Chicken Nd Egg-epayments

8/13/2019 Chicken Nd Egg-epayments

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CIT 245

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By Mohammed A. Saleh


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The Payment RevolutionUsing Payment Cards Online

Smart Cards

Store-Value Cards

E-Micropayments

E-Checking

E-Bill Presentment and Payment

B2B E-PaymentsThe Sales Tax Issue

PKI Infrastructure2


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FlyLady adopts PayPalThe Problem

Marley started an email group created toprovide one to one coaching to helpsubscribers with their organization skills.

Group grew to 60,000 members.

Organization was put online to offer products

and the company was calledflylady.net Payments were processed through mail-order

and fulfill order and a merchant account.

Problem was the processing fees.3


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The Solution Anyone who has used eBay is familiar with

PayPal.

- It acquired PayPal in Oct. 2002.

- PayPal has a use base of over 50 millionmembers

- Member accounts are linked with bank

accounts/ credit cards and can be used totransfer funds to and from an individual orbusinesses.

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In 2003, PayPal processed $12.2 billion inpayments, 70% involved buying and selling ononline auctions.

For a small medium-sized business, PayPal is

easy to set up and integrate into an existingsite. PayPal handles credit card payments but it is

not a credit card gateway.

Businesses that offer PayPal as a paymentalternative do not need to pass a credit check,install a special software or deal with complexbanking agreements.

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No need to gather credit card numbers frombuyers or collect sensitive financialinformation.

Online merchants get started by setting up a

PayPal business account, logging into theaccount and create a payment button.

It takes minutes to do that.

PayPal charges merchants a fee of 30 cents,plus 1.9% to 2.9% of each transaction.

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The Results FlyLady was able to implement a BuyNowpayment button.

Its fulfillment process is based on PayPals

reporting tools. Each day the company logs onto PayPal and

downloads the transaction file, which are then

imported into a desktop software for forsorting the data and creating shipping labels,which are then handed over to the warehousefor fulfillment.

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Lessons Learnt

B2C purchases are paid for by credit card.

For merchants the costs of servicing cardpayments are high.

Steep transaction costs, potential chargebackfees for fraudulent transactions and costs ofcreating and administering a secure EC site.

PayPal is the most successful e-paymentalternative there is.

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Sapsford (2004) A currency can be anythingthat all members of a society agree it should be.

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Shells 10th

Century B.C Mal coins 10th16th Century

B.C

ChecksIntroduced

(Middle Ages)

In 1960, PaperMoney

Introduced

In 1950 CreditCards

Introduced

et


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Still in the midst of the revolution with cardsand e-payments taking the place of cash andchecks.

In 2003, the combined use of credit and debit

cards for in-store payments exceeded thecombined use of cash and checks.

Facts from Federal Reserve System 2004

- In 1999, debit card payment went from 21% to31% while cash dropped from 39% to 32%.

- E- payments in the US exceeded checkpayments for the first time in 2003.

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Implications of these trends make onlinebusinesses have the support for credit cardpayment.

Soon, debit card payments will surpass credit

card payment. Merchants having international markets need

to support a variety of e- payment methods e.g.

bank transfers, e-checks, gift cards, instantcredit and so on.

CyberSource (2004) merchants supportingmultiple payment types have higher order

conversions resulting in increased revenue.12


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Despite the early introduction of a paymentsystem, it take years for it to gain a widespreadacceptance.

- credit cards were introduced in the 1950sbut

did not reach widespread use until the 1980s A crucial element in the success of any e-payment method is the chicken-and-egg

problem.

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Factors come into to play in determiningwhether a particular e-payment methodachieves a critical mass.

Crucial factors:

Independence- Some forms require specialized H/W and S/W

to make the payment.

- Requires a seller to install specialized S/W toreceive and authorize payment.

- Less likely to succeed.

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Interoperability and Portability- All forms of EC run on specialized systems

that are linked with enterprise systems andapplications.

- An e-payment method must mesh with theexisting systems and be supported by standardcomputing platforms.

Security- How safe is the transfer?

- What are the consequences of the transferbeing compromised?

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Ease of Use- In B2C credit cards offer the ease of use.

- In B2B payments, the question is whether e-payment methods can replace the existing off-

line methods of procurement. Transaction Fees

- A merchant pays a fee of up to 3% of the items

purchase price.- It prohibits the support for smaller purchases.

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Regulations- All methods are governed by international,federal and state regulations.

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Electronic cards that contain information thatcan be used for payment purposes.

Come in three forms:

Credit cards

- Provides the holder with credit to make up to alimit fixed by the card issuer

- Rarely have an annual fee.

- Charged with high interests on their unpaidbalances.

- Predominant cards are Visa, MasterCard andEuroPay.

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Credit Card

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Charge cards- Balance on a charge card is supposed to bepaid in full upon receipt of the monthlypayment.

- Holders receive a loan for 30 to 45 days equalto the balance of their statement.

- They have an annual fee.

- Such cards include, American ExpresssGreenCard and the DinersClub card

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Debit cards- Money for a purchased item comes directly

out of the holderschecking account.

- Actual transfer takes place within 1 to 2 days.

- Predominant types are MasterCard, Visa andEuroPay.

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Involves two major phases: authorization andsettlement.

Authorization: determines whether a buyers

card is active and whether the customer has

sufficient funds.Settlement: involves transfer of money from

the buyersto the merchantsaccount.

Performance of these phases varies dependingon:

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type of payment card system configuration used by the merchant toprocess payment.

Three basic configuration for processing

online payments. Merchant may:i. Own the payment software

- Purchase and integrate a payment-processing

module with its EC software.- Module communicates with a payment

gateway run by an acquiring bank or 3rdparty.

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i. Use a POS operated by an acquirer- Merchants can redirect card holders to a

POS run by an acquirer

- The POS handles the complete payment

process and directs cardholders back to themerchant site once payment is complete.

- Merchant only deals with order information.

- Find an acquirer that handles multiple cardsand payment instruments.

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i. Use a POS operated by a payment serviceprovider

- Merchants can rely on servers operated bythird parties known as payment service

providers (PSPs)- PSPs connect to appropriate acquirers and

must be registered with various card

associations they support.PSP is Payment Service Providers and NOT Portable Sony PlayStation

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Payment cards and processing system forboth offline (card present) and online (carnot present) have similar processes andparticipants.

Based on the comparison, the keyparticipants in processing credit cardpayments online include:

Acquiring bank offers a special a/c calledInternet Merchant Account for cardauthorization and payment processing

Credit card association financial institution

providing the credit and debit card27


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Customer the individual processing thecard

Issuing bank financial institution providingthe customer with the card

Merchant company selling products andservices

Payment processing service service

providing connectivity among merchants,customers and financial networks

Processor data centre that processes creditcard transactions and settles funds.

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