Transcript merchant account

Online Monetary Transactions
Kazan State University
Instructor: Sasa Dekleva
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Outline
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Credit cart transactions
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Transaction processing
Enablers
Fraud
Digital currencies
E-Wallets
Peer-to-peer payment
Smart cards
Micropayments
Business-to-business transactions
E-billing
Payment standards
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Introduction
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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 ewallets, smart cards, micropayments and
electronic bill presentment and payment
Electronic-payment enablers
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Credit Card Transactions
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Popular form of payment for online purchases
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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
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Merchant does not see actual card being used in the
purchase
The merchants are liable for chargebacks
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a transaction for which the card-issuing institution will not be
paid
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Online Credit-Card Transaction
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Authorization
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Acquiring bank or processor
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The bank with which the merchant holds an account
Issuing bank
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The money is available to complete the transaction
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
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Online Credit Card Transaction
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Step 1
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Step 2
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Credit card information is sent from the merchant to the
acquiring bank
Step 3 and Step 4
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Consumer makes a purchase at an online store, credit card
information received by e-store
The issuing bank accepts the transaction and the
authorization code is sent back
Step 5
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The merchant ships the product and payment is issued
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Options for Enabling Internet
Payments
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Develop in-house transaction processing
capability by
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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
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In-House/Software Solution
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Advantages
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Disadvantages
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organization maintains control of the process in-house
is not vulnerable to potential outages by outsourced
processors
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
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Outsourced Payment Gateway
Solution
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Advantages
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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
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Outsourced Payment Gateway
Solution
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Disadvantages
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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
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E-Commerce Hosted Solution
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Advantages
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Disadvantages
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low initial costs
nonstrategic functions are outsourced
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
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Online Credit-Card Fraud
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Chargeback
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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
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Digital Currency
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Digital cash
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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
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First Virtual left the business
DigiCash failed to attract interest in its architecture
CyberCash terminated its CyberCoin e-cash program
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Digital Currency
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Gift cash, often sold as points, can be redeemed at
leading shopping sites
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An effective way of giving those without credit cards, the
ability to make purchases on the Web
Flooz
Points-based rewards
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Points are acquired for completing specified tasks including
visiting Web sites, registering or buying products
Points can then be redeemed
Beenz
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E-Wallets
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E-wallets
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Credit-card companies offer a variety of e-wallets
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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
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)
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Alternate Consumer Payment
Options
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Checks or money orders through the mail
Cash on delivery (COD)
Debit cards
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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
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Companies such as AmeriNet allow merchants to accept
checking-account numbers as a valid form of payment
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AmeriNet provides authorization, account settlement,
distribution and shipping (fulfillment) and customer service
inquiries
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Peer-To-Peer Transactions
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Allow online monetary transfers between consumers
eCash allows the transfer of digital cash via e-mail between two
people who have accounts at eCash-enabled banks
PayPal (acquired by X.com) offers X payments
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BillPoint (Wells Fargo/eBay venture)
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Allows user to send money to anyone with an e-mail 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
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
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P2P Payments
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Two primary P2P methods
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Funds are moved from one consumer’s bank account to
another at the time of the transaction
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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
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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
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P2P Payments
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Most person-to-person payment services work via email
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The sender gives a bank-account or credit-card number to
the service
The service sends the recipient an e-mail 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
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Its solution would enable financial institutions and their
customers to make real-time P2P payments via
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automated teller machines (ATMs)
Web-accessible personal computers
other devices
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P2P Providers
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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
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Smart Cards
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Smart card
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Card with computer chip embedded on its face, holds more
information than ordinary credit card with magnetic strip
Contact smart cards
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Contactless smart cards
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To read information on smart cards and update information,
contact smart cards need to be placed in a smart card reader
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
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Information can be designated as "read only" or as "no access"
Possibility of personal identity theft
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Inside a Smart Chip
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Business Applications
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Debit/Credit Cards
Electronic Purse
Transportation
Health
Telecommunications
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Loyalty
Pay-TV
Network Security
ID/Access
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Mobile Communication
Applications
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Typical Wireless intranet services include:
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e-mail
secure access to corporate databases
stock trading
mobile banking
ticketing
shopping
betting
Subscriber identity module is critical; it performs:
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network identification and user authentication
additional security layers
storage and execution of user-configurable applications
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M-Commerce
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Leonia Bank of Finland
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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
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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 e-mail, and computer games
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Advantages of Using Smart
Cards
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There are three reasons to move to chip:
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fraud can be reduced because:
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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
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Micropayments
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Credit card transactions are too expensive for
payments below $10
Micropayments
Single-click purchasing
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Requires a password and one mouse click
vendors typically receive a 10 to 35 percent share of the
purchase price
Several vendors
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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
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Visa Cash
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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:
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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)
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Strengths
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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
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Limitations
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Still Mostly in the Pilot Stage
Investment in Specialized Terminals
Fees for Low-Value Transactions
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Visa Cash
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Accountable versus non-accountable systems
Open versus closed systems
How Visa Cash Works?
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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
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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
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How Visa Cash Works
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Business-to-Business (B2B)
Transactions
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Business-to-business (B2B) transactions
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PaymentechTM
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Fastest growing sector of e-commerce payments
Payments are often larger than B2C transactions and involve
complex business accounting systems
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)
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Defined by the USDA as the electronic transfer of
government funds to retailers for the benefit of the needy
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B2B Transactions
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eCredit provides real-time, credit-transaction
capabilities of B2B size
Clareon facilitates B2B transactions by providing
digital payment and settlement services
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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
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B2B Transactions
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Electronic consolidation and reconciliation of the
business transaction process
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Companies can keep track of a transaction from order-topayment settlement while reducing administrative costs,
errors, waste and complexity in the supply chain
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Order-fulfillment providers
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eTime Capital
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
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TradeCard
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Provides a global B2B e-commerce infrastructure
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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
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If discrepancies are found, concerned parties are notified
immediately and can negotiate to resolve the conflict
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TradeCard
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TradeCard awaits delivery confirmation from a thirdparty logistics services provider (3PL)
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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
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Developing Payment
Standards
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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)
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Developed and presented by Intuit, Microsoft and
Checkfree in 1997
To serve as a standard mechanism for the
exchange of financial information
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Jalda
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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
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Paybox: Pan-European Mobile
Payments
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Paybox uses the mobile phone as an authorization
and confirmation device
Payments can be made to:
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e-commerce Web sites
directly to merchants
as cash transfers between individuals
Current business model:
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charge a small consumer subscription fee (5 euros per
annum)
charge merchants for each transaction with an average
commission of around 3 percent
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Paybox Payment Process
A Web Paybox transaction operates as follows:
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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
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Paybox Technology
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Paybox uses:
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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 e-mail, 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
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Paybox History and Ownership
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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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