Payment System E-Commerce

ELECTRONIC COMMERCE

Electronic Payment System •Types of Payment System

•EC Payment System

•Online Payment Security

4.1 The Payment Revolution

• Payment revolution – with cards and electronic payments replace cash and check.

• The use of credit and debit cards for physical store payment for the first time use in 2003 exceeded the combined use of cash and checks.

• By 2005, debit and credit cards accounted 55% of in-store payments, with cash and checks for the rest.

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• In 2001, 78% of all bills were paid by paper-based methods (example, paper check), and 22% are made electronically.

• By 2005, 45% growth for payment of bills made electronically

• For online B2C merchants, the implications of these trends are straightforward.

• In online B2C, most of the online customer pay using credit card.

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• It is hard to run an online business without supporting credit card payments.

• It is also important to support payments by debit card.

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4.2 Payment Systems

• Current payment methods include cash, checks, electronic funds transfer, and credit card.

• Payment by cash is immediate physical transfer of funds.• Each methods of payment differs in terms of the

regulations covering it and the degree of privacy, anonymity, and protection it conveys to consumers.

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Types of Payment Systems: Cash

• Defined as coin and currency (paper money).• If cash is lost or stolen, the unlucky party suffers the loss.• The person or institution holding the cash bears the risk

that it may be counterfeit.• A merchant can reject money he or she thinks is

counterfeit.• Cash has the advantage of being immediate, it is not the

most secure form of payment.• If it is destroyed or loss, that money is essentially gone.• Cash are used in physical store, it is no way to use cash

for online purchase.

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• Using cash– Most common types of payment– Cash is exchanged directly for product at physical retailers.– Cash is not redeemable for online purchases.– Paying for product is as easy as counting out that much money

in cash and handing it to the cashier.– If you give to much money, the retailer will give you back the

change or the difference between what you paid and the total cost of the product.

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• Foreign currency is exactly like any other form of cash money.

• If making a purchase outside of country, the exchange rates will be different between countries.

• The exchange rates change constantly. For the latest conversion rates and tools, visit www.xe.com/ucc/

• Before you make purchases at physical retailers, your currency will have to be converted into the currency of the country you are visiting.

• Cash can be converted at local bank.

Types of Payment Systems: Foreign Currency

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• How to use foreign currency– The website will put the price of item in that nation currency, if it

accept foreign currency, it usually will have the currency converter.

– If purchase at physical store in foreign country, your currency will almost be rejected.

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• Check– A check is an order authorizing the transfer of money from one

account to another; it is not a token that represent value, as cash does.

• When check is accepted as payment, the recipient’s bank collects the value of the check after presenting it to the bank on which it is drawn.

• Check can be returned for insufficient funds, the bank may not make the funds available to the recipient until the day a returned check would have been received.

(lag of two days for local check, five days for nonlocal check)

Types of Payment Systems: Check

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• Mostly payment using check is usually at physical store.• Personal check

– Personal check are ordered along with current account.– There are essentially paper forms you fill out and give to the

physical retailers.– The retailers turn in the check to their bank, the bank processes

the transaction, and few days later the money is deducted from your current account.

– Check is timely.– Cannot be used to make online purchase.

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Example of personal check

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• If check is lost or stolen, the person who wrote the check can stop payment on it by notifying the bank that holds the current account.

• Unlike counterfeit currency, the validity of a check cannot be determined by usual examination.

• Check may be worthless if it is counterfeit or the check writer does have sufficient funds.

• Customer have to pay fee to have a certified check issued.

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• How to use personal check– Fill out the check.– Put the date, the recipient’s name or the retailer, the amount of

the check, and signature.– Give the check to the retailer, and retailer will deposit it at the

bank, in few days, the funds will be withdrawn for your current account.

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• It is a lot like a personal check but without the possibility of bouncing.

• Bouncing a check is when somebody writes a check without having any money in his account.

• Money order is purchased with cash upfront, so there is no worry for bouncing.

• It is more secure to send via mail then cash.• They are easily redeemed for cash at any post office.• Depending on the retailer, they may or may not accept

money orders.• Inquire whether the retailer accepts this form of payment

before attempting to purchase anything.

Types of Payment Systems: Money Order

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• Credit card is a financial instrument which can be used more than once to borrow money or to buy products and services on credit.

• Involve extending credit rather than drawing money.

• General purpose of credit card are issued and process by the bank in conjunction with credit card associations such as Visa, MasterCard and American Express.

Types of Payment Systems: Credit Card

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• The Visa, MasterCard and American Express do not issue credit or debit card directly. They comprise thousands of bank worldwide.

• This banks pay membership fees to the associations.

• Retail credit cards usually have lower credit limits and higher interest rates than bank credit cards.

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Example of credit & debit card

Credit Card Debit Card

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• Internet has emerged as an important force for commerce.

• The emergence of Internet as one of the powerful trading and commerce platforms in the new economy has resulted in a new form of digital payment alternatives.

• EC payment systems facilitates the acceptance of electronic payment for online transactions.

• Also known as financial electronic data interchange (FEDI)

4.3 EC Payment Systems

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• Online merchants never see the actual card being used, no signature is available.

• These types of purchased also called as CNP (Cardholder Not Present)

• Since the merchant never sees the credit card, nor receives a hand-signed agreement to pay from customer, when disputes arise, the merchant faces the risk that the transaction may be disallowed and reversed, even though he has already shipped the product or the user has downloaded a digital product.

4.4 Online Credit Card Transactions

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Cont’d

• Merchant account– A bank account that allows companies to process credit card

payments and receives funds from those transactions.

How and online credit transaction works??

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Thank you for your attention

Questions??

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