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Online Monetary Transactions
Kazan State UniversityInstructor: Sasa Dekleva
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Outline Credit cart transactions
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 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 e-wallets, smart cards, micropayments and electronic bill presentment and payment
Electronic-payment enablers
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Credit Card Transactions Popular form of payment for online purchases
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 POS (point-of-sale) transactions(point-of-sale) transactions
Card-not-present (CNP) transactionCard-not-present (CNP) transaction Merchant does not see actual card being used in the
purchase The merchants are liable for chargebacks
a transaction for which the card-issuing institution will not be paid
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Online Credit-Card Transaction AuthorizationAuthorization
The money is available to complete the transaction Acquiring bank or processorAcquiring bank or processor
The bank with which the merchant holds an account Issuing bankIssuing 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
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Online Credit Card 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 issuing bank accepts the transaction and the authorization code is sent back
Step 5 The merchant ships the product and payment is
issued
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Options for Enabling Internet Payments Develop in-house transaction
processing capability by 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 Advantages
organization maintains control of the process in-house is not vulnerable to potential outages by outsourced
processors Disadvantages
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 Advantages
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 Disadvantages
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 Advantages
low initial costs nonstrategic functions are outsourced
Disadvantages 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 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
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Digital Currency Digital cashDigital cash
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
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 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
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E-Wallets E-walletsE-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 Electronic Commerce Modeling Language (ECML)Language (ECML)
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Alternate Consumer Payment Options Checks or money orders through the mail Cash on delivery (COD)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)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 (fulfillmentfulfillment) and customer service inquiries
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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 (acquired by X.com) offers X paymentsX 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 timereal time (the transaction begins processing immediately after it is initiated), reducing the risk of fraud or overdrawn accounts
BillPoint (Wells Fargo/eBay venture) 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 Two primary P2P methods
Funds are moved from one consumer’s bank account to another at the time of the transaction
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 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 Most person-to-person payment services work via
e-mail 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 Its solution would enable financial institutions and their
customers to make real-time P2P payments via automated teller machines (ATMs) Web-accessible personal computers other devices
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P2P Providers 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 Smart cardSmart card
Card with computer chip embedded on its face, holds more information than ordinary credit card with magnetic strip
ContactContact smart cards To read information on smart cards and update information,
contact smart cards need to be placed in a smart card readersmart card reader ContactlessContactless 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
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Inside a Smart Chip
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Business Applications Debit/Credit Cards Electronic Purse Transportation Health Telecommunications
Loyalty Pay-TV Network Security ID/Access
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Mobile Communication Applications Typical Wireless intranet services include:
e-mail secure access to corporate databases stock trading mobile banking ticketing shopping betting
Subscriber identity module is critical; it performs: network identification and user authentication additional security layers storage and execution of user-configurable applications
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M-Commerce Leonia Bank of Finland
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 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 There are three reasons to move to chip:
fraud can be reduced because: 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 Credit card transactions are too expensive for
payments below $10 MicropaymentsMicropayments Single-click purchasing
Requires a password and one mouse click vendors typically receive a 10 to 35 percent share of the
purchase price Several vendors
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 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:
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 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 Still Mostly in the Pilot Stage Investment in Specialized Terminals Fees for Low-Value Transactions
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Visa Cash Accountable versus non-accountable systems Open versus closed systems How Visa Cash Works?
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
ProductsProducts Memory Memory CapacitCapacity y (bytes)(bytes)
FeaturesFeatures
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 Business-to-business (B2B) transactionsBusiness-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)EBT (Electronic Benefits Transfer) 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 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 digital payment authentication (DPA)(DPA)
Compatible with all enterprise resource planning enterprise resource planning (ERP)(ERP) systems and can adapt electronic records for companies, banks and each member of a given transaction
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B2B Transactions Electronic consolidation and reconciliation of
the business transaction process Companies can keep track of a transaction from
order-to-payment settlement while reducing administrative costs, errors, waste and complexity in the supply chain
eTime Capital Order-fulfillment providersOrder-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 Electronic Data Interchange (EDI)Data Interchange (EDI) systems
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TradeCard 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
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TradeCard TradeCard awaits delivery confirmation from a
third-party logistics services provider (3PL)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
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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
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Jalda Developed by Ericsson An open standard online payment system that
connects content providerscontent providers (anyone selling a good or service on the Internet) with an Internet Payment Provider (IPP)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 Paybox uses the mobile phone as an
authorization and confirmation device Payments can be made to:
e-commerce Web sites directly to merchants as cash transfers between individuals
Current business model: 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 ProcessA Web Paybox transaction operates as follows:1. A user selects a product to purchase on a Web site and opts to pay
via Paybox2. 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)
3. The merchant's system contacts Paybox with the payment request and user ID
4. The Paybox IVR system calls the user's mobile phone and asks the user to enter a PIN
5. The user enters a PIN number to confirm the payment6. After a few seconds the user receives an SMS message as payment
confirmation7. Payments are debited from the user's bank account8. Paybox consolidates merchant payments and forwards them twice
a month
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Paybox Technology Paybox uses:
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 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)