Electronic Payment Systems

1. Electronic Payment Systems

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

3. 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

4. Security for E-payments • Authentication • Authenticity of business • Confidentiality • Information privacy • Data Integrity • Data must not be altered • Audit Trail • Data should be trailed

5. 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

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

7. 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 it’s much more secure than SSL • SET is much more complex • Success of SSL • Expensive overhead

8. Types of Electronic Payment • B2B • Small to large payments • B2C • Small to medium payments • Credit card transactions • Micropayments • Very small payments

9. 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

10. Types of Electronic Payments (B2C) • Electronic Payment Cards • (credit, debit, charge) • Smart Cards • (phone cards, bank cards) • P2P payments • (paypal, c2it) • Other payment methods

11. 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

12. Electronic payment cards (2) • How credit card works

13. 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

14. 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

15. Smart Card (3) • NTT-DoCoMo, Japan’s 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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 • Don’t have public acceptance • Must use their shopping cart system • Gives less confidence to purchaser • Limited items • Paypal restricted item’s list • Higher transaction fees • 2checkout: 5.5% of sale amount plus 45 cents per sale • Digibuy: 13.9% of sales amount

22. 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