Electronic Payment Systems

E-Commerce

Intro to Electronic Payment Systems

• More than $900 billion transacted online• Expected to swell to more than $3 trillion

by 2003• Americans will spent more than $41

billion in 2002• By 2003, 183 million people will be

shopping online

Payment Options

Offline• Cash Payments – 55%• Check Payments – 29%• Credit Cards – 15%

Online• Credit Cards – 65%• Checking Account

Withdrawl – 13%• Electronic Cash – 13%• ATM/ Debit card – 8%

What Ways Can you Collect Payment?

• Credit Card• Debit/ATM card• Certified Check / Money

Order• COD• Smart Card• Server Scrip• Third Party Funds• Cash …… HOW?

Credit Cards

WHY are credit cards THE most common payment option?• Most customers have credit cards• Merchants have the accounts and equipment• Credit cards are widely accepted• LARGE corporations ensure payment• $1.3 trillion in credit and debit purchases annuallyWhat are some problems?

Debit/ATM card

• From 1997 through 2000, MasterCard and Visa debit transaction volume nearly tripled to $302 billion

Less attractive as a option … why?• Fewer card holders• A bank gets about 60 cents on average from the merchant

on a $40 transaction when a consumer uses a Visa debit card, he says. But it gets only about 17 cents for a $40 PIN-based debit card transaction because it goes through a different processing system.

Certified Checks/Money Orders

• Very secure and insurable method for receiving payment

What are the drawbacks?• Must be mailed• Takes time for $$$ to be deposited• Not very convenient• Cost $$$$$ for customers to use

Smart Cards

• Smart cards - plastic cards with a local physical system for storing financial (and other) information

• Smart Cards can use:– Embedded computer chip– Magnetic strip

Smart cards get second look due to terrorism threat

Server Scrip

• How could they have succeeded?

• How does it work?• What benefits did it have?• Why did it fail?

• Main Examples?

Electronic Checks

• Draws funds from the customer’s checking account• How does it work? For the merchant? For the

customer?

Third Party Financial Institutions

• Accept the risk of dealing with the customer for the merchant

• Fees levied to cover that risk• How do they make their money?

Future of Payment Systems

• Must conform to consumer preferences – or change them …

• Payment system MUST build large base of merchants and customers

• Electronic money is easier to track– Privacy issues– Taxation issues– Legal & Policing issues

• Brick & Mortar influence• Who pays for it??? Merchants? Customers?

sites

• http://www1.slb.com/smartcards/• http://www.usa.visa.com/personal/cards/visa_smart.

html• http://www.usa.visa.com/business/merchants/

http://www.scmegastore.com/