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Muhammad Saad Sarwar

6 E-commerce PaymentSystems

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Types of Payment SystemsSlide 5-3

Cash

CheckingTransfer

Credit

Card

Stored Value

Accumulating Balance

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CashSlide 5-4

Legal tender

Mostcommon form of paymentinterms ofnumber of transactions

Instantlyconvertibleinto other forms of valuewithoutintermediation

Portable, requiresno authentication

Free (no transaction fee), anonymous, low

cognitive demands Limitations:easilystolen, limited to smaller

transaction, doesnotprovide any float

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CreditCardSlide 5-6

Represents accountthatextendscredittoconsumers; allowsconsumersto makepaymentstomultiplevendors at onetime

Creditcard associations:Nonprofit associations(Visa, MasterCard)thatsetstandards for issuing

banks

Issuing banks:Issuecards and processtransactions

Processingcenters (clearinghouses): Handleverification of accounts and balances

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Stored ValueSlide 5-7

Accountscreated by depositing fundsinto an

account and from which funds arepaid out or

withdrawn asneeded xamples: Debitcards,giftcertificates,prepaid

cards,smartcards

Peer-to-peer paymentsystemssuch as PayPal a

variation

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Accumulating BalanceSlide 5-8

Accountsthat accumulateexpenditures and to

which consumers makeperiod payments

xamples: Utility,phone,American Express accounts

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Dimensions of Payment SystemsSlide 5-9

Table 5.6, Page 305

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E-commerce Payment SystemsSlide 5-

10

Creditcards are dominant form of onlinepayment, accounting for around 70% of onlinepaymentsin 2007

Other e-commercepaymentsystems:

Digital cash

Onlinestored valuesystems

Digital accumulating balancepaymentsystems

Digital credit accounts

Digital checking

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How an

Online

CreditTra

nsacti

on

Works

Slide 5-

11

Figure 5.18, Page 308

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Limitations of OnlineCreditCard Payment

SystemsSlide 5-

12

Security:neither merchantnor consumer can be

fully authenticated

Cost: for merchants, around 3.5% of purchase

priceplustransaction fee of 20 30 centsper

transaction

Social equity: manypeople do not have accesstocreditcards

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Digital WalletsSlide 5-

13

Seeksto emulatethe functionality of traditionalwallet

Mostimportant functions:

Authentic

ate

cons

umerthrou

gh u

seof d

igital

certificates or other encryption methods

Store and transfer value

Securepaymentprocess from consumer to merchant

Earlyeffortsto popularize have failed Newesteffort: GoogleCheckout

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Digital CashSlide 5-

14

One of the first forms of alternativepayment

systems

Not reallycash: rather, form of valuestorageand valueexchangethat has limited

convertibilityinto other forms of value, and

requiresintermediariesto convert

Mostearlyexamples have disappeared;conceptssurvive aspart of P2P paymentsystems

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Online Stored Value SystemsSlide 5-

15

Permitconsumersto makeinstant, onlinepaymentsto merchants and other individuals based onvaluestored in an online account

Rely onvaluestored in a consumers bank,checking,or creditcard account

PayPal mostsuccessful system

Smartcards another example

Contact and contactless

Mondex, Octopus

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Digital Accumulating Balance Payment SystemsSlide 5-

16

Allows usersto make micropayments and

purchases onthe Web, accumulating a debit

balance for which they are billed attheend of

the month

Examples: Valistas PaymentsPlus,Clickshare

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Digital Checking Payment SystemsSlide 5-

17

Extends functionality of existingchecking accounts

for use as onlineshoppingpaymenttool

Example: PayByCheck

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Wireless Payment SystemsSlide 5-

18

Use of mobile handsets aspayment devices well-

established in Europe, Japan, South Korea

Notvery well established yetin U.S, but with growth

in Wi-Fi and 3G cellular phonesystems,thisis

beginningto change

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Electronic Billing Presentment and Payment

(EBPP)Slide 5-

19

Onlinepaymentsystems for monthly bills

EBPP expected to grow rapidly,to anestimated40% of all households by 2007

Main business modelsin EBPP marketinclude:

Biller-direct

Consolidator

Above aresupported by EBPP infrastructureproviders

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20

Case:Checkfree:OnTop ofElectronic Billing

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Critical Thinking Questions

21

Question 1

What businesschallenges doesCheckfree face asit attemptstomaintainits dominanceinthe EBPPmarket? Who areits maincompetitors?

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Critical Thinking Questions

22

Question 2

Whatnew technologiesareposing a threattoCheckfrees leadership?

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Critical Thinking Questions

23

Question 3

Whatsocial factorscanyouidentifythat mighteither inhibitor encourage use of Checkfreesservices?

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Critical Thinking Questions

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Question 4

How mightthecontinuedevolution of broadband internetconnectionsspur thegrowth ofonline bill payment?

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Topics of Interest/ReadingAssignments from the Web

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Topics

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Topics of Interest/ReadingAssignments from the Web

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Has EconomyHurt GoogleSearch Ads?

Semi-

connected

Action urged tokeepnetneutral

Paypal toblock 'unsafebrowsers'

Nano switchhints at futurechips

Pakistan:Where BillionsVanish