to complete the transaction

• Acquiring bank – The bank with which the merchant holds an account

• Issuing bank– The bank from which the buyer obtained the credit card, and

the credit-card association

• Verification• Money issued to merchant after product/service is

distributed



• Step 1– Consumer makes a purchase at an online store, credit card

information received by e-store

• Step 2– Credit card information is sent from the merchant to the

acquiring bank

• Step 3 and Step 4– The credit card association and the issuing bank certify the

transaction and the verification is sent to the acquiring bank

• Step 5– The merchant ships the product and payment is issued


4.2.2 Credit-Card Transaction Enablers

• Credit-Card Transaction Enablers– Companies that have established business relationships with

financial institutions that will accept online credit-card payments for merchant clients

• iCat• Trintech• Cybercash• NextCard, Inc.


4.2.2 CyberCash Feature• Enables businesses to receive payments through

Internet– CashRegister

• Makes it possible for merchants to receive credit-card numbers, offer the numbers to the appropriate financial institution for validation and accept credit-card payments in a secure environment over the Web

• Establishes direct connection between its servers and the Web sites of its e-business customers

• Customer enters credit-card and shipping information• Information sent to CyberCash for validation, once validation

is received, purchase can be completed and funds are transferred electronically from customer accounts to merchant’s account


4.2.2 CyberCash Feature• CyberCash Instabuy allows customers to store

their purchasing information in an Instabuy e-wallet– An e-wallet electronically stores purchasing information

• Using redundant servers, or identical servers for back up if one server fails, CyberCash is able to minimize downtime

• CashRegister keeps track of transactions• All financial information transmitted via the

Internet is encrypted and digitally signed • CyberCash offers fraud detection to protect

merchants


4.2.2 CyberCash Feature

CyberCash FraudPatrol. (Courtesy of CyberCash™, Inc.CyberCash is a registered trademark of CyberCash Inc., in the United States and other countries.)


4.3 Online Credit-Card Fraud• Chargeback

– When a credit-card holder claims a purchase was made by an unauthorized individual, or when a purchase was not received

– The charges in question are not the responsibility of the credit-card holder

– On the Internet, neither a scan of the card nor a signature is registered and the cost is incurred by the merchant

• Visa– High-risk business models– “Best Practices”

• Mastercard– Uses the three digit pin code on the back of the card


4.4 Digital Currency• Digital cash

– Stored electronically, used to make online electronic payments

– Similar to traditional bank accounts– Used with other payment technologies (digital wallets) – Alleviates some security fears online credit-card transactions– Allows those with no credit cards to shop online– Merchants accepting digital-cash payments avoid credit-card

transaction fees– eCash Technologies, Inc. is a secure digital-cash provider

that allows you to withdraw funds from your traditional bank account


4.4 Digital Currency• Gift cash, often sold as points, can be redeemed at

leading shopping sites – An effective way of giving those without credit cards, the

ability to make purchases on the Web– Flooz

• Points-based rewards – Points are acquired for completing specified tasks including

visiting Web sites, registering or buying products– Points can then be redeemed– Beenz


4.4 Digital Currency

Using eCash on the Web. (Courtesy of eCash Technologies, Inc.and ©2000 eCash.)


4.5 E-Wallets• E-wallets

– Keep track of your billing and shipping information so that it can be entered with one click at participating sites

– Store e-checks, e-cash and credit-card information

• Credit-card companies offer a variety of e-wallets – Visa e-wallets – MBNA e-wallet allows one-click shopping at member sites– Entrypoint.com offers a personalized desktop toolbar

that includes an e-wallet

• A group of e-wallet vendors have standardized technology with Electronic Commerce Modeling Language (ECML)

http://www.visa.com/pd/ewallet/main.html

http://www.entrypoint.com/

http://www.entrypoint.com/


4.6 Alternate Consumer Payment Options

• Checks or money orders through the mail• Cash on delivery (COD)• Debit cards

– Offer an alternative for card-holders to access their accounts– Funds are instantly deducted from checking account– Can withdraw cash from Automatic Teller Machines (ATMs)

• Checking-account numbers – Companies such as AmeriNet allow merchants to accept

checking-account numbers as a valid form of payment• AmeriNet provides authorization, account settlement,

distribution and shipping (fulfillment) and customer service inquiries

http://www.debit-it.com/


4.6 Alternate Consumer Payment Options

EntryPoint Internet Toolbar. (Courtesy of EntryPoint. Inc.)


4.7 Peer-To-Peer Payments• Peer-to-peer transactions

– Allow online monetary transfers between consumers – eCash allows the transfer of digital cash via e-mail between

two people who have accounts at eCash-enabled banks – PayPal offers X payments

• Allows user to send money to anyone with an e-mail address• Can be used to enable credit-card payment for auction items in

real time (the transaction begins processing immediately after it is initiated), reducing the risk of fraud or overdrawn accounts

– BillPoint• Allows buyers to submit electronic payments to sellers’

checking accounts– Tradesafe.com (larger transactions, B2B)

http://www.ecash.com/

http://www.paypal.com/

http://www.billpoint.com/

http://www.tradesafe.com/

http://www.tradesafe.com/


4.8 Smart Cards• Smart card

– Card with computer chip embedded on its face, holds more information than ordinary credit card with magnetic strip

– Contact smart cards• To read information on smart cards and update information,

contact smart cards need to be placed in a smart card reader– Contactless smart cards

• Have both a coiled antenna and a computer chip inside, enabling the cards to transmit information

– Can require the user to have a password, giving the smart card a security advantage over credit cards

• Information can be designated as "read only" or as "no access" • Possibility of personal identity theft


4.9 Micropayments• Merchants pay fee for each credit-card transaction • Micropayments

– Payments that generally do not exceed $10, allows companies offering nominally priced products to profit

• To offer micropayments, some companies form strategic partnerships with utility companies – eCharge enables companies to offer this option to customers

• eCharge uses ANI (Automatic Number Identification) to verify the identity of the customer and the purchases they make

• Outsource payment-management systems (Qpass)

http://www.echarge.com/

http://www.qpass.com/


4.9 Millicent Feature• Millicent is a micropayment technology provider• Companies using Millicent payment technology

allow customers to make micropayments using credit or debit cards, prepaid purchasing cards or by adding purchases to a monthly Internet Service Provider bill or phone bill

• Millicent handles all payment processing needed for the operation of an e-business, customer support and distribution services

http://www.millicent.com/


4.10 Business-to-Business (B2B) Transactions

• Business-to-business (B2B) transactions– Fastest growing sector of e-commerce payments – Payments are often larger than B2C transactions and involve

complex business accounting systems

• PaymentechTM – Payment solution provider for Internet point-of-sale

transactions– Brick-and-mortar and electronic merchants choose from

transaction-processing options including debit cards, credit cards, checks and EBT authorization and settlement

• EBT (Electronic Benefits Transfer) – Defined by the USDA as the electronic transfer of

government funds to retailers for the benefit of the needy

http://www.apaymentech.com/

http://www.apaymentech.com/



• eCredit provides real-time, credit-transaction capabilities of B2B size

• Clareon facilitates B2B transactions by providing digital payment and settlement services– Payment is digitally signed, secured and authenticated via

digital payment authentication (DPA) – Compatible with all enterprise resource planning (ERP)

systems and can adapt electronic records for companies, banks and each member of a given transaction

http://www.ecredit.com/

http://www.clareon.com/



• Electronic consolidation and reconciliation of the business transaction process– Companies can keep track of a transaction from order-to-

cash settlement while reducing administrative costs, errors, waste and complexity in the supply chain

• eTime Capital

• Order-fulfillment providers– Companies attempting to bring supply chain expertise and

logistical services to Internet businesses

• Internet-based electronic B2B transactions will augment, but not replace, traditional Electronic Data Interchange (EDI) systems

http://www.etimecapital.com/

http://www.etimecapital.com/



PAYTRUST SmartBalance™ screen shot. (Courtesy of Paytrust, Inc.)


4.10 TradeCard Feature• Provides a global B2B e-commerce infrastructure

– Cross-border data management and payment

• Buyer creates pre-formatted electronic purchase order and presents document to seller

• Purchase order data stored electronically in TradeCard database, and electronic invoices and packing slips are produced from data

• Uses a patented "data compliance engine" to check documents against original purchase order– If discrepancies are found, concerned parties are notified

immediately and can negotiate to resolve the conflict


4.10 TradeCard Feature• TradeCard awaits delivery confirmation from a

third-party logistics services provider (3PL)– Industry terminology for a shipping company

• When confirmation is received and compliance met, TradeCard completes the financial transaction by sending request for payment to the buyer’s financial institution

• TradeCard enables large-scale and large-dollar commerce without credit-card payment through direct interaction with existing financial institutions

http://www.tradecard.com/


4.10 TradeCard Feature


4.11 E-Billing• Electronic Bill Presentment and Payment (EBPP)

– Offers ability to present a company’s bill on multiple platforms online and actual payment processes

– Payments are generally electronic transfers from consumer checking accounts, conducted through the ACH (Automated Clearing House)

• Current method for processing electronic monetary transfers – Paytrust

• Users send bills directly to Paytrust which scans them and places them online

• E-mails customers about newly arrived bills and payment-due dates

• Makes automatic payments on any bill up to a threshold amount


4.11 E-Billing• Services to enable EBPP on a company’s site

– Derivion • Provides billers with electronic capabilities in conjunction with

Paytrust’s service• Offers billing companies the technology and expertise needed

to transfer from paper to electronic billing through iNetBillerSM – Encirq

• Partners with banks that issue credit cards, presenting the consumer with an illuminated statement (interactive statement, placing special offers from retail merchants to correspond with the itemized charges on a credit-card statement)

• Builds highly specific consumer profiles each time charges is received

http://www.derivion.com/


4.11 CheckFree Feature• CheckFree is a consolidation service

– Can service any biller and present consumers with all their bills in one interactive online environment

• If the company or person you wish to pay does not offer electronic billing, you can still set up payment to them from any bank account using the pay everyone service

• For billers, the e-billing option adds convenience and lower costs

• All payments and outstanding bills can be tracked online and consumers have interactive access to their entire payment histories


4.12 Developing Payment Standards

• Essential to the success of e-commerce • Businesses offering domestic and international

services must have assurance that payment will be received, that it is secure and that it is valid

• Open Financial Exchange (OFX) – Developed and presented by Intuit, Microsoft and Checkfree

in 1997 – To serve as a standard mechanism for the exchange of

financial information


4.12 Jalda Feature• Developed by Ericsson• An open standard online payment system that

connects content providers (anyone selling a good or service on the Internet) with an Internet Payment Provider (IPP)

• Accommodates transactions involving small fees• Purchases can be made through the Web and using

wireless devices• A PIN code authorizes the transaction

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Chapter 5, Online Monetary Transactions - Internet

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