Electronic Payment Systems

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Electronic Payment Systems

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Agenda

• Definition of electronic payment
• Security for e-payments
• Types of electronic payment methods
• Which electronic payments to accept?

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What is electronic payment

• Electronic payment methods are the payments made
  electronically rather than by paper (cash,
  checks, vouchers, etc)
• 95 of all e-commerce will be B2B transactions by
  2004, with only 5 for B2C (Research by Gartner
  Group)
• Allows global reach, high speed, low transaction
  cost and high automatibility

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Security for E-payments

• Authentication
• Authenticity of business
• Confidentiality
• Information privacy
• Data Integrity
• Data must not be altered
• Audit Trail
• Data should be trailed

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Security for E-payments

• Standards for E-payments
• It is a must to have a generally accepted
  protocol for securing e-payments such as SSL
• Implemented protocols
• SSL (Secure Sockets Layer)
• Security protocol used by web browser and web
  server to transmit sensitive information over the
  internet
• Uses private key to encrypt data
• SET (Secure Electronic Transaction)
• Built with SSL
• Uses digital wallet that holds
• customers certificates

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SSL

• Certificate Authority
• Ex) Verisign
• Secures credit card payments
• Provides 40 bit and 128 bit SSL Encryption
• Authenticates the business for customer
  confidence

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SET

• Visa and MasterCard developed SET specifically to
  handle electronic payments
• SET involves interaction among credit card
  holders, merchants, issuing banks, payment
  processing organizations, and public key
  certificate authorities so its much more secure
  than SSL
• SET is much more complex
• Success of SSL
• Expensive overhead

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Types of Electronic Payment

• B2B
• Small to large payments
• B2C
• Small to medium payments
• Credit card transactions
• Micropayments
• Very small payments

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Types of Electronic payments (B2B)

• Electronic checks
• Purchasing cards
• Electronic letters of credit
• Electronic Funds Transfer
• Transfer of funds
• Ex) ATM, Internet banking
• Electronic Benefits Transfer
• Transfer of benefits
• Ex) Debit card for food stamps

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Types of Electronic Payments (B2C)

• Electronic Payment Cards
• (credit, debit, charge)
• Smart Cards
• (phone cards, bank cards)
• P2P payments
• (paypal, c2it)
• Other payment methods

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Electronic payment cards (1)

• Credit cards
• Most popular online payment
• Convenient for both merchant and customer
• Quicker payments 24/7
• Safest recommended method
• Liability is limited by federal law to 50
• for unauthorized charge on credit card

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Electronic payment cards (2)

• How credit card works

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Smart Card (1)

• A type of computer embedded chip card that stores
  and transacts encrypted data between users.
• Smart card are used in healthcare, banking,
  entertainment and transportation industries.
• Offers enhanced security, convenience and
  economic benefits
• Rechargeable stored value card
• Examples
• Mondex in UK
• VisaCash in US

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Smart Card (2)

• Smart Card for E-Commerce
• Advantages
• Carry personal Accounts
• Credit and buying preferences
• Manage and control expenditures with automatic
  limits and reporting
• Disadvantages
• Costs 2 to 7 times more than magnetic stripe
  cards
• Need a smart card reader

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Smart Card (3)

• NTT-DoCoMo, Japans leading communications
  company have tied up with coca-cola company and
  developed a mobile commerce platform (c-mode)
  that allow purchasing soft drinks using cell
  phones.
• http//www.nttdocomo.com/corebiz
• /imode/alliances/cmode.html

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P2P Payments

• Person to person payments are newest and fastest
  growing e-payment schemes.
• Able to transmit funds to anyone with an email
  address
• ex) Paypal
• Free to send money to anyone
• Over 50 million account holders in 45 countries
• State of the art security technology
• Buyer protection up to 1,000 with no extra
  charge

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Types of Electronic Payments (Micropayments)

• Allows very small charges for goods and services
• Very small payments usually below 10
• Ex) Digital music
• Credit cards or EFT are too expensive
• Credit card charges 25 cents to 35 cents and 2 to
  3 percent of purchase price
• Difficult to allocate payment
• Hard to split between issuing bank, paying bank,
  card processor, and etc)
• New business model made possible by innovation of
  IT

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Other E-payment methods

• Wireless payments
• M-pay bill from Vodafone
• E-check
• Electronic version of paper check
• www.electracash.com
• E-charge
• Charge purchases to local phone bill
• www.echarge.com

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Accepting Electronic Payments (B2C)

• Merchant Account
• Payment processing opened through a bank
• Ex) www.1stamericancardservice.com
• Third Party Processor
• Payment processor that accepts credit cards on
  behalf of your company
• Ex) www.2checkout.com, www.paypal.com

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Merchant Account

• Advantages
• Increase credibility
• Flexibility
• Able to sell any kind of products and services
• Own shopping cart
• Low discount rate
• Average 2-3
• Disadvantages
• Difficult to obtain
• Expensive
• Large set up fee, application fee, gateway fee,
  monthly statement fee and monthly minimum fee
• Ex) 1stAmericanCardService 185 start up fee, 9
  statement fee and etc

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Third Party Processor

• Advantages
• Easy to obtain
• Small set up fee, no monthly fees, no gateway
  fees
• Accepts most credit card, debit card, checks
• Less administrative work
• Disadvantages
• Dont have public acceptance
• Must use their shopping cart system
• Gives less confidence to purchaser
• Limited items
• Paypal restricted items list
• Higher transaction fees
• 2checkout 5.5 of sale amount plus 45 cents per
  sale
• Digibuy 13.9 of sales amount

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Things to consider

• Monthly sales volume
• Low volume Third party processor
• High volume Merchant account
• Types of products or services
• International support
• Multi-currency
• Multi-language
• Marketing assistance or reseller affiliates
• 2checkout shopping mall
• Yahoo! Shopping