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Payment and E-Commerce

Payment and E-Commerce. CS453 Tom Horton Readings: Wikipedia, websites, perhaps Chap 15 in Treese and Stewart. Outline. Focus on Credit Card Issues. Payment Cards. Credit Cards, Charge Cards, Debit Cards On-line debit cards, e.g. ATM cards Rely on a PIN “Card Not Present” Transactions

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Payment and E-Commerce

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  1. Payment and E-Commerce CS453 Tom Horton Readings: Wikipedia, websites,perhaps Chap 15 in Treese and Stewart

  2. Outline • Focus on Credit Card Issues

  3. Payment Cards • Credit Cards, Charge Cards, Debit Cards • On-line debit cards, e.g. ATM cards • Rely on a PIN • “Card Not Present” Transactions • Over phone, website • Fees to retail merchant higher • Card present: typically $.25 plus 1.5%-3% • Card not present: 2.5%-5% • Note fees affect profitability for small purchases • Other solutions? See Treese and Stewart on “micropayments”

  4. Credit Cards Support E-commerce Well • For the business: • Immediate payment • Financial clearinghouse • For the consumer: • Credit • Liability, Insurance • Customer service, dispute resolution • For both: • Global service, currency conversion • Record keeping • Enabling of trust

  5. Credit Card Transaction Flow • Authorization vs. Settlement • Merchant requests authorization (permission and a hold) from Acquiring Bank • Acquirer forwards request to Interchange Network (e.g. MasterCard, Visa) • Forwarded to Issuing Bank, which approves or denies the authorization • Settlement (funds actually move): • Later: when goods shipped, at end of business day • Immediately: electronic goods See Figure 15-1 in Treese and Stewart and accompanying explanation

  6. Merchant Accounts • So you want to accept credit cards? • You need a Merchant Account at the Acquiring or Merchant Bank • Settlement moves funds into this account • The bank must consider: • Type of business • Risk of fraud, contested charges • 5% of charges are on-line, but 50% of total $$ fraud are from on-line transactions • So how to make this happen? • You need a “Payment Gateway” • Contract with a Credit Card Processing Service Provider

  7. Payment Gateway • Equivalent to a store’s “point-of-sale” (POS) and what that does • You have a pretty good idea what these do • But see Wikipedia also:http://en.wikipedia.org/wiki/Payment_gateway

  8. Credit Card Service Provider Flow • Merchant contacts Credit Card Processing Service • Service obtains authorization from Issuing Bank • Issuing Bank transfer money to Merchant Bank • Merchant notified transaction settled • Customer too

  9. What’s Provided • From a company like Charge.Com or CardService International, you get: • A merchant account • Access to the payment gateway • A secure means for customers to enter their credit card information • You pay: • Start-up cost (sometimes) • Monthly gateway fee ($10-$20) • Statement fee ($10/mo) • Transaction fee (fixed, $.25) • Average discount rate (% of transaction, 2.1-2.4%) • Address verification fee ($.05)

  10. Check These Out • CardService International • http://www.cardservice.com/ • Charge.Com • http://www.charge.com/ • Authorize.Net • http://www.authorize.net/ • Integrating this into PHP:http://www.merchant-account-services.org/article/authorize-net-php-integration

  11. Behind the Scenes • Secure transmission of credit card information a must! • Clearly SSL comes into this • Also more specific work-flows: • SET • 3D Secure

  12. An Alternative • PayPal • PayFlow Pro:https://www.paypal.com/cgi-bin/webscr?cmd=_payflow-pro-overview-outside • What are the pros and cons of using PayPal vs. one of the other services?

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