2. 1.Understand the shifts that are occurring with regard to online payments. 2.Discuss the players and processes involved in using credit cards online. 3.Discuss the different categories and potential uses of smart cards. 4.Discuss various online alternatives to credit card payments and identify under what circumstances they are best used. 5.Describe the situations where e-micropayments are used and the alternative ways for handling these situations. 6.Describe the processes and parties involved in e-checking. 10-1 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

3. Crucial factors in determining whether a particular method of e-payment achieves critical mass: – Independence – Interoperability and Portability – Security – Anonymity – Divisibility – Ease of Use – Transaction Fees – International Support – Regulations 10-2 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

4. payment card Electronic card that contains information that can be used for payment purposes. Three forms of payment cards: 1.Credit cards 2.Charge cards 3.Debit cards 10-3 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

5. PROCESSING CARDS ONLINE – authorization Determines whether a buyer’s card is active and whether the customer has sufficient funds. – settlement Transferring money from the buyer’s to the merchant’s account. 10-4 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

6. Merchants use three basic configurations for processing online payments: 1.Own the payment software 2.Use a point of sale system (POS) operated by an acquirer 3.Use a POS operated by a payment service provider payment service provider (PSP) A third-party service connecting a merchant’s EC system to the appropriate acquiring bank or financial institution. PSPs must be registered with the various card associations they support. The key participants in processing card payments online: – Acquiring bank-credit card association-customer-issuing bank-merchant-payment processing service-processor 10-5

7. 10-6 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

8. Fraudulent card transactions – In the online world,merchants are held liable for fraudulent transactions Key tools used in combating fraud: – Address Verification System (AVS) Detects fraud by comparing the address entered on a Web page with the address information on file with the cardholder’s issuing bank. – Manual review – Fraud screens and automated decision models – card verification number (CVN) Detects fraud by comparing the verification number printed on the signature strip on the back of the card with the information on file with the cardholder’s issuing bank. – Card association payer authentication services – Negative lists 10-7

9. smart card An electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card. 10-8 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

10. TYPES OF SMART CARDS – contact card A smart card containing a small gold plate on the face that when inserted in a smart card reader makes contact and passes data to and from the embedded microchip. – contactless (proximity) card A smart card with an embedded antenna, by means of which data and applications are passed to and from a card reader unit or other device without contact between the card and the card reader. – smart card reader Activates and reads the contents of the chip on a smart card, usually passing the information on to a host system. 10-9 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

11. APPLICATIONS OF SMART CARDS – Retail Purchases  EMV smart card :has chip that capable to store financial information, authentication,and digital signatures  The 31 European countries have agreed to shift all their magnetic strip cards to EMV smart cards by 2010  Smart cards more secure than standard cards  Smart cards can be extended with other payment services(gas station, fast-food, quick –service restaurants, and cinemas) – Transit Fares  Contactless smart cards are used in parking lot, trains,subways, buses 10-10

12. stored-value card A card that has monetary value loaded onto it and that is usually rechargeable. – The magnetic strip stores the monetary value of the card – With smart cards,the chip stores the value – Consumers can use stored-value cards offline or online, in the same way that they use credit and debit cards – The difference is that anyone Can obtain one without bank account – Cloesd loop or single-purpose : issued by a specific merchant or merchant group like mall cards, store cards, gift cards, and prepaid telephone cards – Open-loop or multipurpose :can be used to make debit transactions at a variety of retailers or for receiving direct deposits or withdrawing cash from ATM machines 10-11

13. e-micropayments Small online payments, typically under $10/$5. Five basic micropayment models that do not depend solely or directly on credit or debit cards: 1.Aggregation 2.Direct payment 3.Stored value 4.Subscriptions 5.À la carte 10-12 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

14. e-check A legally valid electronic version or representation of a paper check.  E- checks contain the same information as a paper check,can be used wherever paper checks are used  Web merchants hope that e-check will raise sales by reaching consumers who do not have credit cards or who are unwilling to provide credit card numbers online  Most businesses rely on third-part software to handle e-check payments 10-13

15. 1.What payment methods should your B2C site support? 2.What e-micropayment strategy should your e- marketplace support? 3.What payment methods should the C2C marketplace support? 4.Should we outsource our payment gateway service? 5.How secure are e-payments? What is the required security to use Internet banking? 10-14 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall