Chapter 11: Payment Systems For Electronic CommerceObjectivesObjectives (continued)Online Payment BasicsPowerPoint PresentationOnline Payment Basics (continued)Payment CardsPayment Cards (continued)Advantages and Disadvantages of Payment CardsPayment Acceptance and ProcessingOpen and Closed Loop SystemsMerchant AccountsProcessing Payment Cards OnlineSlide 14Electronic CashMicropayments and Small PaymentsPrivacy and Security of Electronic CashHolding Electronic Cash: Online and Offline CashAdvantages and Disadvantages of Electronic CashProviding Security for Electronic CashSlide 21Electronic Cash SystemsElectronic Cash Systems (continued)Slide 24Electronic WalletsElectronic Wallets (continued)Microsoft .NET PassportYahoo! WalletW3C Micropayment Standards Development ActivityThe ECML StandardStored-Value CardsMagnetic Strip CardsSmart CardsSlide 34Smart Cards (continued)Internet Technology and the Banking IndustryPhishing AttacksPhishing Attack CountermeasuresSummarySummary (continued)Slide 41Chapter 11:Payment Systems For Electronic CommerceElectronic Commerce, Seventh Annual EditionElectronic Commerce, Seventh Annual Edition 2ObjectivesIn this chapter, you will learn about:•The basic functions of online payment systems•The use of payment cards in electronic commerce•The history and future of electronic cashElectronic Commerce, Seventh Annual Edition 3Objectives (continued)•How electronic wallets work•The use of stored-value cards in electronic commerce•Internet technologies and the banking industryElectronic Commerce, Seventh Annual Edition 4Online Payment Basics•Cash, checks, credit cards, and debit cards account for more than 90 percent of all consumer payments in the United States•Most popular consumer electronic transfers are automated payments of: –Auto loans–Insurance payments–Mortgage payments made from consumers’ checking accountsElectronic Commerce, Seventh Annual Edition 5Electronic Commerce, Seventh Annual Edition 6Online Payment Basics (continued)•Scrip –Digital cash minted by a company instead of by a government–Cannot be exchanged for cash–Like a gift certificate that is good at more than one storeElectronic Commerce, Seventh Annual Edition 7Payment Cards•The term payment card describes all types of plastic cards used to make purchases•Credit card–Has a spending limit based on a user’s credit historyElectronic Commerce, Seventh Annual Edition 8Payment Cards (continued)•Debit card –Removes an amount from a cardholder’s bank account –Transfers it to the seller’s bank account•Charge card–Carries no spending limit–Amount charged is due at the end of the billing periodElectronic Commerce, Seventh Annual Edition 9Advantages and Disadvantages of Payment Cards•Advantages:–Worldwide acceptance–Built-in security for merchants•Disadvantage:–Payment card service companies charge merchants per-transaction fees and monthly processing feesElectronic Commerce, Seventh Annual Edition 10Payment Acceptance and Processing•Steps followed once a merchant receives a consumer’s payment card information:–Merchant authenticates payment card –Merchant checks with payment card issuer •To ensure that credit or funds are available•Puts a hold on the credit line or the funds needed to cover the charge –Settlement occursElectronic Commerce, Seventh Annual Edition 11Open and Closed Loop Systems•Closed loop systems–Card issuer pays the merchants that accept the card directly and does not use an intermediary•Open loop systems–Involve three or more parties–Systems using Visa or MasterCard are examplesElectronic Commerce, Seventh Annual Edition 12Merchant Accounts•To process payment cards for Internet transactions an online merchant must set up a merchant account•New merchants must supply:–Business plans–Details about existing bank accounts–Business and personal credit historiesElectronic Commerce, Seventh Annual Edition 13Processing Payment Cards Online•InternetSecure–Provides secure payment card services•First Data–Provides merchant payment card processing services with the following programs:•ICVERIFY and WebAuthorize•Banks connect to an Automated Clearing House (ACH) through highly secure, private leased telephone linesElectronic Commerce, Seventh Annual Edition 14Electronic Commerce, Seventh Annual Edition 15Electronic Cash•Term that describes any value storage and exchange system created by a private entity that:–Does not use paper documents or coins–Can serve as a substitute for government-issued physical currency•Attractive in two arenas:–Sale of goods and services of less than $10–Sale of goods and services to those without credit cardsElectronic Commerce, Seventh Annual Edition 16Micropayments and Small Payments•Micropayments–Internet payments for items costing from a few cents to approximately a dollar•Small payments–Payments of less than $10Electronic Commerce, Seventh Annual Edition 17Privacy and Security of Electronic Cash•Concerns about electronic payment methods include:–Privacy and security–Independence–Portability –Convenience•Advantages of electronic cash include being:–Independent and portableElectronic Commerce, Seventh Annual Edition 18Holding Electronic Cash: Online and Offline Cash•Online cash storage–Trusted third party is involved in all transfers of electronic cash –Holds consumers’ cash accounts•Offline cash storage–Virtual equivalent of money kept in a wallet–No third party is involved in the transaction•Double-spending –Spending electronic cash twiceElectronic Commerce, Seventh Annual Edition 19Advantages and Disadvantages of Electronic Cash•Advantages of electronic cash:–Transactions are more efficient–Transfer on the Internet costs less than processing credit card transactions•Disadvantages of electronic cash:–Use provides no audit trail–Problem of money laundering arises–Susceptible to forgeryElectronic Commerce, Seventh Annual Edition 20 Providing Security for Electronic Cash•Cryptographic algorithms–Keys to creating tamperproof electronic cash that can be traced back to its origins•Anonymous electronic cash –Electronic cash that cannot be traced back to the person who spent it•Creating truly anonymous electronic cash –Requires a bank to issue electronic cash with embedded serial numbersElectronic Commerce, Seventh Annual Edition 21Electronic Commerce, Seventh Annual Edition