e-Payment

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 Important Issues
• For e-Payment • For e-Security (& e-
– Convenience Payment)
– Integration, Interoperability – Integrity
& Performance – Confidentiality
– Carry out transactions for – Non-repudiation
all amounts and forms
– Authentication
– Transaction Costs
– Timing

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 Online payment
• In B2C transactions we predominantly use
credit/debit cards - simple and widely
available.
• Some people are reluctant to use their cards
online fearing fraud and loss of privacy.
• Other may not have a credit card, through
choice, circumstance or age.
• Sending paper cheques or providing cash
on delivery are less common.
• There are, however, alternatives.
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 Payment Timing
• Pre-paid systems
– eg smart cards
• Pay-now systems
– eg debit cards
• Post-payment (pay-later) systems
– eg credit cards

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 The Online Credit Card
Process
Customer
(card not Merchant
present)

Online payment
handling company
(acquirer)

Customer’s Bank Merchant’s Bank

(Internet-ready
account)
E-commerce [Tech] Rick Dewar-Yussuf Abu-Shaaban 143
 The Online Credit Card Process
• Once a customer has decided to make an online purchase from a merchant, a
typical credit approval and settlement process would be:
– The customer enters their credit card and shipping information.
– Payment information forwarded to an Online Payment Handling Company (OPHC)
– They pass the information to the merchant’s financial institution, who then ask the
customer’s card issuing financial institution for authorisation.
– The decision gets passed back up the line to the merchant.
– If accepted, the merchant requests financial settlement (often called "capture”) of the
transaction through the OPHC to the merchant’s bank.
– Funds are transferred to the merchant’s account from the card issuing company.
• OPHC usually provides software to run on merchant’s own server.
• All information is encrypted before transmission.
• Merchants need to have an internet-ready merchant account with a financial
institution.
• Merchant pays fees to OPHC.
• This description is not definitive and variants exist.

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Before the Debit Card, a word on EDI
• Electronic Data Interchange (EDI) was the
forerunner to Web-based B2B e-business
transactions.
• Used to exchange standard information between
companies such as orders and invoices.
• Required specialised software to send and receive
data.
• Often used private networks.
• Increasingly being supplanted by internet
exchanges.

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 A word on EFT
• Electronic Fund Transfer (EFT) is a technology to
transfer money between bank accounts.
• A specific implementation of EDI with its own
standard protocol.
• Was around long before the internet (1970s).
• An Automated Clearing House (ACH) typically
mediates network transfers between banks.
• Traditionally used dedicated private networks,
slowly moving to use the Internet.
• Security concerns and legacy systems impeding
this transition.
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 The Debit Card Process
• A credit card is a way to pay later (a promise to
pay).
• A debit card is a way to pay now.
• Online process similar to credit cards, but payment
is extracted directly from the customer’s current
(checking) account.
• The debit card effectively authorises EFT to take
place.
• Popular for transacting ATM withdrawals.
• Often no fee for merchants.

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 Some Alternatives
• e-Wallets
• Digital Currency (e-cash)
• e-Checks (cheques)
• Peer2Peer Payments
• Smart Cards
• B2B transactions
• e-Bills
• e-Banking

E-commerce [Tech] Rick Dewar-Yussuf Abu-Shaaban 148

 e-Wallets
• Makes the credit card process easier for the consumer.
– The e-wallet provides a portal through which the customer enters
sites. This links the e-wallet and the merchant.
– Allows one click shopping by automatically filling in ordering and
shipping information and remembering passwords.
– Records transactions.
• Some vendors offer discount for those using e-wallets.
• Not all vendors accept (are affiliated with) e-wallets.
• The Electronic Commerce Modeling Language (ECML)
attempts to standardise the technology.
• Often requires customers to install client software –
convenient?
• Extent of consumer and vendor take-up unclear.

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 Payment Costs!
• Credit card transactions are slow and costly
• It benefits all if transaction costs are minimised,
particularly for micro-payments.
• Costs lie in:
– Disputes and chargebacks
– Getting and supporting customers and
merchants (marketing, call centres, etc.)
– Hardware and software
– Accountancy stuff
– Fraud

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 Digital Currency (e-cash)
• Where transaction costs are crucial.
• Deposit money from consumer’s own bank account
or credit card into a online account - e-cash.
• Allows those without credit cards to buy online.
• Avoids vendors having to pay credit card fees.
– Imagine buying something for a few pennies, but the
credit card fee amounts to several times this value
– Small transactions like this are called micro-payments.
• Problematic since not all vendors accept the
different forms of e-cash.
• Points or gifts can be added to such accounts as
incentives.

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 Peer2Peer Payments
• Often an added feature of e-cash
providers.
• Individuals can send cash to each other
via email.
• Different providers can accommodate C2C
and B2B transactions.

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 e-Checks (cheques)
• Still evolving concept and technology.
• More important for B2B transactions.
– Needs to integrate with back-office financial
systems.
• Potentially fee free.
• Provides familiar metaphor for users.
• Could provide the same well understood
legal controls of their paper equivalents.
• Exploits public key cryptography.
E-commerce [Tech] Rick Dewar-Yussuf Abu-Shaaban 153
 Smart Cards
• Traditional credit cards had a magnetic strip.
– Now they are more like smart cards.
• Smart cards have embedded programmable
chips, providing more storage.
• Customers add money to cards at specialist
ATMs or via telephone.
• Often have conventional PINs depending on
whether anonymous or onymous.
• Card readers in/on phones, tolls, shops, turnstiles
or even attached to PCs debit the stored value.

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 Smart Cards (cont.)
• Cards can be contact (require a swipe through a
reader) or non-contact types (have embedded
antennae).
• Non-contact cards can transmit and receive data
from card readers - various ranges available
• Possible to handle micropayments.
• An example of e-cash that has a physical
manifestation
– The cash metaphor is particularly relevant for anonymous
cards, where payer remains anonymous to the payee

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 Scratch Cards
• Related but distinct from smart cards.
• Buy the anonymous card, scratch off
panel to reveal a code, enter code into site
and use a service until that credit is used
up.
• Popular for accessing wireless networks in
public spaces.

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 B2B transactions
• In principle, one business can pay another
business by any of the aforementioned methods.
• B2C payments are usually confirmed at time of
order.
• In B2B the process is often more protracted and
formal
– tendering, negotiation, contracts, penalties, order,
delivery, invoice, payment.
– Several weeks may elapse after delivery before
payment is due.

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 B2B transactions (cont.)
• Before a transaction, both the seller and
the purchaser may want to assess each
other, based on their previous
experience of dealing with each other.
• Third parties can even be used to
assess the credit worthiness of
companies
– Just as individuals have credit checks
carried out on them by lenders.
E-commerce [Tech] Rick Dewar-Yussuf Abu-Shaaban 158
 What’s different about B2B?
• The supply chain (or value chain)
• The value and volume
• Greater formality
• Currency exchange rates become
significant.
• Timing
– of delivery and of payment.

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2nd Tier 2nd Tier 2nd Tier
Suppliers Suppliers Suppliers

1st Tier 1st Tier

Suppliers Suppliers

Manufacturing
Company

Distributor/
The Supply Chain
Wholesaler

Retailer

Customer
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 A Word on Barcodes
• Barcodes (or Universal Product Codes,
UPCs) and barcode readers echo the
smart/credit card role.
– ie, providing the interface between the real
world and the virtual world.
• They can trigger trade back up the B2B
supply chain, eg inventory, orders,
logistics, etc.

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 Electronic Product Code (ePC)
• Takes the UPC to the next level.
• Imagine having an electronic tag in, or on, every
product.
– Simply fill up your supermarket trolley and pass a
non-contact reading device without unloading and
loading!
– Uses old Radio Frequency Identification (RFID)
technologies.
• Major concerns over privacy though!

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 Comparison of B2C & B2B Attributes
B2C B2B
Buyer’s information stored Buyer’s information needs to be stored in the buyer’s
in the seller’s server server as well to integrate with back-end systems such
as Intranet, Workflow
Software agents merely Comparison-shopping needs to be treated as multiple
help the search process criteria decision support
Precise delivery date is less Precise delivery date should be dynamically confirmed
critical at ordering time
Ordering system is Integration of orders with inventory, production
fragmented from inventory scheduling, and delivery scheduling systems essential
system
Ordering without formal Formal contract with electronic documents that include
contract is enough for order specific terms and conditions is necessary
fulfillment
Buying decision process Buying is initiated via a combination of synchronous
does not need coordination and asynchronous group decisions supported by ICT
Mainly credit card More complex forms of payment, eg letters of credit,
bills of exchange.

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 B2B transactions
• The form of the B2B interface will differ
depending on how close the supplier and
purchaser are.
• A close (trusting) relationship might be
considered longer term and be supported by
more automated processes.
– Switching costs!
• Transient or one-off purchases will be less
automated.

E-commerce [Tech] Rick Dewar-Yussuf Abu-Shaaban 164

 B2B payment intermediaries
• Such intermediaries provide
– credit checks
– consolidation & reconciliation
– dispute resolution
– coordinating with banks over transfers
– order status reporting
– even logistical help with distribution and
warehousing

E-commerce [Tech] Rick Dewar-Yussuf Abu-Shaaban 165

 e-Bills
• A biller (eg a utility company) can present
customer’s bill to a portal site.
• Usually debits the customer’s bank account
through EFT.
• Alerts customers to new or outstanding bills.
• Transaction histories and automated regular
payments available.
• Effectively consolidates bills into one place
and avoids postage for the payer or the
payee.

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 e-Banking.
• Most conventional banks now offer some on-
line facilities
– applying for products
– accessing accounts
– setting up payments from your accounts
– e-Wallets
• Usually allied with a call centre.
• Some banks are completely on-line, but
some customers like to know there is a
branch to visit.
E-commerce [Tech] Rick Dewar-Yussuf Abu-Shaaban 167
 Summary
• There are many variant and hybrid forms
of e-payments.
• New features and combinations are
occurring all the time.
• Security, speed, reliability and fee
structures continue to be the dominant
issues.

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