Chapter 4, Online Monetary
Transactions
Outline
4.1
Introduction
4.2
Credit-Card Transactions
4.2.1
Anatomy of a Credit-Card Transaction
4.2.2
Credit-Card Transaction Enablers
4.3
Online Credit-Card Fraud
4.4
Digital Currency
4.5
E-Wallets
4.6
Alternate Consumer Payment Options
4.7
Peer-To-Peer Payment
4.8
Smart Cards
4.9
Micropayments
4.10
Business-To-Business (B2B) Transactions
4.11
E-Billing
4.12
Developing Payment Standards
 2001 Prentice Hall, Inc. All rights reserved.
4.1 Introduction
• Secure electronic funds transfer is crucial to ecommerce
• 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
 2001 Prentice Hall, Inc. All rights reserved.
4.2 Credit-Card Transactions
• Popular form of payment for online purchases
• Resistance due to security concerns
• Many cards offer capabilities for online and
offline purchases
– Prodigy Internet Mastercard
– American Express Blue
 2001 Prentice Hall, Inc. All rights reserved.
4.2 American Express: Enabling
Secure Payments on the Web
• Small business transactions
• Blue for Business
– Blue allows business owners to carry a balance and conduct
secure online and offline transactions
• American Express Purchase Protection Program
– Protects buyers against damaged goods
• Buyers Assurance Plan
– Offers an extended warranty on purchases made with the
Blue card
• Online WalletSM
– ExpressFormSM
– AutobuySM
 2001 Prentice Hall, Inc. All rights reserved.
4.2 American Express: Enabling
Secure Payments on the Web
• Private Payments
– Provides a unique account number for each individual
purchase
• American Express @ WorkSM
– Facilitates larger corporations with enhanced integration
technologies
• Online Program Management
– Allows corporations to manage the corporate accounts of a
large number of employees
 2001 Prentice Hall, Inc. All rights reserved.
4.2.1 Anatomy of an Online CreditCard Transaction
• To accept credit-card payments, a merchant must
have a merchant account
• Traditional merchant accounts accept only POS
(point-of-sale) transactions
– Transactions that occur when you present your credit card at
a store
• Card-not-present (CNP) transaction
– Merchant does not see actual card being used in the purchase
• Authentication
– The person is, in fact, who they say they are
 2001 Prentice Hall, Inc. All rights reserved.
4.2.1 Anatomy of an Online CreditCard Transaction
• Authorization
– The money is available to complete the transaction
• Acquiring bank
– The bank with which the merchant holds an account
• Issuing bank
– 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
 2001 Prentice Hall, Inc. All rights reserved.
4.2.1 Anatomy of an Online CreditCard Transaction
• Step 1
– Consumer makes a purchase at an online store, credit card
information received by e-store
• Step 2
– Credit card information is sent from the merchant to the
acquiring bank
• Step 3 and Step 4
– The credit card association and the issuing bank certify the
transaction and the verification is sent to the acquiring bank
• Step 5
– The merchant ships the product and payment is issued
 2001 Prentice Hall, Inc. All rights reserved.
4.2.2 Credit-Card Transaction
Enablers
• Credit-Card Transaction Enablers
– Companies that have established business relationships with
financial institutions that will accept online credit-card
payments for merchant clients
•
•
•
•
iCat
Trintech
Cybercash
NextCard, Inc.
 2001 Prentice Hall, Inc. All rights reserved.
4.2.2 CyberCash Feature
• Enables businesses to receive payments through
Internet
– CashRegister
• Makes it possible for merchants to receive credit-card
numbers, offer the numbers to the appropriate financial
institution for validation and accept credit-card payments in a
secure environment over the Web
• Establishes direct connection between its servers and the Web
sites of its e-business customers
• Customer enters credit-card and shipping information
• Information sent to CyberCash for validation, once validation
is received, purchase can be completed and funds are
transferred electronically from customer accounts to
merchant’s account
 2001 Prentice Hall, Inc. All rights reserved.
4.2.2 CyberCash Feature
• CyberCash Instabuy allows customers to store
their purchasing information in an Instabuy ewallet
– An e-wallet electronically stores purchasing information
• Using redundant servers, or identical servers for
back up if one server fails, CyberCash is able to
minimize downtime
• CashRegister keeps track of transactions
• All financial information transmitted via the
Internet is encrypted and digitally signed
• CyberCash offers fraud detection to protect
merchants
 2001 Prentice Hall, Inc. All rights reserved.
4.2.2 CyberCash Feature
CyberCash FraudPatrol. (Courtesy of CyberCash™, Inc.
CyberCash is a registered trademark of CyberCash Inc.,
in the United States and other countries.)
 2001 Prentice Hall, Inc. All rights reserved.
4.3 Online Credit-Card Fraud
• Chargeback
– 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
• Visa
– High-risk business models
– “Best Practices”
• Mastercard
– Uses the three digit pin code on the back of the card
 2001 Prentice Hall, Inc. All rights reserved.
4.4 Digital Currency
• Digital cash
– Stored electronically, used to make online electronic
payments
– Similar to traditional bank accounts
– Used with other payment technologies (digital wallets)
– Alleviates some security fears online credit-card transactions
– Allows those with no credit cards to shop online
– Merchants accepting digital-cash payments avoid credit-card
transaction fees
– eCash Technologies, Inc. is a secure digital-cash provider
that allows you to withdraw funds from your traditional bank
account
 2001 Prentice Hall, Inc. All rights reserved.
4.4 Digital Currency
• Gift cash, often sold as points, can be redeemed at
leading shopping sites
– An effective way of giving those without credit cards, the
ability to make purchases on the Web
– Flooz
• Points-based rewards
– Points are acquired for completing specified tasks including
visiting Web sites, registering or buying products
– Points can then be redeemed
– Beenz
 2001 Prentice Hall, Inc. All rights reserved.
4.4 Digital Currency
Using eCash on the Web. (Courtesy of eCash Technologies, Inc.
and ©2000 eCash.)
 2001 Prentice Hall, Inc. All rights reserved.
4.5 E-Wallets
• E-wallets
– 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
• Credit-card companies offer a variety of e-wallets
– 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)
 2001 Prentice Hall, Inc. All rights reserved.
4.6 Alternate Consumer Payment
Options
• Checks or money orders through the mail
• Cash on delivery (COD)
• Debit cards
– 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
– Companies such as AmeriNet allow merchants to accept
checking-account numbers as a valid form of payment
• AmeriNet provides authorization, account settlement,
distribution and shipping (fulfillment) and customer service
inquiries
 2001 Prentice Hall, Inc. All rights reserved.
4.6 Alternate Consumer Payment
Options
EntryPoint Internet Toolbar. (Courtesy of EntryPoint. Inc.)
 2001 Prentice Hall, Inc. All rights reserved.
4.7 Peer-To-Peer Payments
• Peer-to-peer transactions
– 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 offers X payments
• 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
– BillPoint
• Allows buyers to submit electronic payments to sellers’
checking accounts
– Tradesafe.com (larger transactions, B2B)
 2001 Prentice Hall, Inc. All rights reserved.
4.8 Smart Cards
• Smart card
– Card with computer chip embedded on its face, holds more
information than ordinary credit card with magnetic strip
– Contact smart cards
• To read information on smart cards and update information,
contact smart cards need to be placed in a smart card reader
– Contactless smart cards
• 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
• Information can be designated as "read only" or as "no access"
• Possibility of personal identity theft
 2001 Prentice Hall, Inc. All rights reserved.
4.9 Micropayments
• Merchants pay fee for each credit-card transaction
• Micropayments
– Payments that generally do not exceed $10, allows
companies offering nominally priced products to profit
• To offer micropayments, some companies form
strategic partnerships with utility companies
– eCharge enables companies to offer this option to customers
• eCharge uses ANI (Automatic Number Identification) to verify
the identity of the customer and the purchases they make
• Outsource payment-management systems (Qpass)
 2001 Prentice Hall, Inc. All rights reserved.
4.9 Millicent Feature
• Millicent is a micropayment technology provider
• Companies using Millicent payment technology
allow customers to make micropayments using
credit or debit cards, prepaid purchasing cards or
by adding purchases to a monthly Internet Service
Provider bill or phone bill
• Millicent handles all payment processing needed
for the operation of an e-business, customer
support and distribution services
 2001 Prentice Hall, Inc. All rights reserved.
4.10 Business-to-Business (B2B)
Transactions
• Business-to-business (B2B) transactions
– Fastest growing sector of e-commerce payments
– Payments are often larger than B2C transactions and involve
complex business accounting systems
• PaymentechTM
– 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)
– Defined by the USDA as the electronic transfer of
government funds to retailers for the benefit of the needy
 2001 Prentice Hall, Inc. All rights reserved.
4.10 Business-to-Business (B2B)
Transactions
• eCredit provides real-time, credit-transaction
capabilities of B2B size
• Clareon facilitates B2B transactions by providing
digital payment and settlement services
– 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
 2001 Prentice Hall, Inc. All rights reserved.
4.10 Business-to-Business (B2B)
Transactions
• Electronic consolidation and reconciliation of the
business transaction process
– Companies can keep track of a transaction from order-tocash settlement while reducing administrative costs, errors,
waste and complexity in the supply chain
• eTime Capital
• Order-fulfillment providers
– 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
 2001 Prentice Hall, Inc. All rights reserved.
4.10 Business-to-Business (B2B)
Transactions
PAYTRUST SmartBalance™ screen shot. (Courtesy of Paytrust, Inc.)
 2001 Prentice Hall, Inc. All rights reserved.
4.10 TradeCard Feature
• Provides a global B2B e-commerce infrastructure
– 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
– If discrepancies are found, concerned parties are notified
immediately and can negotiate to resolve the conflict
 2001 Prentice Hall, Inc. All rights reserved.
4.10 TradeCard Feature
• TradeCard awaits delivery confirmation from a
third-party logistics services provider (3PL)
– 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
 2001 Prentice Hall, Inc. All rights reserved.
4.10 TradeCard Feature
 2001 Prentice Hall, Inc. All rights reserved.
4.11 E-Billing
• Electronic Bill Presentment and Payment (EBPP)
– Offers ability to present a company’s bill on multiple
platforms online and actual payment processes
– Payments are generally electronic transfers from consumer
checking accounts, conducted through the ACH (Automated
Clearing House)
• Current method for processing electronic monetary transfers
– Paytrust
• Users send bills directly to Paytrust which scans them and
places them online
• E-mails customers about newly arrived bills and payment-due
dates
• Makes automatic payments on any bill up to a threshold
amount
 2001 Prentice Hall, Inc. All rights reserved.
4.11 E-Billing
• Services to enable EBPP on a company’s site
– Derivion
• Provides billers with electronic capabilities in conjunction with
Paytrust’s service
• Offers billing companies the technology and expertise needed
to transfer from paper to electronic billing through iNetBillerSM
– Encirq
• Partners with banks that issue credit cards, presenting the
consumer with an illuminated statement (interactive statement,
placing special offers from retail merchants to correspond with
the itemized charges on a credit-card statement)
• Builds highly specific consumer profiles each time charges is
received
 2001 Prentice Hall, Inc. All rights reserved.
4.11 CheckFree Feature
• CheckFree is a consolidation service
– Can service any biller and present consumers with all their
bills in one interactive online environment
• If the company or person you wish to pay does not
offer electronic billing, you can still set up
payment to them from any bank account using the
pay everyone service
• For billers, the e-billing option adds convenience
and lower costs
• All payments and outstanding bills can be tracked
online and consumers have interactive access to
their entire payment histories
 2001 Prentice Hall, Inc. All rights reserved.
4.12 Developing Payment Standards
• 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)
– Developed and presented by Intuit, Microsoft and Checkfree
in 1997
– To serve as a standard mechanism for the exchange of
financial information
 2001 Prentice Hall, Inc. All rights reserved.
4.12 Jalda Feature
• 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
 2001 Prentice Hall, Inc. All rights reserved.