Transcript Electronic Commerce
Electronic Commerce
COMP3210
Session 10: Processing Payments On-line and the Fulfilment Phase Dr. Paul Walcott Department of Computer Science, Mathematics and Physics University of the West Indies, Cave Hill Campus Barbados © 2007 Dr. Paul Walcott
The Department of Computer Science Mathematics and Physics, University of the West Indies, Cave Hill Campus, Barbados
Session Objectives
The objectives of this session are: To describe the requirements for Internet-based payment System Models To discuss the following electronic payment systems: Payment cards Paypal And E-Wallets To discuss the order fulfilment phase To analyse the properties of cash, cheques and credit cards
Payment Systems
1,2,3 After creating a Web site that allows a customer to choose an item for purchase, a payment must be made before the item is shipped
http://www.amig.com/cservice/images/payment.jpg
Payment Systems Cont’d
When we walk into a “real world” store we basically have three ways to pay for an item. These are: Cash (most common form of payment) Cheques Payment card (i.e. debit cards, credit cards, smart cards or automated teller machine (ATM) cards)
Payment Systems Cont’d
Cash has some important properties: It is convenient since it is easy to use, to carry and easy to handle in small quantities It is widely accepted It provides anonymity It does not have associated processing fees It has no audit trail (maintains privacy)
Payment Systems Cont’d
There are several problems associated with the use of cash, however which include: It is easy to lose It is difficult to trace (e.g. when used in criminal activities) It introduces a security risk when being transported It is time-consuming to count, organise and manage
Payment Systems Cont’d
A Cheque, on the other hand is “… a written order by an account holder to his banker to pay a specified sum of money to the bearer or named recipient.” 3 The process of clearing a cheque takes three days in the UK 3 and is completed as follows:
Payment Systems Cont’d
Day 1
: Any cheque collected during the first day will be processed by the collecting bank that evening This information is passed electronically through the Inter Bank Data Exchange (a secure network) to the paying bank clearing centre.
Day 2
: Cheques are delivered to an Exchange centre
Day 3
: Cheques are reviewed by the paying bank and a decision is made whether to pay or return them Clearly one of the problems associated with cheques is the clearing time
Payment Systems Cont’d
A payment system which is increasing in popularity in the US is electronic transfer There are two tests that should be considered when transferring money. These are: The ACID Test The ICES Test
Payment Systems Cont’d
The Acid Test
The ACID test has four properties: Atomicity: The complete transaction must occur (e.g. a payment of $50 means that the intended recipient(s) will receive the $50) Consistency: All parties in the transaction must agree to the exchange Isolation: The given transaction must be independent of all other transactions Durability: The exchange must be reversible
Payment Systems Cont’d
The ICES Test
The ICES test also has four properties: Interoperability: Money from a given system must be able to move back and forth between other systems (e.g. moving money from system X to cash) Conservation: Does the money hold its value over time (temporal consistency); how easy is it to store and access (temporal durability) Economy: Transaction processing should be cheap Scalability: How many users can be handled at the same time?
Payment Systems Cont’d
ACID
Cash Cheque Credit Card
ICES
Cash Cheque Credit Card Atomicity Yes Yes No Inter operability Consistency Yes Yes Yes Conservation Isolation Yes No No Economy Yes No No No Yes N/A Yes No No Durability Yes Yes Yes Scalability Yes Yes Yes
Payment Systems Cont’d
Cash satisfies all the ACID and ICES properties except conservation since it is not easy to store and access large amounts (temporal durability) Cheques are: not isolated since during the clearing of a cheque someone can withdraw money from the account, or even stop the cheque.
not interoperable (since it is difficult for them to move between different systems) Not economical since processing them is expensive
Payment Systems Cont’d
Credit cards are: Not isolated since another transaction might be processed before a given transaction although the actual date/time of the transaction was afterwards E.g. a merchant might take an imprint of a credit card during the transaction and process it at the end of the day; while another merchant might process the same card immediately Not interoperable (since it is difficult for them to move between different systems)
Payment Systems Cont’d
Credit cards are (Cont’d): Not atomic since although the seller is guaranteed payment the credit card issuer may lose out if the card is stolen or used fraudulently Not economic since credit card processing is expensive especially for transactions of small value
Payment Systems Cont’d
Electronic Payments
An e-commerce payment environment requires a complex design which includes: Payment security Transaction privacy System integrity Customer authentication The purchaser’s promise to pay Primarily, these are security issues which will be covered in Session 10, “Securing an e-commerce Initiative”
Payment Systems Cont’d
Electronic Payments Cont’d
Electronic payments are financial transactions that do not require paper Electronic payments are far cheaper than mailing paper checks Cost of billing a person by mail ranges from US$1 to US$1.50
Billing a person electronically cost about US$0.50
Replacing paper bills also saves on trees
Payment Systems Cont’d
Electronic Payments Cont’d
Four properties (in addition to the ACID and ICES Tests) should also be considered: Acceptability: Must be widely accepted, by customers and merchants alike Ease of Integration: Effective Web interface Customer base: It should be financially viable Ease of use and access
Payment Systems Cont’d
Payment Cards
Payment cards include: Credit Cards Debit Cards Charge Cards
www.paylessbills.com/ credit_cards.htm
Payment Systems Cont’d
Payment Cards Cont’d
The main categories of payment cards are: Credit cards (e.g. Visa) Debit cards Charge Cards
Payment Systems Cont’d
Payment Cards Cont’d
If a merchant wants to sell merchandise on the Web they must accept credit cards because: It is the most widely accepted form of payment It is the most popular
Payment Systems Cont’d
Payment Cards Cont’d
To be able to accept payments via credit cards: The seller must open a merchant account A search can be made online for a list of credit and merchant services (some US banks include Bank of America and National Data Corporation) With this account the seller can accept and process credit cards During processing only the card numbers and transactions are known (normally authorisation is provided through a customer signing a payment slip).
Payment Systems Cont’d
Payment Cards Cont’d
To be able to accept payments via credit cards: A secure and encrypted line is required to accept payments The most popular solution used is Secure Socket Layer (SSL) which is built into Netscape Navigator and Microsoft’s Internet Explore browsers A shopping cart is also required to allow users to collect their purchase The shopping cart connects to a payment processing system, calculates costs and taxes and generates a bill
Payment Systems Cont’d
Payment Cards Cont’d
The processing of credit cards is complicated, however the following diagram highlights the important steps
Payment Systems Cont’d
Payment Cards Cont’d
Payment Systems Cont’d
Payment Cards Cont’d
1.
The customer places the order on the merchant’s Web site (shipping and payment information is included) 2.
The customer verifies the order 3.
4.
The encrypted order is sent to the payment server by the merchant The payment server receives the payment information, takes it behind a firewall, reformats it and forwards to to the merchant bank over a secure, dedicated line
Payment Systems Cont’d
Payment Cards Cont’d
5.
The merchant bank forwards an authorisation request to the issuing bank for approval or denial and the decision is sent back to the payment server 6.
The approval or denial is communicated back to the merchant and delivered to the customer
Payment Systems Cont’d
Payment Cards Cont’d
Some of the characteristics of credit cards include: Interest is charged on outstanding balances not paid off within a given time The merchant’s account is credited immediately Cardholders are only liable for $50 (by law) if their card is stolen or lost (in the USA) Cardholders can dispute charges or purchases during the 30-day period after the purchase The spending limit is based on credit history
Payment Systems Cont’d
Payment Cards Cont’d
Several charges are associated with credit card processing Firstly, a set-up fee that might cost a few hundred dollars (US$) A fee of 2-4% of the value of each transaction processed Statement fees And a minimum monthly charge of US$20-$50
Payment Systems Cont’d
Payment Cards Cont’d
Some of the issues associated with credit cards are: They leave a complete audit trail They are insecure A signature does not get verified which makes it difficult to assure the identity of a person Merchant accounts are difficult to get from banks The banks review financial records and business history Credit card are not economical for small payments
Payment Systems Cont’d
Payment Cards Cont’d
The difficulty of securing a merchant account may be overcome through the use of third parties who are willing to process credit cards e.g. iBill (http://ibill.com) iBill charges 15% of the company’s total revenue for a two week period (this charge will not exceed US$10,000)
Payment Systems Cont’d
Payment Cards Cont’d
Debit cards The sale amount is removed from user’s account and transferred to the sellers account Limited by funds in account plus overdraft (if present) Charge cards (e.g. American Express) Has no spending limit The amount due on the card is due at the end of the billing period They do not accumulate interest payments
Payment Systems Cont’d
Payment Cards Cont’d
Some vendors provide single-use-cards which are valid for a single transaction A unique card number is issued This helps with card details security
Payment Systems Cont’d
Payment Cards Cont’d
Some advantages of Payment Cards In the US card holder’s liability is limited to US$50 when used fraudulently Accepted worldwide Currency conversion handled by card issuer Ease of use, no special hardware required
Payment Systems Cont’d
Payment Cards Cont’d
Some disadvantages of Payment Cards Service companies charge merchants per transaction and monthly processing fees Price of goods for the consumer might be slightly higher as a result A limit is placed on the minimum amount allowed to spend (e.g. 5 pounds in the UK)
Other Payment Methods
For other payment methods read the following presentations: PayPal http://scitec.uwichill.edu.bb/cmp/online/comp3210/pr esentations/DanaBabb.ppt
Google Checkout http://www.webmonkey.com/webmonkey/06/ 26/index4a.html
E-Wallets http://scitec.uwichill.edu.bb/cmp/online/comp3210/pr esentations/ShawnHolder.ppt
The Fulfilment Phase
2 After the customer has paid for the product(s) then it is the merchant’s responsibility to deliver it The customer generally expects that the product(s) will be delivered in a quick and timely fashion
The Fulfilment Phase Cont’d
The fulfilment process includes: Sourcing items from a warehouse Packing these items Shipping Answering questions about the order This might be done online through order management software where the customer is able to track their order
The Fulfilment Phase Cont’d
The fulfilment process includes (cont’d): Giving the customer a bill or verifying an online payment Determining whether the customer is satisfied with the delivery
The Fulfilment Phase Cont’d
From the customer’s point of view fulfilment is the most critical part of the shopping experience If the customer is dissatisfied with the fulfilment process, it can really damage the merchant’s reputation E.g. Toys R Us during Christmas 1999 failed to deliver items; a costly mistake
The Fulfilment Phase Cont’d
Recognising the importance of fulfilment, Amazom.com in 1999 spent US$300 million on 3 million square feet of warehouse space
The Fulfilment Phase Cont’d
Tax is also a part of the fulfilment phase Different countries and even different States in the USA have different tax rules E.g. in New Jersey there is no tax on clothing, while in California there is In some cases (e.g. in the US), state, city and county tax must be considered
The Fulfilment Phase Cont’d
To alleviate the tax calculation burden it is recommended that tax software be used E.g. include Taxware and Cybersource
The Fulfilment Phase Cont’d
One further issue that must be considered is inventory fulfilment Some of the questions that must be asked are: Are the required products available?
Are the products offered for sale (on the Web site) linked to the inventory?
Should customers be notified of out-of-stock items?
The Fulfilment Phase Cont’d
In conclusion, credit cards are the most widely used method of payment on the Internet There are some alternatives for niche markets, such as Paypal whose focus is primarily C2C e-commerce and small businesses It should also be clear that the order fulfilment phase is an extremely important part of the shopping experience If a merchant fails to deliver, or fails to deliver on time then it can badly damage their reputation
References
[1] Schneider, Gary, P., “Electronic Commerce: The second wave”, Thomson Course Technology, Fifth Annual Edition, 2004 [2] Awad, Elias, M., “Electronic Commerce: From Vision to Fulfillment”, Second Edition, Prentice Hall, 2004 [3] APACS, “Cheque and Credit Clearing Company”, 2000. Online document available at www.apacs.org.uk/about_apacs/htm_files/chequecred.htm