Online Monetary Transactions - TEILAR · NextCard, Inc.® ( ... Chapter 4 Online Monetary...

4Online Monetary

Transactions

Objectives• To explore various methods of conducting online

monetary transactions.• To review the application of traditional payment

models to the Internet.• To discuss the role of security in support of online

monetary transactions.• To understand Internet-based monetary transaction

models: e-billing, micropayments, peer-to-peerpayments and digital currency.

Alas, how deeply painful is all payment.Lord Byron

Cash payment is not the sole nexus of man with man.Thomas Carlyle

Ah, take the Cash, and let the Credit go...Edward Fitzgerald

So far as my coin would stretch; and where it would not, Ihave used my credit.William Shakespeare

Beautiful credit! The foundation of modern society.Mark Twain

O Gold! I still prefer thee unto paper,Which makes bank credit like a bark of vapour.Lord Byron

92 Online Monetary Transactions Chapter 4

4.1 IntroductionSecure electronic funds transfer is crucial to e-commerce. In this chapter, we examine howindividuals and organizations conduct monetary transactions on the Internet. Credit-cardtransactions, digital cash and e-wallets, smart cards, micropayments and electronic bill pre-sentment and payment are discussed. Also in this chapter, we list many of the companiesthat are playing important roles in online payment technology. We describe the products,software and services that these companies produce, and we direct you to their Web sitesfor further information. Many of these Web sites include animated demos. Security, a cru-cial element to the implementation and acceptance of online payment technology, is dis-cussed in depth in Chapter 7, Internet Security.

e-Fact 4.1According to Forrester Research, the United States is expected to spend $1.4 trillion dollarsonline by 2004.1 4.1

4.2 Credit-Card TransactionsAlthough credit cards are a popular form of payment for online purchases, many people re-sist the appeal and simplicity of credit-card transactions due to security concerns. Custom-ers fear credit-card fraud by merchants and other parties. Some credit cards, such as theProdigy Internet® Mastercard® and American Express, have features enabling them to ac-

Outline

4.1 Introduction4.2 Credit-Card Transactions

4.2.1 Anatomy of an Online Credit-Card Transaction4.2.2 Credit-Card Transaction Enablers

4.3 Online Credit-Card Fraud4.5 e-Wallets4.6 Alternate Consumer Payment Options4.4 Digital Currency4.7 Peer-to-Peer Payments4.8 Smart Cards4.9 Micropayments4.10 Business-to-Business (B2B) Transactions4.11 e-Billing4.12 Developing Payment Standards4.13 Internet and World Wide Web Resources

Summary • Terminology • Self-Review Exercises • Answers to Self-Review Exercises • Exercises •Works Cited • Recommended Reading

Chapter 4 Online Monetary Transactions 93

commodate online and offline payments (see American Express feature). The Prodigy cardalso provides online fraud protection, as well as a point-based reward program that allowscard holders to redeem points for Prodigy Internet access.2

American Express®: Enabling Secure Payments on the Web

American Express offers several online services to small businesses (www.ameri-canexpress.com/homepage/smallbusiness.shtml). Quarterly manage-ment reports, online account access and applications for accepting the AmericanExpress card can all be managed via the Internet. Business planning, travel planning,accepting international payments and global expansion are also among the services andsolutions provided through the American Express Web site.

Blue for Business (www18.americanexpress.com/blueforbusiness)offers several features to enhance online business transactions. American Express’ssmart card, Blue, allows business owners to carry a balance and conduct secure onlineand offline transactions. The computer chip embedded on the face of the Blue card con-tains the cardholder’s certificate of authenticity. When used in making online pur-chases, the card is used with a corresponding card reader. The user is also asked to entera PIN number to enable the system to certify ownership of the card.

The American Express Purchase Protection Program protects buyers againstdamaged goods and the Buyers Assurance Plan offers an extended warranty on pur-chases made with the Blue card. American Express also offers the Online WalletSM,which works with the Blue card and smart-card reader. Through the Online Wallet,users can access ExpressFormSM, which helps users fill out forms on the Web, andAutobuySM, a service that completes purchasing information for the user. Bill payment,online account access and e-commerce purchasing discounts are also available throughBlue for Business. Interested users can take an online tour by visiting the Blue for Busi-ness home page.

For regular card holders, American Express offers Private PaymentsSM. Designedto protect user privacy, the Private Payments system provides a unique account numberfor each individual purchase. This number expires within 30 to 67 days of issue date,reducing the possibility of the number being stolen. Private Payments can be used onall Web sites accepting American Express, but it is limited by a few, specific transac-tions. For example, American Express recommends that the card not be used for recur-ring charges or purchases where the actual card must be presented, such as theatertickets. A tutorial (www26.americanexpress.com/privatepayments/tutorial.jsp) explains the purchasing process when using Private Payments. Ananimated demo enhances the tutorial.3

American Express @ WorkSM is designed to facilitate larger corporations withenhanced integration technologies. The Online Program Management plan allows cor-porations to manage the corporate accounts of a large number of employees. Cardauthorization, cancellations and address changes can all be managed through the pro-gram. Corporate card reports are also available online. Businesses are notified by e-mail when the report has been posted. These reports can be downloaded, and saved andprinted from the Web.


e-Fact 4.2According to Cyber Dialogue, Inc., approximately 88 percent of the $53 billion dollars spentonline in 2000 will be via credit cards.4 4.2

4.2.1 Anatomy of an Online Credit-Card TransactionTo accept credit-card payments, a merchant must have a merchant account with a bank.Traditional merchant accounts accept only POS (point-of-sale) transactions, or those thatoccur when you present your credit card at a store. With the growth in e-commerce, spe-cialized Internet merchant accounts have been established to handle online credit-cardtransactions. These include card-not-present (CNP) transactions. For example, when pur-chasing on the Web, the card number and expiration dates can be provided, but the mer-chant does not see the actual card being used in the purchase. A merchant account can beestablished through either a bank or a third party service.5

When making a purchase online using a credit card (Fig. 4.1), the buyer will berequired to submit their credit-card number, expiration date and shipping and billing infor-mation. This information is sent securely over the Internet to the merchant (Step 1 in thediagram). Issues of authentication (the person is, in fact, who they say they are), authori-zation (the money is available to complete the transaction), Secure Socket Layer (SSL) andSecure Electronic Transaction (SET) technologies are discussed in Chapter 7, InternetSecurity. The merchant then submits the credit card information to the acquiring bank (i.e.the bank with which the merchant holds an account) (Step 2). From there, the buyer’saccount information is verified. This involves the issuing bank (i.e. the bank from whichthe buyer obtained the credit card, and the credit-card association) (Step 3). Verification isreceived by the acquiring bank and is passed on to the merchant (Step 4), who then shipsthe product (Step 5). Payment cannot be issued to the merchant until the product has beenshipped.

Fig. 4.1 Basic steps in an online credit-card transaction.

Merchant "acquiring bank"

"issuing bank"

credit cardassociationcredit1 2

card info.

Makes purchase atonline store. Credit cardinformation is receivedby the e-store.

information4verified

3

3

5

3


4.2.2 Credit-Card Transaction EnablersCompanies like CyberCash (www.cybercash.com) and iCat™ (www.icat.com) en-able merchants to accept credit-card payments online (see the Cybercash feature). Thesecompanies have established business relationships with financial institutions that will ac-cept online credit-card payments for merchant clients. iCat acts as a third party that receivesconsumer-credit information and securely interacts with both the consumer and merchantbank accounts to verify the sale and make monetary transfers.6

Trintech® offers online credit-card transaction capabilities. The Payware® productsuite enables companies to process electronic transactions. The suite includes the eMer-chant program, which enables merchants to accept online payments; eHost, which canaccommodate transactions from multiple stores; and eIssuer, which issues the consumer avirtual credit card that is stored on the user’s computer, providing one-click shopping atparticipating merchants. Trintech is also developing a mobile payments option that can beused from mobile phones.7

NextCard, Inc.® (www.nextcard.com) enables secure online credit-card transac-tions. The site offers a shopping portal, GoShopping!, allowing users to search for thelowest prices and an instant-payment option, NextCard ConciergeSM.

CyberCash8

CyberCash enables businesses to receive payments over the Web. CashRegister, an on-line service created by CyberCash, makes it possible for merchants to receive credit-card numbers, offer the numbers to the appropriate financial institution for validationand accept credit-card payments in a secure environment over the Web. Most majorcredit cards, such as Visa, Mastercard, Discover/Novus and some debit cards, can beprocessed by CashRegister. In addition to its CashRegister technology, CyberCash alsooffers affiliate-marketing services (see Chapter 9, Affiliate Programs) and payment so-lutions for offline businesses.

The CashRegister system works by establishing a direct connection between itsWeb servers and the Web sites of its e-business customers. A software applicationcalled the Merchant Connection Kit (MCK) is used to make this connection; the kitincludes HTML files and sample scripts to use when adding CashRegister to anexisting e-commerce site. [Note: HTML and scripting technologies for building Websites are discussed in the computer programming case study in Appendices C throughI.] In most cases, CashRegister can be built into generic shopping carts and storefronts,eliminating the need for customized software (shopping cart technology is discussed inChapter 2, e-Business Models).

The CashRegister process begins once a customer is finished shopping on a mer-chant’s Web site. The customer completes a form, entering credit-card and shippinginformation, and is presented with a screen containing items selected, prices and billinginformation. This information is then sent to CyberCash for validation. Once validationis received, the purchase can be completed, and funds are transferred electronicallyfrom the customer’s account to the merchant’s account.


4.3 Online Credit-Card FraudCredit-card fraud is a significant problem for many e-businesses. When a credit-cardholder claims a purchase was made by an unauthorized individual, or when a purchasewas not received, it results in a chargeback. When this occurs, the charges in questionare not the responsibility of the credit-card holder. In brick-and-mortar transactions, the

CashRegister offers convenience and security to its users. Using a complete set ofredundant servers (i.e. identical servers for back up if one server fails), CyberCash is ableto maintain continuous service and minimize downtime. CashRegister also keeps track ofall transactions completed through a merchant’s Web site and produces reports to assistthe merchant with record keeping and customer tracking. To protect users’ private infor-mation, all financial information transmitted via the Internet is encrypted and digitallysigned. (Encryption and digital signatures are discussed in Chapter 7, Internet Security).

Cybercash, an e-commerce enabler, offers FraudPatrol™ in an effort to reduceonline credit-card fraud. An animated demonstration of the service can be found atwww.cybercash.com/fraudpatrol/howitworks.html. FraudPatrolworks with Cybercash’s Merchant Connection Kit, sending an encrypted version of thetransaction to FraudPatrol, where it is matched to collected data. If the transaction is sus-pect—or example, the same credit-card number has been used 20 times during that day—then the merchant can reject the sale (Fig. 4.2). There is an initiation fee (which varies formember and nonmembers) and each time FraudPatrol is used a transactional fee ischarged.

To view an extensive list of CashRegister e-commerce software products, visitcybercash.com/cashregister/solutions_software.html.

Fig. 4.2 CyberCash FraudPatrol. (Courtesy of CyberCash™ Inc. CyberCashis a trademark or registered trademark of CyberCash Inc., in theUnited States and other countries.)

CyberCash8


merchant scans the card to produce proof of the sale and this is signed by the consumer.Should a chargeback occur, the merchant is protected against fines and reimbursementfees by having acquired this information. On the Internet, neither a scan of the card nora signature is registered. When a chargeback occurs, it is most often the merchant whohas to incur the cost.

e-Fact 4.3According to First Data Group, 1.25 percent of transactions on the Internet result in achargeback. This is approximately four times the percentage of catalog transaction charge-backs and nine times the percentage of brick-and-mortar chargebacks.9 4.3

In an effort to combat this, Visa established a list of high-risk business models. Busi-nesses following these models are subject to high levels of credit-card fraud and, as a result,are highly penalized when their chargeback rates climb to a specified percentage of the totalnumber of transactions. This percentage generally falls between 1–2 percent. Opponentsargue that the method is overbroad, often deterring business owners from accepting onlinepayments. The list includes travel and direct-marketing industries.10

VISA has also developed a list of “best practices” to be used by merchants when con-ducting credit-card transactions. The list includes implementing a firewall, using encryp-tion (see Chapter 7, Internet Security) and anti-virus software, and incorporating inter-company security practice. The protocols are mandatory: merchants failing to meet therequirements may not be able to accept Visa credit cards as a method of payment.11

Most credit cards have a three-digit code on the back of the card. Mastercard hasincreased security by requesting this code when purchases are made. This number does notappear on receipts of transactions, so it cannot be lifted from discarded or stolen credit-cardreceipts.12

Nochargebacks.com provides merchants with a solution for preventing onlinecredit-card fraud. Site members can access the site’s database containing credit-card num-bers, e-mail addresses and postal addresses used for purchases that resulted in a charge-back.13 Verifyfraud.com offers similar fraud-protection services.

4.4 Digital CurrencyDigital cash is one example of digital currency. It is stored electronically and can be usedto make online electronic payments. Digital-cash accounts are similar to traditional bankaccounts: consumers deposit money into their digital-cash accounts to be used in their dig-ital transactions. Digital cash is often used with other payment technologies, such as digitalwallets. Aside from alleviating some of the security concerns many people have about on-line credit-card transactions, digital cash allows people who do not have credit cards toshop online.

eCash Technologies, Inc. (www.ecash.net) provides software solutions thatextend physical-world payment methods into cyberspace. eCash Technologies’ productsuite enables financial institutions and other businesses worldwide to offer a variety ofsecure, private and easy-to-use payment options. These include person-to-person (P2P),debit, business-to-business (B2B), prepaid and mobile payment options. The Monnetaproduct suite also enables merchant-specific payment solutions, including electronic giftcertificates and customer loyalty programs (Fig. 4.3). Demonstrations found atwww.ecash.net/Demo describe how to obtain, use and give (as a gift) eCash currency.


Gift cash, often sold as “points,” is another form of digital currency that can beredeemed at leading shopping sites. It is an effective way of giving teen shoppers or thosewithout credit cards the ability to make purchases on the Web. Flooz®(www.flooz.com) is an example of gift currency. Flooz can be used at online storesincluding toysrus.com and barnesandnoble.com.14

Some companies offer points-based rewards paid for completing specified tasks.These tasks may include visiting Web sites (which exposes the visitor to advertising), reg-istering or buying products. One such reward scheme, beenz® (www.beenz.com), is aninternational, points-based currency system. Through a partnership with beenz, vendorscan offer promotional systems. For instance, a retail site on the Web could offer beenz forregistering with the Web site. As beenz are accumulated the customer can earn prizes, dis-counts or other rewards.15

Many companies are developing methods for teenagers to shop online (see VISA Buxxfeature). Internetcash.com offers a digital-cash model for teenagers. It sells cards invarious monetary denominations at convenience stores and gas stations. These cards areactivated over the Internet and can be used to shop at teen-oriented member stores.16

4.5 e-WalletsTo facilitate the credit-card order process, many companies are introducing electronic wal-let services. E-wallets allow you to keep track of your billing and shipping information sothat it can be entered with one click at participating merchants’ sites. E-wallets also storee-checks, e-cash and your credit-card information for multiple cards.

Fig. 4.3 Using eCash on the Web. (Courtesy of eCash Technologies, Inc. and©2000 eCash.)


Credit-card companies, such as Visa, offer a variety of e-wallets (www.visa.com/pd/ewallet/main.html). Some Visa e-wallets are co-sponsored by specific banks;for example, the bankonewalletSM is available to Bank One customers for use with only aVisa/Mastercard credit or check card. MBNA offers an e-wallet that allows the consumerto perform one-click shopping at member sites. Its e-wallet automatically fills in transfer,shipping and payment information on the forms of nonmember merchants.18

Entrypoint.com™ offers a free, personalized desktop toolbar that includes an e-wallet to facilitate one-click shopping at its affiliate stores (Fig. 4.4). The toolbar’s featuresinclude news reports, sports scores and a stock ticker. Similar to MNBA, the Entrypoint e-wallet facilitates automatic form completion at nonmember stores. For a product demon-stration, visit www.entrypoint.com. The demonstration highlights each function ofthe toolbar and provides an interactive demonstration of the various features. Users can alsoread through a commentary that further describes the product.19

There are many digital wallets on the market that are not accepted by all vendors. Visa,Mastercard and a group of e-wallet vendors have standardized the technology with theElectronic Commerce Modeling Language (ECML). Since the standard was unveiled inJune 1999, many of the leading online vendors have adopted it.20

4.6 Alternate Consumer Payment OptionsAlthough electronic payment is more convenient, Internet merchants that do not acceptcredit cards can accept payments such as checks or money orders through the mail. Cash-on-delivery (COD), although rarely used in the United States, is another possible option forthose who are hesitant to pay electronically. (Internationally preferred payment options arediscussed in Chapter 12, Globalization).

Debit cards offer an alternative for credit-card holders to access their savings,checking and other accounts. These cards can be used in the same manner as credit cards,but instead of the customer paying a monthly bill, the funds are deducted directly from thecustomer’s checking account. Customers are also able to withdraw cash from their accountsthrough Automatic Teller Machines (ATMs).

Visa Buxx: Developing Good Spending Habits17

The Visa Buxx card helps to develop healthy spending habits among teenagers. Parentsand teenagers can register to use the card by visiting the Visa Buxx Web site(www.visabuxx.com). An online tour describes the service and highlights the ben-efits to both teens and parents. The card is accepted at more than 18 million merchantsand can also be used as an ATM card. Similar to a debit card, the Visa Buxx card hasa pre-determined balance that cannot be exceeded in any transaction. Security is admin-istered through a PIN number determined by the card holder and each transaction is cer-tified by the merchant through the credit-card association.

The Web site also provides Money Tools, a section dedicated to teaching teenagershow to manage their money. Discussions cover investing, banking, establishing creditand guidelines for shopping online. Parents and students can access account balancesby visiting the site and typing in the correct usernames and passwords.


Banks and businesses are also creating options for online payment that do not involvecredit cards. Companies such as AmeriNet (www.debit-it.com) allow merchants toaccept a customer’s checking account number as a valid form of payment. AmeriNet pro-vides authorization and account settlement, handles distribution and shipping (known asfulfillment) and manages customer service inquiries (Fig. 4.5).21

Other companies offering alternative methods of payment include DoughNET.com,which allows individuals under the age of 18 to establish an account for online shopping,and RocketCash.com, which redeems different types of online currency (i.e. beenz andcybergold) and allows them to be spent at participating merchants.22

4.7 Peer-to-Peer PaymentsPeer-to-peer transactions allow online monetary transfers between consumers. eCash runsa peer-to-peer payment service that allows the transfer of digital cash via e-mail betweentwo people who have accounts at eCash-enabled banks.

Fig. 4.4 EntryPoint Internet Toolbar. (Courtesy of EntryPoint Incorporated.)

Fig. 4.5 Amerinet debit-it process flow. (Courtesy of www.debit-it.com.)

The customer provides hischecking account numberto either the call centeroperator or types it intothe appropriate fieldon the web site’s“checkout” page.

The fulfillment center isnotified at the same timethe funds are transferredto the merchant and the

order is shippedimmediately.

The funds are transferredfrom AmeriNet to themerchant’s bank. Debit-italso provides customizedreporting data.

Debit-it! submitsa debit authorizationto the customer’s bankthrough thefederalreserveand verifies thatthe customer hassufficient funds.

The merchant’s callcenter or web sitethen encrypts and forwardsthe information to the debit-it!network operationscenter (NOC).

InternetCustomer

TelephoneCustomer

Merchant PaymentsFulfillmentCenter

FederalReserve

CallCenter

InternetServer

Reports


PayPal offers a digital-payment system. PayPal allows a user to send money to anyonewith an e-mail address, regardless of what bank either person uses, or whether or not therecipient is pre-registered with the service. People wishing to send money to others can logon to PayPal at www.x.com, open an account and register the amount to be sent. Thatamount is billed to the person’s credit card. Payment notification is sent to the recipient,and an account is established in the recipient’s name. When the person to whom the pay-ment is sent receives the e-mail notification, he or she simply registers with PayPal and hasaccess to an account containing the payment. The funds in this account can be transferredto the recipient’s bank account by direct deposit or mailed by check from PayPal.

Transactions through PayPal are instantaneous, the service is free for individualssending money to one another and the payee is not required to enter any credit-card infor-mation. Businesses pay a small transaction fee.

The Paypal system can also be used to enable credit-card payment for auction items inreal time. Credit card information is checked before a transaction is initiated. This meansthat the transaction begins processing immediately after it is initiated, reducing the risk offraud or overdrawn accounts. The buyer or the seller can initiate the service. If you refersomeone to PayPal, you will receive a small monetary reward. A visual demo of the servicecan be viewed at www.pay.x.com/cgi-bin/webscr?cmd=p/auc/work-out-side.23

eBay and Wells Fargo offer another form of peer-to-peer payment called BillPoint. Itallows buyers to submit electronic payments to sellers’ checking accounts.24 Prior to thistechnology, buyers were required to send checks or money orders. Sellers can choose toinclude BillPoint as a payment option on their auction pages, so anyone can use the servicewithout registering. Sellers pay a flat fee for the transaction and a percentage fee on the saleprice above a given amount. In the future, eBay and Wells Fargo plan to sell this technologyfor use on other sites. To view a tutorial on the Billpoint system, visit www.bill-point.com/help/tutorial.html. This animated demo includes a detailed com-mentary, as it walks the user through the step-by-step payment process. Screen shots of theforms and services are highlighted.25

Another peer-to-peer payment company, Tradesafe.com™, accommodates thelarger amounts typically involved in B2B transactions. Tradesafe.com offers peer-to-peer credit-card transactions and also provides its services to electronic merchants. If a pur-chase exceeds a certain amount, Tradesafe.com acts as an intermediary and withholdspayment to the seller until the goods arrive in acceptable condition. Tradesafe.comalso accepts personal checks, money orders and wire transfers.26

4.8 Smart CardsSmart cards, cards with computer chips embedded on their faces, are able to hold more in-formation than ordinary credit cards with magnetic strips. Smart-card technology can beused to hold information on health care, transportation, identification, retail, loyalty pro-grams and banking, to name a few. Smart cards enable information for different purposesto be stored in one location.

There are contact and contactless smart cards. In order to read the information on thesmart card and update information on the computer chip, contact smart cards need to beplaced in a smart card reader. A contactless smart card has both a coiled antenna and acomputer chip inside, enabling the card to transmit information. The contactless card


enables faster information exchange than is possible using a contact smart card. Forexample, contactless cards are convenient for transportation services, such as an automatictoll payment. A contactless smart card can be placed in a device in your car to charge youraccount as you drive through toll booths.27

Smart cards can require the user to have a password, giving the smart card a securityadvantage over credit cards. Information can be designated as “read only” or as “noaccess.” Security measures such as encryption (discussed in Chapter 7, Internet Security)can also be used. To address security concerns, the card can have a picture on its face toidentify the user.

Similar to the smart card, eConnect (www.econnectholdings.com) providessolutions to make Internet transactions more secure through hardware devices. The com-pany allows customers to use ATM cards to make purchases over the Internet. eConnectalso has technology for securing credit-card payments. eConnect’s product, eCashPad, isa device that connects to your computer and scrambles financial data, making it secure tosend that data over the Internet. ePocketPay is another product developed by eConnect andwill allow a consumer to make secure purchases from the ePocketPay portable device. Thisdevice acts as a cell phone with a card reader built into it.28

Financial institutions employ smart cards to provide benefits for their members. Visahas created Visa Cash, a smart card used to store money and make purchases. When youneed to make purchases, you can place your Visa Cash card into the smart-card reader andview the balance before and after the purchase on your computer. Visa makes both dispos-able Visa Cash cards, which can be thrown out after the funds have been depleted, andreloadable cards, to which money can be added. (Additional information can be found atwww.visa.com/nt/chip/info.html.) For more information about smart-cardtechnology and smart-card companies, visit the Smart Card Industry Association atwww.scia.org.

4.9 MicropaymentsMerchants must pay a fee for each credit-card transaction that they process; this can be-come costly when customers purchase inexpensive items. The cost of some items could ac-tually be lower than the standard transaction fees, causing merchants to incur losses.Micropayments, or payments that generally do not exceed $10, offer a way for nominallypriced products and services (music, pictures, text or video) to be sold over the Web. Mil-licent (see the Millicent feature in this section) is a micropayment technology provider.

e-Fact 4.4According to Gartner Group, in an ongoing study of online retailers, only a small percentageoffered a payment option for items priced under $10.29

4.4

To offer the option of micropayments, some companies have formed strategic partner-ships with utility companies. For instance, a phone bill is essentially an aggregation ofmicropayments that are charged at the end of a particular period of time in order to justifythe transaction fees. The eCharge™ system gives companies the ability to offer this optionto their customers.

eCharge uses ANI (Automatic Number Identification) to verify the identity of the cus-tomer and the purchases they make. The eCharge software can only be used with a dial-up


connection. In order for your payments to be charged to your phone bill, a 1-900 numbermust be called. eCharge temporarily disconnects the user from the Internet to do this. Oncethe payment is complete, the user is reconnected. This process is completed quickly, withlittle inconvenience to the user.30

A number of companies will allow you to outsource your payment-management sys-tems. Many of these systems can handle multiple payment methods including micropay-ments. Qpass is an example of a company that can manage micropayments for pay-per-download, subscription-based and pay-per-click systems. Qpass enables periodicals suchas The New York Times and The Wall Street Journal to offer subscriptions over the Web.Customers who buy products and services through a Qpass-enabled company receivemonthly bills that include descriptions of all purchases made during that month.

Additional services offered by Qpass include the Qpass PowerWallet, which registerspasswords, credit-card information and other preferences necessary to make online trans-actions more efficient; customer service; marketing and sales assistance (Fig. 4.6). VisitQpass at www.qpass.com.31

Fig. 4.6 QPass transaction process. (Courtesy of QPass, Inc.)

PAYMENTMETHOD

CONTENTPARTNER

CONSUMER

3. payment1. purchase request

2. billing

PURCHASE CONFIRMATION

AUTHENTICATION

REGISTRATION

AGGREGATION

BILLING

COLLECTION

REMITTANCE

QPASS


4.10 Business-to-Business (B2B) TransactionsThe fastest growing sector of e-commerce payments is business-to-business (B2B) trans-actions. These payments are often much larger than B2C transactions and involve complexbusiness accounting systems.33 In this section, we explore many of the available B2B pay-ment solutions and the services they offer (see the Tradecard feature).

PaymentechTM (www.paymentech.com) is one of the largest payment solutionsproviders for point-of-sale transactions on the Internet. Its systems are used by companiessuch as CyberCash, CyberSource® and AT&T SecureBuy. Brick-and-mortar and elec-tronic merchants can choose from many transaction-processing options, including debitcards, credit cards, bank cards, checks and EBT authorization and settlement. EBT (Elec-tronic Benefits Transfer) is defined by the USDA as the electronic transfer of governmentfunds to retailers for the benefit of the needy.36 The service also provides reporting and pro-cessing tools and services to help manage a merchant account and electronic check pro-cessing. Paymentech supports all types of credit and debit cards and conducts alltransactions in a secure environment. Paymentech’s online authorization systems, availableon a 24-by-7 basis, enable merchants to initiate, transmit and receive authorizations in onephone call. Address verification can also be performed online.

Merchants using Paymentech can customize their payment-processing plans. For cor-porate use, Paymentech offers a Mastercard/Visa credit card, which enables electronicchecking and billing and access to its PaymentNet online reporting service. PaymentNetallows merchants to track their expenses in a secure environment on a 24-by-7 basis. Its fea-tures include custom reporting, e-billing and cross-compatibility with other third-partyexpense reporting tools.37

Millicent™: Enabling Micropayments32

Millicent is a micropayment technology provider. Companies that use Millicent pay-ment technology allow their customers to make micropayments using credit or debitcards, prepaid purchasing cards or by adding purchases to a monthly Internet ServiceProvider (ISP) bill or phone bill. The customer uses any one of these payment methodsto prepay a sum of money that can be used to make micropayments.

Millicent handles all of the payment processing needed for the operation of an e-business, including customer support and distribution services. Vendors can direct thetransactions to Millicent, or the vendors can install the Millicent processing softwareon their own systems.

Millicent’s services are especially useful to companies that offer subscription feesand small pay-per-download fees for digital content. This content may include text,audio, video, software applications or Web-based training products. Millicent paymenttechnology can also be used with affiliate programs; the Millicent system will generatea payment to the affiliate once earnings exceed a predetermined minimum. Affiliateprograms are discussed in Chapter 9, Affiliate Programs.

Millicent is a product of Compaq. The product currently is available in Japan;North American and European service will be available soon. Visit Millicent atwww.millicent.com.


ViaPay (www.viapay.com) offers debit-card and credit-card transactions witheCredit (www.ecredit.com) provides real-time, credit-transaction capabilities of B2Bsize. Using its Global Financing Network TM, eCredit customers can have access to auto-mated credit approval and financing. eCredit’s linked system of financing agencies andinformation networks makes large-scale commercial transactions convenient. eCreditestablishes a relationship with a business and integrates automated systems at all levels ofbusiness transactions.

eCredit services such as InstantDecision™ and BusinessVerify™ allow businesses toaccess databases that check the credit and validity of new customers. More comprehensiveecredit.com services, such as DecisionDesktop, integrate financial information with thecustomer’s credit policy to approve or deny transactions. eCredit also provides services thatintegrate the company’s existing financial systems and automate the collections process.38

TradeCard™34

The TradeCard network provides a complete global B2B e-commerce infrastructure,expanding current e-commerce capabilities to the international level. Particular atten-tion is paid to the complexity of cross-border data management and payment. Trade-Card attempts to provide an inexpensive and comprehensive solution that expedites allphases of global commerce.

Before using the TradeCard system, buyers and sellers must become TradeCardmembers. TradeCard’s alliances, Coface Group and Thomas Cook, evaluate potentialmembers to determine a credit score and perform anti-money laundering and Office ofForeign Assets Control (OFAC) checks. OFAC is responsible for enforcing interna-tional trade sanctions.35 The buyer creates a preformatted electronic purchase order onthe TradeCard system and presents the document to the seller for negotiation and agree-ment. The purchase order data is stored electronically in the TradeCard database, andelectronic invoices and packing slips are produced from this data. All of these docu-ments are available online to the relevant parties involved in the transaction. TradeCarduses a patented “data compliance engine” to check the information on the documentsagainst the original purchase order (Fig. 4.7). If any discrepancies are found, concernedparties are notified immediately and can negotiate to resolve the conflict.

TradeCard then awaits delivery confirmation from a third-party logistics servicesprovider (3PL), which is the industry terminology for a shipping company. When suchconfirmation is received and compliance is met, TradeCard completes the financial trans-action by sending a request for payment to the buyer’s financial institution. The actualmonetary transfer to the seller’s account is performed by Thomas Cook, a travel andfinancial services firm that is an alliance of TradeCard. Thus, TradeCard enables large-scale and large-dollar commerce without credit-card payment through direct interactionwith existing financial institutions. For a demonstration of the TradeCard process, visitwww.tradecard.com. The demo walks the user through the procurement, fulfill-ment, compliance and settlement services for both the buyer’s and seller’s point of view.Access to the demo requires the user to submit a limited amount of personal information.As a value-added service, TradeCard provides customers with access to a wide variety ofintegral trade service providers, such as logistics and international inspection companies.


Clareon also facilitates B2B transactions by providing digital payment and settlementservices (Fig. 4.8). Payment is digitally signed, secured and authenticated via digital pay-ment authentication (DPA). Unlike traditional EDI, Clareon is compatible with all enter-prise resource planning (ERP) (i.e. a software system that integrates and automatesmanufacturing, distribution, management issues, projects and employees) systems and canadapt electronic records for companies, banks and each member of a given transaction.Clareon software downloads the DPA and remittance data and converts it into an XMLformat. (We introduce XML briefly in Chapter 5, Hardware, Software and Communica-tions and then incorporate a more in-depth treatment of XML in the programming casestudy, Building an e-Business, in Appendices B through I.) From there, the information isagain converted; the remittance data is sent to the seller and the DPA is forwarded to thebank. Both the buyer and the seller have access to the payment status.39

Fig. 4.7 TradeCard contract. (Courtesy of TradeCard Inc.)

Tradecard and Mastercard have also developed a method for conducting paymentfor large business-to-business transactions. Geared for overseas payments, the servicewill expedite the transaction process by implementing participating businesses’ back-end systems. The service will operate on Mastercard’s verification processes andTradecard’s international integration capabilities.

TradeCard™34


Aside from enabling electronic payment, many business-oriented services are aimed atelectronic consolidation and reconciliation of the business transaction process. By consol-idating information from all entities involved in a business transaction and by accessing thisinformation from a central portal, companies can track an entire transaction from “order-to-cash”—ordering, invoicing and settlement—while reducing administrative costs, errors,waste and complexity in the supply chain. eTime Capital (www.etimecapital.com)offers software applications with a simple Web-based interface to track payment anddelivery systems. By supplying all parties with details of both the financial and logisticalaspects of the transaction, eTime Capital facilitates smooth coordination of shipping andpayments. The service also provides a forum for all parties to settle disputes that may ariseover obligation fulfillment, thereby shortening delivery time and reducing costs.40

Other firms are order-fulfillment providers. Now that it has become so easy to open anelectronic storefront, many companies suddenly find themselves dealing with logistics, ormanagement details, and distribution. SubmitOrder.com™ attempts to bring its supplychain expertise and logistical services to small Internet businesses, providing a distributionnetwork for smaller merchants. SubmitOrder.com can receive shipments at its ware-houses directly from the merchant’s manufacturers; the service then keeps track of theinventory and communicates electronically with the merchant. Orders are received directlyat its shipping centers, where products are then packaged and shipped.41

Fig. 4.8 Clareon online transaction service. (All Rights Reserved, ClareonCorporation 2000.)


Overall, many see Internet-based electronic B2B transactions as a convenience thatwill augment, but not replace, traditional Electronic Data Interchange (EDI) systems. EDIremains a useful technology for standard orders and business transactions between firmswith established business relationships. Internet-based B2B seems to be gaining popularityin auction-type marketplaces and for sharing transaction documents over the Internet.

4.11 e-BillingB2C market transactions are less complicated than B2B transactions. Using Electronic BillPresentment and Payment (EBPP) a company can display a bill on multiple platforms on-line and offer actual payment processes. Payments are generally electronic transfers fromconsumer checking accounts. This is conducted through the ACH (Automated ClearingHouse), the current method for processing electronic monetary transfers (see the Check-Free feature).

e-Fact 4.5Electronic Bill Presentment and Payment (EBPP) was estimated to be a $30 million marketin 1999, with 5% of high-volume billers offering such services, and an additional 25% plan-ning to do so within a year.42

4.5

e-Fact 4.6According to the International Data Group, online payment processing is estimated to be a$1 billion market by 2004.46

4.6

CheckFree™43

CheckFree is a consolidation service that can service any biller and present consumerswith all their bills in one interactive online environment. Many financial institutionsthat offer EBPP use Checkfree technology, including Yahoo! and most major U.S.banks.44 If a biller has a partnership with CheckFree, the bill will arrive electronicallyin the recipient’s CheckFree inbox.

If the company or person you wish to pay does not offer electronic billing, you canstill set up payment to them from any bank account using the Pay Everyone service. Allthat is necessary is the recipient’s address. CheckFree will print out a hardcopy checkagainst your account and send it to anyone you wish to pay.

For billers, the e-billing option can add convenience and lower costs. While it costsanywhere between 50 cents and $2 to process a paper bill, e-bills cost 35 to 50 centseach.45 For financial institutions, CheckFree offers its technology and services toenable a bank’s site to become a comprehensive bill-payment portal.

All payments and outstanding bills can be tracked online and consumers haveinteractive access to their entire payment histories. Users can postdate payments aswith paper checks and set up automatic recurring payments for mortgage payments andinsurance premiums. CheckFree will alert you if there is a problem with any of yourpayments. Records of transactions can be exported to financial software such as Intuit’sQuicken and Microsoft Money. A demo of the user experience can be found atwww.checkfree.com. The animated demo walks the user through check writing,bill payment and payment tracking services.


Paytrust (www.paytrust.com), which has recently consolidated services withPayMyBills.com, has a consumer-focused approach to e-billing. First, customers indi-cate to Paytrust which bills they would like to pay through the service. Those billers arecontacted and the bills are redirected to Paytrust. If the biller has the capability, Paytrustthen receives the bills electronically from the biller. Otherwise, billers send the paper billto one of Paytrust's biller distribution centers where the bills are scanned. Paytrust e-mailsthe customer announcements of newly arrived bills (paper or electronic) and impendingpayment due dates. The subscriber then logs on to the secure, password-protected, PaytrustWeb site where they can review and pay their bill from their pre-existing checkingaccount(s). A subscriber can set up automatic payments and recurring payments. An auto-matic payment is one that can be set up to be made on a recurring basis without requiringapproval each time. Subscribers can indicate to pay the full bill, pay the minimum due orpay a fixed amount. A recurring payment is a payment that can be issued regularly for afixed amount, without receiving a bill. An e-mail notice will be generated each time a recur-ring bill is about to be paid. Paytrust offers users the option to pay their bills anywhere usingthe Palm VII™ hand-held computer. Paytrust also offers SmartBalance™, which enablessecure integration of users' Paytrust activity with their online bank account balances (Fig.4.9).47 For a demo visit, www.paytrust.com/htmlu/tryitout.htm. The demowalks the user through screen captures of bill-payment status, payment information andbalance sheets.

Fig. 4.9 PAYTRU$T SmartBalance™ screen shot. (Courtesy of Paytrust, Inc.)


The U.S. Postal Service offers online payment capabilities. The service is available fora free 6-month trial. After six months, users are charged a small monthly fee for the first 20transactions then a nominal fee for each additional transaction. Registered users can payanyone in the United States from any location. Payments are protected through a usernameand password. As an additional security measure, a Payment Activation Code is issued bythe Postal Service and delivered to the user via postal mail. The user is required to enter thisinformation before transaction capabilities are enabled. An online demonstration(www.usps.com/ebpp/ebpp_demo/welcome.htm) walks the user through regis-tration and payment processes.

Yahoo! offers a similar service called Bill Pay. A free 3-month trial of the service isavailable. Users can then choose to continue the service for a nominal fee. An online demois available at help.yahoo.com/help/fin/bills/tour/tour-01.html. Itwalks the user through the bill payment process, illustrating the screens that would appearto the user. An upcoming payments page reminds the user of scheduled payments and amessage center allows the user to contact customer service representatives directly from thepayment service. Yahoo! also offers online bill presentment, reducing the number of paperbills received by the consumer.48

Other companies accommodate billers, presenting them with services to enable EBPP.One such company is DerivionSM (www.derivion.com), which entered a partnershipwith Paytrust to accelerate consumer adoption of EBPP. Derivion provides billers withelectronic capabilities in conjunction with Paytrust’s service. Derivion offers billing com-panies the technology and expertise needed to transfer from paper to electronic billing,through a product known as inetBillerSM, which also allows the billing company to maintaincontrol over its e-bills. Billers can continue using customized bills including their logo andstyle to maintain their corporate identity. This increases cross-marketing possibilities andindividual access to consumers. For example, a credit-card bill could include a link toupgrade the card level if the bill exceeds a predetermined threshold. Another example is aphone bill including a link to wireless services offered by the same provider. A demo canbe found at www.derivion.com.49

Encirq (www.encirq.com) partners with banks that issue credit cards, presentingthe consumer with what Encirq calls an illuminated statement. The illuminated statementis interactive, placing special offers from retail merchants to correspond with the itemizedcharges on a credit-card statement. Encirq’s product offers even more cross-marketing pos-sibilities than those previously mentioned, in that both the financial institution and the mer-chant are able to target customers with promotions. Encirq does this by building andupdating a highly specific customer profile each time a new set of charges is received. Thenthe customer is categorized and matched with advertisers and specific advertisements. Allof this is done in a secure environment where neither the merchant nor Encirq itself is privyto the customer’s statement. The Encirq program is loaded onto the customer’s desktop andadvertisements are matched to the customer’s purchasing profile.50

Encirq receives revenue from merchant ads and splits the profits with the financialinstitutions that host the illuminated statements.51 This allows financial institutions to putto use the valuable marketing information they have about their customers without vio-lating their privacy. This service is optional. If customers are happy with the service andtake advantage of the merchant’s offers, the result is greater use of the financial institution’scredit cards, increasing profits and customer loyalty.52


Gerling, an international insurance company, offers debt protection to e-businessesparticipating in business-to-business transactions. Tradecover helps to ensure that paymentwill be received when international business is conducted. The service works with the data-base containing a list of high-risk companies.

4.12 Developing Payment StandardsThe standardization of payment mechanisms on the Internet is essential to the success ofe-commerce. Businesses offering domestic and international services must have assur-ance that payment will be received, that it is secure and that it is valid. Addressing secu-rity issues is crucial to the acceptance of online payment standards; consumers andmerchants must be able to trust that their information is kept intact and remains secureduring transmission. SET and SSL are two standards that protect the integrity of onlinetransactions—these standards and other security issues are discussed in depth in Chapter7, Internet Security.

Transaction information also needs to be standardized so that all parties are able toaccept and read the information. The Open Financial Exchange (OFX) (www.ofx.net/ofx/default.asp) was developed and presented by Intuit, Microsoft and Checkfree in1997 to serve as a standard mechanism for the exchange of financial information.53 Smallbusinesses, large corporations and private consumers can all use this technology to com-municate financial information securely over the Internet. Private organizations are alsodeveloping online payment standards (see the Jalda feature).

Jalda™ Developing Standards of Payment54

Jalda, developed by Ericsson, is an open standard online payment system that connectscontent providers (anyone selling a good or service on the Internet) with an InternetPayment Provider (IPP). IPPs (network operators, ISPs, payment-card companies,banks or utility companies) aggregate the sum payment of content transactions, billingthe consumer periodically. Often, when downloading music, text, etc., the sum cost ofthe download is too small to justify the transaction fees when processing a credit card.Jalda’s technology has been designed to accommodate this.

By employing this standard of payment, users (both consumers and businesses)will be able to make purchases on the Web and through wireless devices (Wirelesscapabilities are discussed in depth in Chapter 6, Wireless Internet and m-Business). Forexample, a user can purchase a can of soda from a soda machine, travel through a tollbooth and play a video game on the Internet and have all transactions placed on thesame bill. Users enter a PIN code into their wireless device, which authenticates thetransaction.

Jalda’s Application Programming Interface presents the payment standard on thecontent provider’s site. This is connected to a server managed by the IPP. When a trans-action is made, it travels from the consumer to the content provider’s API and then tothe IPP. Jalda’s API is downloadable over the Net. Payment for use of the serviceoccurs between the IPP and the content provider.


In this chapter, we introduced the payment processes currently available on the Web.We discussed the advantages of offering payment options, as well as briefly discussingsecurity issues related to online payments. In Chapter 5, Internet Hardware, Software andCommunications, we explore the communications media and hardware used to connectcomputers to the Internet, as well as a brief introduction to how the Internet works.

4.13 Internet and World Wide Web Resources

General

www.thestandard.netThis site is an online magazine devoted to the Internet economy. E-commerce is among the subjectheadings and it provides a list of links to various electronic payment systems.

ganges.cs.tcd.ie/mepeirce/Project/oninternet.htmlA list of links to various electronic payment systems is provided at this site.

www.internetindicators.comThis site provides Internet economic data. It is intended for people interested in learning about theInternet economy.

www.ofx.net/ofx/ab_main.aspThe Open Financial Exchange (OFX) Web site.

Credit–Card Payment

www.cybercash.comCyberCash enables e-merchants to accept credit-card payments online. The company also offer an e-wallet technology and an online bill-paying service.

www.icat.comiCat enables merchants to accept credit cards online. It will host your Web site and aid in site design.

www.trintech.comTrintech offers a secure credit-card payment system that enables simultaneous purchases from multi-ple stores. This is used in virtual shopping malls.

shopping.altavista.com/home.sdcThis is the site of AltaVista’s shopping mall. It uses the Payware eIssuer technology.

www.intellicharge.comIntellicharge specializes in merchant-account management. It settles merchant accounts on the day ofthe request.

www.onlineorders.netOnlineorders provides links and factual information regarding online payments and the methods ofimplementing payment systems.

E-Wallets

www.visa.com/pd/ewallet/main.htmlVisa offers various e-wallets for use with Visa credit cards. These wallets are backed by a specific fi-nancial institution that issues the Visa card.

www.entrypoint.comEntrypoint’s product is a personalized desktop toolbar that offers easy access to news, sports, finance,travel and shopping. It includes an e-wallet feature for use at affiliate Internet stores.


www.MBNAwallet.comMBNA wallet allows you to make all of your online purchases quickly and easily.

www.brodia.comBrodia promises e-wallet services that enable users to store their credit-card numbers and other pur-chasing information for shopping online.

Checking Account Payment

www.debit-it.comThis site allows merchants to draw against the balance in their checking account as a valid form ofpayment over the Internet.

www.netchex.comNetchex allows customers to set up an online debit-card system, where all purchases are deductedfrom a single Netchex account. This enables people to shop without using a credit card.

Digital Cash

www.ecash.neteCash offers digital cash services for both online purchases and peer-to-peer payment.

www.flooz.comFlooz is a form of digital cash that is used as a gift currency. Customers buy Flooz currency with theircredit cards and then establish gift accounts. The recipient can then spend the Flooz account at par-ticipating stores.

www.beenz.combeenz is an international, points-based currency system. It allows vendors to offer a promotional sys-tem on their Web site.

www.giftcertificates.comThis site allows Internet users to purchase gift certificates online.

www.internetcash.comInternetcash is a digital currency that is aimed at teenagers. The currency is purchased through prepaidcards at convenience stores. Affiliated merchants are targeted to a young demographic.

abracad.users.netlink.co.uk/emoney.htmlThis is a link to a general resource page on digital-cash technology.

www.rocketcash.comThis service is designed for individuals under the age of 18. It provides them with an online spendingaccount.

www.doughnet.comSimilar to RocketCash, this site provides an online spending account, particularly for users under theage of 18.

Peer-To-Peer Payment

www.paypal.com/cgi-bin/webscr?cmd=indexPayPal offers a peer-to-peer payment system that enables anyone to receive payment from anyone elsevia e-mail. Payments can be made by credit card or checking account.

www.billpoint.comThis site offers a peer-to-peer credit-card payment system designed by eBay and Wells Fargo and usedon the eBay auction site.


www.tradesafe.comTradesafe is a credit-card peer-to-peer payment system that is aimed at business-to-business transac-tions. They provide B2B services and special security for large transactions.

www.moneyzap.comThe digital cash system offered through Western Union.

Smart Cards

www.scia.comThe Smart Card Industry Association Web site provides information on smart-card technology andservices.

www.visa.com/nt/chip/info.htmlThis page contains information on the forthcoming smart card being offered by Visa, which will con-tain a digital-cash application and e-wallet services.

www.smart-card.comA monthly e-magazine that contains comprehensive information on smart-card technology, as well aslinks to other sites.

www.nextcard.comNextcard has developed a credit card specifically designed for the Web. Online payments can be madewith a built-in digital wallet.

www.americanexpress.comAmerican Express offers the Blue smart card (personal and corporate) and related services throughits Web site.

Micropayments

www.hut.fi/~jkytojok/micropaymentsThis is a paper on electronic-payment systems with a focus on micropayments.

www.echarge.comeCharge partners with AT&T to provide micropayment services billed to the user’s phone bill.

www.ipin.comiPin allows charges from micropayment purchases to appear on the customer’s ISP bill.

www.trivnet.comTrivnet’s technology bills micropayment purchases to the customer’s ISP bill.

www.qpass.comQpass is an e-commerce enabler. It allows companies to sell products and conduct secure transactionsover the Web. It can provide the infrastructure needed to run your e-business.

www.millicent.digital.comMillicent allows customers and e-businesses to conduct transactions using micropayments.

B2B

www.ecredit.comeCredit helps entrepreneurs and established businesses find credit to support their online operations.eCredit will also help you manage your money.

www.clareon.comClareon provides end-to-end e-commerce solutions connecting buyers and sellers with a secure pay-ment system.


www.etimecapital.comeTimeCapital provides a solution for accounts receivable and cash-flow management on the Web.

www.tradecard.comTradecard handles international trade and e-commerce over the Web. Tradecard provides secure on-line payments.

www.swift.comSwift’s site offers secure, online, international credit-card transactions.

EBPP

www.checkfree.comCheckfree allows you to receive and pay your bills online.

www.paytrust.comPaytrust is a an online bill-payment system. Paytrust allows you to access and pay your bills with thePalm VII organizer.

www.derivion.comDerivion provides bill-payment capabilities.

www.encirq.comEncirq allows bill payment sites to add targeted advertising to online customer statements.

www.usps.govThe U.S. Postal service offers bill-paying services.

bills.yahoo.comYahoo! offers bill payment and presentment services through its Web site. The service includes mes-sage delivery and payment updates. The first three months are free.

www.c2it.comThis free, online service offered through Citibank enables peer-to-peer payments.

SUMMARY• The electronic transfer of funds is crucial to e-commerce.

• The major online payment schemes include payments by credit card, cash, and check, paymentsto businesses, peer-to-peer payments, banking and bill paying.

• Customers are concerned about the possibility of credit-card fraud by merchants or other parties.

• When making a purchase online using a credit card, the buyer will be required to submit their cred-it card number, expiration date and shipping and billing information.

• The merchant submits the credit card information to the acquiring bank or to the bank with whichthe merchant holds an account. From there, the buyer’s account information is verified. This in-volves the issuing bank, or the bank from which the buyer obtained the credit card, and the credit-card association. Verification is received by the acquiring bank and is then passed on to the mer-chant, who will ship the product. Payment cannot be issued to the merchant until the product hasbeen shipped.

• To accept credit card payments, a merchant must have a merchant account with a bank.

• E-wallets allow you to keep track of your billing and shipping information, so that it can be enteredwith one click at participating merchants’ sites. They also store e-checks, e-cash and your credit-card information for multiple cards.

• IAlthough electronic payment is more convenient, Internet merchants that do not accept creditcards can accept payments in the form of checks or money orders through the mail.


• Debit cards offer an alternative for card holders to access their savings, checking and other ac-counts. These cards can be used in the same way as a credit card, but instead of paying a monthlybill, the charge is automatically deducted from the customer’s checking account.

• There are many forms of digital currency; digital cash is stored electronically and can be used tomake online electronic payments.

• Digital-cash accounts are similar to traditional bank accounts; consumers deposit money into theirdigital-cash accounts to be used in their digital transactions.

• Aside from alleviating some of the security fears that many people have about online credit-cardtransactions, digital cash allows people who do not have credit cards to shop online, and merchantswho accept digital cash payments avoid credit-card transaction fees.

• Gift cash, often sold as points, is another form of digital currency that can be redeemed at leadingshopping sites. It is an effective way of giving teen shoppers, or those without credit cards, the abil-ity to make purchases on the Web.

• Some companies offer points-based rewards offered in exchange for completing specified tasks.These tasks may include visiting Web sites, registering or buying products.

• Peer-to-peer transactions allow the online transfer of money between consumers.

• PayPal allows a user to send money to anyone with an e-mail address, regardless of what bank ei-ther person uses or whether or not the recipient is preregistered with the service.

• The X Payment system can be used to enable credit-card payment for auction items in real time.This means that the transaction begins processing immediately after it is initiated, reducing the riskof fraud or overdrawn accounts.

• eBay and Wells Fargo offer another form of peer-to-peer payment called BillPoint. It allows buy-ers to submit electronic payments to sellers’ checking accounts.

• Another peer-to-peer payment company, Tradesafe.com, accommodates the larger amountstypically involved in B2B transactions.

• A smart card, a card with a computer chip embedded on its face, is able to hold more informationthan an ordinary credit card with a magnetic strip.

• Smart-card technology has many applications. Smart cards can be used to store health care, trans-portation, identification, purchasing, loyalty programs and banking information, to name a few.

• There are contact and contactless smart cards. Contact smart cards need to be placed in a smartcard reader. A contactless smart card has both a coiled antenna and a computer chip inside, en-abling the card to transmit information.

• eConnect’s product, eCashPad is a device that connects to your computer and scrambles financialdata, making it secure to send over the Internet.

• Visa has created Visa Cash, a smart card used to store money and make purchases.

• Micropayments, which generally do not exceed $10, provide a way for companies offering nomi-nally priced products and services (music, pictures, text or video) to receive payments online with-out the use of a credit card.

• The fastest growing sector of e-commerce payments is business-to-business (B2B) transactions.These payments are often much larger in size than B2C transactions and involve complex businessaccounting systems.

• EBT (Electronic Benefits Transfer) is defined by the USDA as the electronic transfer of govern-ment funds to retailers for the benefit of the needy.

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

• Aside from enabling electronic payment, many business-oriented services are aimed at integratingbusiness transaction processes.


• E-billing technologies are finding success in the B2C market, where transactions are less compli-cated than B2B transactions.

• Paytrust has a consumer-focused approach to e-billing. Users send their bills directly to Paytrust,which then scans them and places them online for the consumer to view.

• Encirq’s illuminated statement is interactive and includes special offers from retail merchants thatcorrespond with the itemized charges on a credit-card statement.

• The Open Financial Exchange (OFX) was presented by Intuit, Microsoft and Checkfree in 1997to serve as a standard mechanism for the exchange of financial information.

TERMINOLOGY

SELF-REVIEW EXERCISES4.1 State whether the following are true or false. If the answer is false, explain why.

a) An e-commerce site must establish a merchant account with a bank before credit-card or-ders can be processed online.

ACH (Automated Clearing House) e-PocketPayacquiring bank e-walletAdvanced Fraud Detection fulfillmentAmerinet Global Financing NetworkANI (Automatic Number Identification) illuminated statementauthentication inetBillerauthorization Internet Payment Provider (IPP)AutoBuy issuing bankAutomatic Teller Machines (ATMs) logisticsbankonewallet merchant accountbusiness-to-business (B2B) Merchant Connection Kit (MCK)BusinessVerify micropaymentcard not present transactions (CNP) mobile paymentchargeback Office of Foreign Assets Control (OFAC)consolidation service Open Financial Exchangecontact smart card order-fulfillment providercontactless smart card pay-everyone servicescontent provider PaymentNetCyberCash CashRegister peer-to-peer paymentCyberCash Instabuy point-of-sale (POS) transactionsdebit card PowerWalletDecisionDesktop real timedigital cash redundant serversdigital payment authentication (DPA) SmartBalanceeCashPad smart cardElectronic Benefits Transfer (EBT) smart-card readerElectronic Bill Presentment and Payment (EBPP) Standard Fraud DetectionElectronic Commerce Modeling Language

(ECML)third-party logistics service providerTrintech eHost

Electronic Data Exchange (EDI) Trintech eIssuerelectronic payment virtual credit cardeMerchant Visa Cashenterprise resource planning (ERP) X Payments


b) When purchasing on the Web, the card number and expiration dates can be provided, butthe merchant does not see the actual card being used in the purchase. This is called a card-not-present (CNP) transaction.

c) eCash is accepted by all e-commerce Web sites as a form of payment.d) eCharge is a micropayments system that is billed through your e-mail account.e) Micropayments are small sums of money that can be charged to a user for products and

services bought online.

4.2 Fill in the blanks in each of the following:a) Millicent offers a cost effective system of collecting small sums of money over the Inter-

net. These small sums are called .b) Traditional merchant accounts accept only , or those that occur when you

present your credit card at a store.c) The is the bank with which the merchant holds an account.d) The is the bank from which the buyer obtained the credit card.e) The payment system allows for monetary transactions over the Internet be-

tween two consumers.

ANSWERS TO SELF-REVIEW EXERCISES4.1 a) True. b) True. c) False. Only participating stores accept eCash. The customer, merchantand bank must all be able to use the eCash system d) False. eCharge is a micropayments system thatautomatically places charges on your home phone bill. e) True.

4.2 a) Micropayments. b) POS (point-of-sale) transactions. c) acquiring bank. d) issuing bank.e) Instabuy.

EXERCISES4.1 State whether the following are true or false. If the answer is false, explain why.

a) InetBiller is a peer-to-peer payment system.b) Smart cards can be used only to make online purchases.c) A contactless smart card has both a coiled antenna and a computer chip inside.d) EBPP stands for electronic bill presentment and payment.e) In order to make a credit-card purchase on the Web, the consumer must be 21.

4.2 Fill in the blanks in each of the following:a) iPin offers micropayments that are billed to the client within their bill.b) A stores information on the user’s computer, providing one-click shopping

at participating merchants.c) , an online service created by CyberCash, makes it possible for merchants to

receive credit-card numbers, offer the numbers to the appropriate financial institution forvalidation and accept them as a form of payment in a secure environment over the Web.

d) Visa, Mastercard and a group of e-wallet vendors have standardized e-wallet technologywith the .

e) is the online payment system offered by Visa to help young consumers man-age their money and make purchases on the Web.

4.3 Categorize each of the following items as either e-billing or peer-to-peer payment:a) PayPalb) CheckFreec) Encirqd) BillPointe) TradeSafe


4.4 Define the following:a) digital cashb) peer-to-peer paymentc) e-walletd) micropaymentse) EBPPf) merchant accountg) smart card

4.5 (Class Discussion).In this chapter, we discuss online payment processes and some of the con-cerns related to making purchases over the Internet. Security, privacy and accuracy are among the great-est concerns. Poll your friends, family and professors. What percentage of people you talked to hadmade a purchase online. Did they have any problems? Using the information provided and additionalresearch, decide which mechanisms are best suited for protecting credit-card information. Consider bothVisa and Mastercard’s approach. How do they compare? Be prepared to discuss your answers.

4.6 In this chapter we discuss peer-to-peer payments. Visit the BillPoint demonstration atwww.billpoint.com/help/tutorial.html and answer the following questions.

a) According to the tutorial, which two links are necessary to use BillPoint Online Pay-ments?

b) What is the action taken by the seller at the close of the auction?c) Name three of the items required in the BillPoint invoice.d) What are the two methods that can be chosen by the bidder for initiating payment?

4.7 In this chapter, we discuss e-billing. Visit the CheckFree demo at www.checkfree.comand answer the following questions.

a) What are the four fields that must be filled out in the check payment process?b) What feature allows you to make several payments at once?c) What feature allows you to make repeated payments?d) In the Payment Histories feature, what are the three status indicators?e) What are the two programs that payment histories can be exported into?

4.8 In this chapter, we introduced the EBPP service offered through the U.S. Postal Service. Visitthe online demonstration and answer the following questions.

a) Name the four ways you can add a new payee to your payee list.b) How is the Payment Activation Code distributed to the user?c) A list of your paid, cancelled and failed checks can be viewed at what location?

WORKS CITEDThe notation <www.domain-name.com> indicates that the citation is for information found atthat Web site.1. ViaPay advertisement. Worth Nov. 2000.

2. <www.prodigycard.com/About.html>.

3. M. Trombly, “Amex Unveils Disposable Credit Numbers,” Computer World 11 September2000: 4.

4. R. Crocket, "No Plastic? No Problem," Business Week E.Biz 23 October 2000: 18.

5. <www.online-commerce.com/tutorial2.html>.

6. <www.icat.com>.

7. <www.trintech.com>.

8. <www.cybercash.com>.


9. J. Angwin, “Credit-Card Scams Bedevil E-Stores,” The Wall Street Journal 19 September 2000:B1.

10. R. Barrett, “E-Tailers Caught in Card,” Inter@ctive Week 10 April 2000: 10.

11. E. Messmer, “Online card fraud targeted,” Network World 21 August 2000: 1, 72.

12. E. Messmer, “Online card fraud targeted,” Network World 21 August 2000: 1, 72.

13. <www.nochargebacks.com>.

14. <www.flooz.com>.

15. <www.beenz.com>.

16. <www.internetcash.com>.

17. <www.visa.com>.

18. <www.visa.com/pd/ewallet/main.html>.

19. <www.entrypoint.com>.

20. M. Barnett, “Credit Card Heavies Unveil E-Wallet Standard,” TheStandard.com 14 June1999.

21. <www.debit-it.com>.

22. R. Crockett, "No Plastic? No Problem?" Business Week E.Biz 23 October 2000: 18.

23. <www.x.com>.

24. G. Naders, “EBay, Wells Team Up On Web Payments,” The Wall Street Journal 1 March 2000

25. <www.billpoint.com>.

26. <www.tradesafe.com>.

27. <www.gemplus.com/basics/what.html>.

28. <www.econnectholdings.com/econ_intro.html>.

29. M. Solomon, "Micropayments," Computer World 1 May 2000: 62.

30. <www.echarge.com>.

31. <www.qpass.com>.

32. <www.millicent.com>.

33. J. Vijayan, “Business-to-Business Billing No Easy Task,” Computer World 13 March 2000: 20.

34. <www.tradecard.com>.

35. <www.treas.gov/ofac>.

36. <www.usda.com>.

37. <www.paymentech.com>

38. <www.ecredit.com> and conversation with customer service representative.

39. <www.clareon.com>.

40. <www.etimecapital.com>.

41. <www.submitorder.com>.

42. <www.treas.gov/fac>.

43. <www.checkfree.com> and customer service representative.

44. M. Richey, “A Checklist For CheckFree,” MotleyFool.com 23 May 2000.


45. [C. Le Beau, “The Big Payoff,” TheStandard.com 8 May 2000.

46. L. Rosencrance, “IDC: More People Paying Bills Online,” Computer World 17 April 2000: 26.

47. <www.paytrust.com>.

48. <bills.yahoo.com>.

49. <www.derivon.com>.

50. <www.encirq.com>.

51. M. Charski, “Extending Credit-Card Bills,” Inter@ctive Week 22 May 2000: 63.

52. <www.encirq.com>.

53. <www.ofx.net/ofx/default.asp>.

54. <www.jalda.com>.

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