Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

E-money

2 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Learning Objectives Explain how a digital cash system is set

up and used List and compare online alternatives to

traditional payment methods Discuss the challenges of online

micropayments Explain how online person-to-person

payments are executed Appreciate the economic value of points

programs on the Web

3 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Money: it’s what we trust it is Two main purposes:

A medium for storing value A medium of payment

Money does not have to be represented by tangible objects electronic money is a viable alternative

Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

E-money? What e-money?

5 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Much of the world’s money is in electronic form

In addition to the use of credit cards for online payments, purely electronic forms of payment are becoming increasingly popular

6 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Digital coins DigiCash - the electronic version of

cash Known as electronic cash, e-cash, or

digital coins Both merchant and customer:

must open an account with a bank that issues e-cash

Must register with DigiCash to obtain the cyberwallet software (generates digital coins)

7 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Advantages of e-cash It is simultaneously a payment

mechanism and a system that protects personal information

Difficult to forge secure

8 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Disadvantages of e-cash The need to maintain huge databaseshuge databases

of spent coins InflexibleInflexible system

Preset amounts No mechanism for giving change

Not enough users to create a networking effectnetworking effect Government agencies and many financial

institutions are so far unwilling to adopt it

Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

A spin on traditional credit cards

10 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

E-wallet E-wallet - a variety of electronic

information that aids in delivering personal and financial information for online purchases

Software provided free of charge Some security measures

11 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Virtual credit card A virtual credit card is linked to the

digital information of a real credit card, but has no physical link to any plastic card

Virtual credit cards use digital certificates

12 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

One-time credit cards The one-time credit cardone-time credit card is a

virtual card for which a new number is generated each time a purchase is made The number becomes invalid

immediately after use

13 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Metered payments Metered paymentsMetered payments are charged

to an existing account with a provider of regular, metered services, e.g., Utility companies Telephone companies ISPs

14 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Smart cards Payment cards that use computer

technology to store/process information

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The major vehicle for the stored stored valuevalue model The holder pays to store value either:

On a physical smart card, or In an electronic account

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Two smart card technologies CONTACTCONTACT cards

Must be inserted into a card reader NONCONTACTNONCONTACT cards

Must pass near a reader antenna to carry out the transaction

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Special readers Special devices must be attached

to the computer from which one makes purchases Can be used for e-commerce only if

such devices are hooked to individual computers

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Confidentiality Cards designed for payments are

such that usually the merchant cannot see the cardholder’s account number

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Micropayments Micropayments - transactions

worth “small money”, typically less than $5 Also known as microcash

Several payment alternatives exist Metered bills Qpass – accumulates micropayments

into an online account paid at the end of the month

20 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Person-to-person (P2P) payments Service offered by several

companies Some serious doubts about the

validity of the business model Security challenges

21 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Online stored value services Online account in which you can

store value Replenished using a credit card or

checking account Advantage to merchants

Fees are lower than for credit cards Model is convenient for parents

Limit children’s spending

22 Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

Points “electronic coupons” Points can be gained by

purchasing from many sources

Oz – Foundations of Electronic Commerce© 2002 Prentice Hall

E-money