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Online Monetary Transactions

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Presentation on theme: "Online Monetary Transactions"— Presentation transcript:

1 Online Monetary Transactions
Kazan State University Instructor: Sasa Dekleva

2 Outline Credit cart transactions Digital currencies E-Wallets
Transaction processing Enablers Fraud Digital currencies E-Wallets Peer-to-peer payment Smart cards Micropayments Business-to-business transactions E-billing Payment standards

3 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 Credit Card Transactions
Popular form of payment for online purchases Initial resistance due to security concerns 95% of retail purchases paid for by credit cards To accept credit-card payments, a merchant must have a merchant account Traditional merchant accounts accept only POS (point-of-sale) transactions Card-not-present (CNP) transaction Merchant does not see actual card being used in the purchase The merchants are liable for chargebacks a transaction for which the card-issuing institution will not be paid

5 Online Credit-Card Transaction
Authorization The money is available to complete the transaction Acquiring bank or processor 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

6 Online Credit Card Transaction
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 issuing bank accepts the transaction and the authorization code is sent back Step 5 The merchant ships the product and payment is issued

7 Options for Enabling Internet Payments
Develop in-house transaction processing capability by building the connections with in-house resources purchasing payment-processing software Outsource the process to third-party gateway services Outsource payment processing as part of an outsourced e-commerce solution

8 In-House/Software Solution
Advantages organization maintains control of the process in-house is not vulnerable to potential outages by outsourced processors Disadvantages high initial costs implementation takes time requires in-house e-commerce expertise requires 24 x 7 system monitoring Providers of payment processing software include: IBM, Trintech, HP Verifone, PaylinX, Atomic Software, Spyrus and ICVerify and Tellan

9 Outsourced Payment Gateway Solution
Advantages low start-up costs is quick to implement customers pay only for transactions that are processed requires few in-house resources will scale as transaction volume increases technical enhancements are handled by outsourcer flexibility exists for selecting acquiring bank

10 Outsourced Payment Gateway Solution
Disadvantages control is in the hands of the outsourcer vulnerability to possible system outages may be costly over time when transaction volumes become large Providers of outsourced Internet payment gateway services include CyberCash, Signio CyberSource, iTransact, Vitessa, SkipJack, ATS Gateway, WorldPay, Authorize.net and First Ecom.com

11 E-Commerce Hosted Solution
Advantages low initial costs nonstrategic functions are outsourced Disadvantages control and customized applications are limited transaction costs may be high Many ISPs and ASPs provide merchant e-commerce and payment hosting solutions and the number is growing rapidly; Earthlink, PSINet, Mindspring and ICOM are just a few

12 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

13 Digital Currency Digital cash Early e-cash methods have failed
Stored electronically, used to make online electronic payments Similar to traditional bank accounts Used with other payment technologies (digital wallets) Alleviates some online credit-card transactions security fears Allows those with no credit cards to shop online Merchants accepting digital-cash payments avoid credit-card transaction fees Early e-cash methods have failed First Virtual left the business DigiCash failed to attract interest in its architecture CyberCash terminated its CyberCoin e-cash program

14 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

15 E-Wallets E-wallets Credit-card companies offer a variety of 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)

16 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

17 Peer-To-Peer Transactions
Allow online monetary transfers between consumers eCash allows the transfer of digital cash via between two people who have accounts at eCash-enabled banks PayPal (acquired by X.com) offers X payments Allows user to send money to anyone with an 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 (Wells Fargo/eBay venture) Allows buyers to submit electronic payments to sellers’ checking accounts Tradesafe.com (partnering with Fleet Bank) larger transactions, B2B Other providers: ProPay, eMoneyMail (BankOne), eCount, MoneyZap (First Data Corp.), PayMe.com

18 P2P Payments Two primary P2P methods
Funds are moved from one consumer’s bank account to another at the time of the transaction cannot be repudiated easily buyers have no recourse for faulty sales because sellers are not validated by the payment providers a "buyer beware" situation Individuals receive credit card payments P2P credit card payments enable buyers to dispute transactions sellers are more likely to actually receive payments because a buyer's fear of fraudulent sellers is reduced payers credit card numbers are hidden from payees no wait for payments to arrive fees are higher than for direct account transfers

19 P2P Payments Most person-to-person payment services work via e-mail
The sender gives a bank-account or credit-card number to the service The service sends the recipient an alert The recipient can then have the money transferred to his or her bank account, or receive a paper check NYCE's system eliminates these cumbersome procedures Its solution would enable financial institutions and their customers to make real-time P2P payments via automated teller machines (ATMs) Web-accessible personal computers other devices NYCE, a major U.S. electronic payments company, has about 47 million cardholders.

20 P2P Providers X.com (acquired PayPal.com) ProPay
BillPoint (Wells Fargo/eBay venture) TradeSafe (partnering with Fleet Bank) eMoneyMail (BankOne) eCount MoneyZap (First Data Corp.) PayMe.com

21 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

22 Inside a Smart Chip ROM = Read-Only Memory RAM = Random Access Memory
PROM = Programmable Read-Only Memory EPROM = Erasable Programmable Read-Only Memory EEPROM = Electrically Erasable Programmable Read-Only Memory FRAM or FERAM = Ferroelectric Random Access Memory CPU = Central Processing Unit

23 Business Applications
Debit/Credit Cards Electronic Purse Transportation Health Telecommunications Loyalty Pay-TV Network Security ID/Access

24 Mobile Communication Applications
Typical Wireless intranet services include: secure access to corporate databases stock trading mobile banking ticketing shopping betting Subscriber identity module is critical; it performs: network identification and user authentication additional security layers storage and execution of user-configurable applications SIM = subscriber identity module

25 M-Commerce Leonia Bank of Finland Telecom Italia-Mobile
Offers Internet banking customers SIM cards for their GSM phones with an embedded digital certificate Consumers to identify themselves as they conduct financial transactions via a mobile phone Telecom Italia-Mobile Issued over 3 million smart cards for its customers' handsets last year SIM cards identify customers Telecom Italia offers services such as mobile banking, audible , and computer games

26 Advantages of Using Smart Cards
There are three reasons to move to chip: fraud can be reduced because: chips are harder to duplicate than magnetic stripes the chip can hold customer data that can foil criminals processing costs are reduced as merchants reduce the frequency of calls into a central database to check a cardholder's credit new features can be added to smart cards to generate new revenue and to retain customers

27 Micropayments Credit card transactions are too expensive for payments below $10 Micropayments Single-click purchasing Requires a password and one mouse click vendors typically receive a 10 to 35 percent share of the purchase price Several vendors QPass gathers charges for a user's purchases into a single monthly credit card charge Cha Technologies uses preloaded accounts, billing an amount (typically $20) to a consumer's credit card account Trivnet and iPin are signing up ISPs to bill their customers for Internet purchases

28 Visa Cash A stored value card contains money stored as electronic value The cardholder inserts the card into a terminal and presses a button to deduct the purchase amount There is no personal identification number (PIN), no signature, and no identification Visa Cash issues three types of cards: disposable (less expensive to manufacture and process) reloadable multiapplication (consumers have the advantage of stored value on a credit, debit, or ATM card that they already have) Visa Cash is promoting Common Electronic Purse Specification (CEPS)

29 Strengths Offers several security options
Uses existing settlement infrastructure Offers disposable and reloadable cards Can be combined with debit, credit, and multiapplication cards Strength of Visa brand Reduces cash handling costs No person-to-person transfers Physical and virtual world use

30 Limitations Still Mostly in the Pilot Stage
Investment in Specialized Terminals Fees for Low-Value Transactions

31 Visa Cash Accountable versus non-accountable systems
Open versus closed systems How Visa Cash Works? The transaction flow depends on the organization supporting Visa Cash Funds are loaded on the chip; no online authorization is required Consumer initiates the purchase by inserting a card into a small terminal at the point of sale The consumer verifies the purchase amount by pushing a single button At a vending machine, the consumer simply inserts the card at a machine and makes a selection

32 Visa Cash Sample Ranges
Products Memory Capacity (bytes) Features Visa Cash Disposable 416 Visa Cash Disposable electronic purse Visa Cash Reloadable 1K Visa Cash Reloadable electronic purse plus Easy Entry debit/credit functions Visa Cash Multifunctions 2K Visa Cash Reloadable plus Easy Entry plus Multifunctions Visa Cash Multifunctions Loyalty 2, 4, 8K Visa Cash Reloadable plus Multifunctions plus Visa Loyalty Visa Cash Multifunctions Public Key 4, 8K Visa Cash Multifunctions plus public key

33 How Visa Cash Works

34 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

35 B2B Transactions 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

36 B2B Transactions Electronic consolidation and reconciliation of the business transaction process Companies can keep track of a transaction from order-to-payment 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

37 TradeCard 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

38 TradeCard 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

39 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

40 Jalda 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

41 Paybox: Pan-European Mobile Payments
Paybox uses the mobile phone as an authorization and confirmation device Payments can be made to: e-commerce Web sites directly to merchants as cash transfers between individuals Current business model: charge a small consumer subscription fee (5 euros per annum) charge merchants for each transaction with an average commission of around 3 percent

42 Paybox Payment Process
A Web Paybox transaction operates as follows: A user selects a product to purchase on a Web site and opts to pay via Paybox The user enters his/her mobile phone number as a payment identifier (for users unwilling to disclose their mobile number to merchants, Paybox provides an alternative ID) The merchant's system contacts Paybox with the payment request and user ID The Paybox IVR system calls the user's mobile phone and asks the user to enter a PIN The user enters a PIN number to confirm the payment After a few seconds the user receives an SMS message as payment confirmation Payments are debited from the user's bank account Paybox consolidates merchant payments and forwards them twice a month

43 Paybox Technology Paybox uses:
a centralized Envox interactive voice response (IVR) system that uses a voice over IP European backbone provided by KPNQwest application code is built and maintained in-house and runs in an Apache/Tomcat environment hosted on Hewlett-Packard servers using an Oracle database Technically complex system that has required more than 50 person years of effort to develop to its current state Support is provided by a combination of , call centers and Web FAQ pages Peak performance of this architecture is claimed to be around 1,000 payments per minute Can be scaled to support future systems exploiting data-enabled phones at rates of up to 10,000 transactions per minute

44 Paybox History and Ownership
Established in Germany in 1999 In the second half of 2000, expanded into Spain, then Sweden and Austria United Kingdom planned to follow in late 2001 In the first half of 2001, there were approximately 300,000 consumer subscribers and 5,000 merchants in Germany with a much smaller number in other countries Paybox is a private company; 50 percent is owned by Deutsche Bank and 4.8 percent by debitel Competitors: PayPal (United States), Movilpago and Caixamovil (Spain), Sonera Mobile Pay (Finland), and Mint (Sweden)


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