A critical phase of the e-commerce life cycle is electronic payment before shipment of goods. In
the real world, we can pay cash, by check, or by credit or debit card. Any e -commerce
environment with a payment system needs a more complex design. A payment system means
ensuring payment security, transaction privacy, system integrity, customer authentication, and
the purchaser’s promise to pay. In this chapter, the focus is on payment options using real-world
systems and shows how they can be emulated in an online electronic payment system.
The difference between tokens and notational money.
A token is an item that carries intrinsic value. Examples are precious stones and shells—
later, coins minted in precious metals such as silver dollars. Paper notes are similar in
that they carry value as a matter of consensus. In contrast, notational money represents
value stored and exchanged by formal authorization. An example is the check. It is
worthless, except its notation carries value.
The unique features of cash.
a. Convenience—cash is easy to use, easy to carry, and easy to handle in small
quantities.
b. Wide acceptance, especially the U.S. dollar, due to its stability and durability
c. Anonymity, which means no identification is needed to pay in cash
d. No hidden or other cost of use. There are no hidden costs in terms of overhead and
processing fees.
e. No audit trail. Lack of trace ability means you can do what you want with your cash.
The key characteristics of e-money.
E-money is an electronic medium for making payments. There are four types of e-
money:
a. Identified and online—credit and debit card transactions
b. Identified and offline—purchasing by check, traveler checks, or U.S. postal
money order
c. Anonymous and online—cash payments
d. Anonymous and offline—electronic cash such as making deposits in one’s
account via ATM
Difference between:ema
a. Atomicity and isolation. Atomicity simply says that a transaction must occur
completely or not at all. Isolation means each transaction must be independent of any
other transaction and be treated as a stand-alone episode. See text, p. 212.
b. Scalability and interoperability. Scalability refers to the ability of the system to
handle multiple users at the same time. Interoperability is ability to move back and
forth between different systems.
c. Consistency and durability. With consistency, all parties involved in the transaction
must agree to the exchange. Durability means it must always be possible to recover
the last consistent state or reverse the facts of the exchange. See text, p. 212.
d. Authentication and interoperability.
Authentication is making sure that a
cardholder is, in fact, the person authorized to use the card. Interoperability is ability
to move back and forth between different systems.
Problems with cash
a. Easy to lose
b. Difficult to trace
c. Cumbersome to carry
d. Time-consuming to count, organize, and manage
Requirements for Internet-based payments
a. Electronic currency—the Internet equivalent of cash
b. Credit cards
c. Debit cards
d. Smart cards
The main difference between credit cards and debit cards
Credit cards leave a complete audit trail, are not well suited for impulse buying, and are
not convenient for making small purchases. Debit cards directly transfer funds from the
consumer’s bank account to the merchant’s. By law, the cardholder’s risk of losing a
credit card amounts to $50. A cardholder may dispute charges or purchases to the card
issuer. But despite their widespread use in e-commerce, credit cards leave a complete
audit trail and continue to be an incredibly insecure form of payment. In contrast, using a
debit card frees you from having to carry cash or a checkbook. It is generally easier to
get a debit card than a credit card. A major problem at this time is that using a debit card
may mean less protection for items that are never delivered, for defective items, or for
items that were misrepresented.
Credit card laundering
Credit card laundering is stretching the credit limits of a credit card for a fee to do
business. The best way to prevent it is to check out the merchant with whom you’re
doing business and make sure it is an ongoing enterprise.
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