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Session7-ProcessingPaymentsOnline
Session7-ProcessingPaymentsOnline
Session7-ProcessingPaymentsOnline
COMP3210
http://www.amig.com/cservice/images/payment.jpg
Payment Systems Cont’d
• When we walk into a “real world” store we
basically have three ways to pay for an item.
These are:
– Cash (most common form of payment)
– Cheques
– Payment card (i.e. debit cards, credit cards, smart
cards or automated teller machine (ATM) cards)
• These account for more than 85% of consumer transactions
worldwide
Payment Systems Cont’d
• Cash has some important properties:
– It is convenient since it is easy to use, to carry
and easy to handle in small quantities
– It is widely accepted
– It provides anonymity
– It does not have associated processing fees
– It has no audit trail (maintains privacy)
Payment Systems Cont’d
• There are several problems associated
with the use of cash, however which
include:
– It is easy to lose
– It is difficult to trace (e.g. when used in
criminal activities)
– It introduces a security risk when being
transported
– It is time-consuming to count, organise and
manage
Payment Systems Cont’d
• A Cheque, on the other hand is “… a
written order by an account holder to his
banker to pay a specified sum of money to
the bearer or named recipient.”3
• The process of clearing a cheque takes
three days in the UK 3 and is completed as
follows:
Payment Systems Cont’d
– Day 1: Any cheque collected during the first day will
be processed by the collecting bank that evening
• This information is passed electronically through the Inter
Bank Data Exchange (a secure network) to the paying bank
clearing centre.
– Day 2: Cheques are delivered to an Exchange centre
– Day 3: Cheques are reviewed by the paying bank and
a decision is made whether to pay or return them
• Clearly one of the problems associated with
cheques is the clearing time
Payment Systems Cont’d
• A payment system which is increasing in
popularity in the US is electronic transfer
• There are two tests that should be
considered when transferring money.
These are:
– The ACID Test
– The ICES Test
Payment Systems Cont’d
The Acid Test
• The ACID test has four properties:
– Atomicity: The complete transaction must occur (e.g.
a payment of $50 means that the intended recipient(s)
will receive the $50)
– Consistency: All parties in the transaction must agree
to the exchange
– Isolation: The given transaction must be independent
of all other transactions
– Durability: The exchange must be reversible
Payment Systems Cont’d
The ICES Test
• The ICES test also has four properties:
– Interoperability: Money from a given system must be
able to move back and forth between other systems
(e.g. moving money from system X to cash)
– Conservation: Does the money hold its value over
time (temporal consistency); how easy is it to store
and access (temporal durability)
– Economy: Transaction processing should be cheap
– Scalability: How many users can be handled at the
same time?
Payment Systems Cont’d
www.paylessbills.com/ credit_cards.htm
Payment Systems Cont’d
Payment Cards Cont’d
• The main categories of payment cards
are:
– Credit cards (e.g. Visa)
– Debit cards
– Charge Cards
Payment Systems Cont’d
Payment Cards Cont’d
• If a merchant wants to sell merchandise
on the Web they must accept credit cards
because:
– It is the most widely accepted form of
payment
– It is the most popular
Payment Systems Cont’d
Payment Cards Cont’d
To be able to accept payments via credit cards:
• The seller must open a merchant account
– A search can be made online for a list of credit and
merchant services (some US banks include Bank of
America and National Data Corporation)
• With this account the seller can accept and
process credit cards
– During processing only the card numbers and
transactions are known (normally authorisation is
provided through a customer signing a payment slip).
Payment Systems Cont’d
Payment Cards Cont’d
To be able to accept payments via credit cards:
• A secure and encrypted line is required to accept
payments
– The most popular solution used is Secure Socket Layer
(SSL) which is built into Netscape Navigator and
Microsoft’s Internet Explore browser
• A shopping cart is also required to allow users to
collect their purchase
– The shopping cart connects to a payment processing
system, calculates costs and taxes and generates a bill
Payment Systems Cont’d
Payment Cards Cont’d
• The processing of credit cards is
complicated, however the following
diagram highlights the important steps
Payment Systems Cont’d
Payment Cards Cont’d
Payment Systems Cont’d
Payment Cards Cont’d
1. The customer places the order on the
merchant’s Web site (shipping and payment
information is included)
2. The customer verifies the order
3. The encrypted order is sent to the payment
server by the merchant
4. The payment server receives the payment
information, takes it behind a firewall,
reformats it and forwards to to the merchant
bank over a secure, dedicated line
Payment Systems Cont’d
Payment Cards Cont’d
5. The merchant bank forwards an
authorisation request to the issuing bank
for approval or denial and the decision is
sent back to the payment server
6. The approval or denial is communicated
back to the merchant and delivered to
the customer
Payment Systems Cont’d
Payment Cards Cont’d
Some of the characteristics of credit cards include:
• Interest is charged on outstanding balances not
paid off within a given time
• The merchant’s account is credited immediately
• Cardholders are only liable for $50 (by law) if
their card is stolen or lost
• Cardholders can dispute charges or purchases
for the 30-day period after the purchase
• The spending limit is based on credit history
Payment Systems Cont’d
Payment Cards Cont’d
• Several charges are associated with credit card
processing
– Firstly, a set-up fee that might cost a few hundred
dollars (US$)
– A fee of 2-4% of the value of each transaction
processed
– Statement fees
– And a minimum monthly charge of US$20-$50
Payment Systems Cont’d
Payment Cards Cont’d
• Some of the issues associated with credit cards
are:
– They leave a complete audit trail
– They are insecure
• A signature does not get verified which makes it difficult to
assure the identity of a person
– Merchant accounts are difficulty to get from banks
• The banks review financial records and business history
– Credit card are not economical for small payments
Payment Systems Cont’d
Payment Cards Cont’d
• The difficult of securing a merchant
account may be overcome through the use
of third parties who are willing to process
credit cards e.g. iBill (http://ibill.com)
• iBill charges 15% of the company’s total
revenue for a two week period (this charge
will not exceed US$10,000)
Payment Systems Cont’d
Payment Cards Cont’d
• Debit cards
– The sale amount is removed from user’s account and
transferred to the sellers account
– Limited by funds in account plus overdraft (if present)
• Charge cards (e.g. American Express)
– Has no spending limit
– The amount due on the card is due at the end of the
billing period
– They do not accumulate interest payments
Payment Systems Cont’d
Payment Cards Cont’d
• Some vendors provide single-use-cards
which are valid for a single transaction
– A unique card number is issued
– This helps with card details security
Payment Systems Cont’d
Payment Cards Cont’d
• Some advantages of Payment Cards
– In the US card holder’s liability is limited to
US$50 when used fraudulently
– Accepted worldwide
• Currency conversion handled by card issuer
– Ease of use, no special hardware required
Payment Systems Cont’d
Payment Cards Cont’d
• Some disadvantages of Payment Cards
– Service companies charge merchants per-
transaction and monthly processing fees
– Price of goods for the consumer might be
slightly higher as a result
• A limit is placed on the minimum amount allowed
to spend (e.g. 5 pounds in the UK)
Other Payment Methods
• For other payment methods read the following
presentations:
– PayPal
http://scitec.uwichill.edu.bb/cmp/online/comp3210/pre
sentations/DanaBabb.ppt
– Metered Payments
http://scitec.uwichill.edu.bb/cmp/online/comp3210/pre
sentations/LeeHarvey.ppt
– E-Wallets
http://scitec.uwichill.edu.bb/cmp/online/comp3210/pre
sentations/ShawnHolder.ppt
The Fulfilment Phase 2