Chapter 4, Online Monetary 
Transactions
Outline
4.1
Introduction
4.2
Credit­Card Transactions
4.2.1  Anatomy of a Credit­Card Transaction
4.2.2
Credit­Card Transaction Enablers
4.3
Online Credit­Card Fraud
4.4
Digital Currency
4.5
E­Wallets
4.6
Alternate Consumer Payment Options
4.7
Peer­To­Peer Payment
4.8
Smart Cards
4.9
Micropayments
4.10
Business­To­Business (B2B) Transactions
4.11
E­Billing
4.12
Developing Payment Standards
 

 2001 Prentice Hall, Inc.  All rights reserved.


4.1 Introduction
• Secure  electronic  funds  transfer  is  crucial  to  e­
commerce 
• Examination of how individuals and organizations 
conduct monetary transactions on the Internet 
• Credit­card  transactions,  digital  cash  and  e­
wallets,  smart  cards,  micropayments  and 
electronic bill presentment and payment 
• Electronic­payment enablers

 2001 Prentice Hall, Inc.  All rights reserved.


4.2 Credit­Card 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 Credit­
Card Transaction
• To accept credit­card payments, a merchant must 
have a merchant account 
• Traditional merchant accounts accept only POS 
(point­of­sale) transactions
– Transactions that occur when you present your credit card at 
a store  

• Card­not­present (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 Credit­
Card 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 credit­card 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 Credit­
Card Transaction
• Step 1
– Consumer makes a purchase at an online store, credit card 
information received by e­store

• 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 Credit­Card Transaction 
Enablers
• Credit­Card Transaction Enablers
– Companies that have established business relationships with 
financial institutions that will accept online credit­card 
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 e­
wallet
– An e­wallet 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 Credit­Card Fraud
• Chargeback
– When a credit­card 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 
credit­card holder 
– On the Internet, neither a scan of the card nor a signature is 
registered and the cost is incurred by the merchant

• Visa
– High­risk 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 credit­card transactions

– Allows those with no credit cards to shop online
– Merchants accepting digital­cash payments avoid credit­card 
transaction fees
– eCash Technologies, Inc. is a secure digital­cash 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 

• Points­based 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 E­Wallets
• 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 card­holders to access their accounts
– Funds are instantly deducted from checking account
– Can withdraw cash from Automatic Teller Machines (ATMs)


• Checking­account numbers 
– Companies such as AmeriNet allow merchants to accept 
checking­account 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 Peer­To­Peer 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 credit­card 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 payment­management 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 Business­to­Business (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 Business­to­Business (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.