Electronic Payment Model

Electronic Payment Schemes



A Layered Protocol Model.


A three layer model is used to compare payments schemes.

1. Policy : The semantics of the payment scheme. This includes refunds policies, and the liabilities incurred by customers, merchants and financial institutions.


2. Data flow: The requirements for storage of data by and communications between the parties. This includes not only the data flows for payments themselves but also for refunds, account enquiries and settlement.
   
3. 
   



4. Mechanism <\b>: The methods by which the necessary security requirements for messages and stored data are achieved.

All three abstraction levels are tightly coupled since policy makes requirements of data flow and data flow makes requirements of mechanism. Payment Protocol Models.

Cash
Cash consists of a token which may be authenticated independently of the issuer. This is commonly achieved through use of self authenticating tokens or tamper proof hardware.<\li>

Cheque
Cheques are payment instruments whose validity requires reference to the issuer.
Card <\li>

Card payment schemes provide a payments mechanism through the existing credit card payment infrastructure. Such schemes have many structural similarities to cheque models except that solutions are constrained by that structure. A key feature of card payment systems is that every transaction carries insurance. <\li>
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Methods and Types of Electronic Payment<\b>

An electronic payment is any kind of non-cash payment that do not involve any paper check. Methods of electronic payments include credit cards, debit cards and the ACH (Automated Clearing House) network. The ACH system comprises direct deposit, direct debit and electronic checks (e-checks).
Three main types of transactions:<\b>

1. A one-time customer-to-vendor payment is for shopping online e.g. at Amazon. Consumer clicks on the shopping cart icon, type in the credit card information and click on the checkout button. The site processes that credit card information and many times sends e-mail notifiying that the payment has been received. To pay by e-check, consumer types in his account number and bank's routing number. The vendor authorizes payment through the customer's bank, which then either initiates an electronic funds transfer (EFT) or prints a check and mails it to the vendor. <\li>
   
2. You make a recurring customer-to-vendor payment when you pay a bill through a regularly scheduled direct debit from your checking account or an automatic charge to your credit card. This type of payment plan is commonly offered by car insurance companies, phone companies and loan management companies. Some long-term contracts (like those at gyms or fitness centers) require this type of automated payment schedule.<\li>
   
3. To use automatic bank-to-vendor payment, your bank must offer a service called online bill pay. You log on to your bank's Web site, enter the vendor's information and authorize your bank to electronically transfer money from your account to pay your bill. In most cases, you can choose whether to do this manually for each billing cycle or have your bills automatically paid on the same day each month.<\li>
   Benefits of Electronic Payment<\b>
   
   1. Convenient for the consumer Account information -- such as credit card number and shipping address once entered is stored in a database on the retailer's Web server. When the customer comes back to the Web site he just needs to log in with username and password. Completing a transaction is just as simple as clicking mouse. Once just needs to confirm purchase.<\li>
      
   2. Electronic payment lowers costs for businesses. The more payments they can process electronically, the less they spend on paper and postage. Offering electronic payment can also help businesses improve customer retention. A customer is more likely to return to the same e-commerce site where his or her information has already been entered and stored. <\li>
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      Problems with Electronic Payment<\b>
      
      1. The main drawbacks to electronic payments are concerns over privacy and the possibility of identity theft. Fortunately, there are many safeguards available to protect your sensitive personal information from falling into the wrong hands. <\li>
         
      2. Time Consumed in checking privacy/authenticity: Some people simply dislike making electronic payments. They find the setup too time-consuming and do not want more logons and passwords to remember. Further many people like familiar ways of writing checks and dropping envelopes in the mail. Regardless of these concerns, electronic payment will likely continue to rise in popularity. <\li>
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         Setting Up E-Payment for Online Business<\b>
         Its very difficult for a business man to decide what kind of set up he wants. In case a customer has a small business and wants to set up online payments via Web site.
         
         1. Decide whether one needs to outsource payment solution or handle it in-house. For those who want all-in-one solution, services like PayPal. Such services make it easy for one to accept credit cards and other forms of electronic payment from the website. When a customer enters his or her information on the site, payment service authorizes the transaction and transfers funds to the account. These services charge a processing fee per transaction. In case one needs to process payments in-house, the first thing he need to do is set up a secure server. This is a computer that uses encryption to make it difficult for intruders to intercept confidential information.<\li>
            
         2. Secure Socket Layer (SSL) technology is used to encrypt the data. Business man needs to apply for an SSL certificate online. Once the business man has an SSL certificate he needs to register his site with a digital authentication service. A digital certificate validates that the site receiving his customers' information is the correct one. It assures customers that site is legitimate and can be trusted.<\li>
            
         3. Purchase shopping software: Once a secure server is build one needs to buy shopping software that allows a customer to choose products from the website and add them to a virtual shopping cart. When customers are ready to complete their orders, they click on a "checkout" link that takes them to secure server, where they enter their credit card information. <\li>
            
         4. One needs a system to process credit card payments and an Internet merchant account with a bank. Credit card payment processing services are available through online companies like VeriSign. Such companies provide software that validates customer's credit card information over secure server. Some businesses also choose to accept electronic checks from customers.<\li>
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            Step by Step Online transactions <\b>
            
            1. Shopping on the Internet : The consumer selects an item to purchase on the Internet.<\li>
               
            2. Initiating the Transaction After entering shipping and credit card information, the consumer is presented with a summary of the item, price, and billing information. The payment information is secured with industrial strength encryption and forwarded with the order form to the merchant's CyberCash CashRegister™.<\li>
               
            3. CashRegister Picks up Merchant Information <\li>
               • The merchant's identification information is automatically added to the encrypted payment request.
               4. Through the CyberCash Firewall to the Bank
               • Still encrypted, the payment request is forwarded over the Internet and is received through a secure firewall by the CyberCash CashRegister server.
               • CyberCash instantaneously passes the payment request to the merchant's financial institution, which zips it on to the consumer's credit card bank to approve or decline payment authorization.
               
            4. Bank Sends Approval
               • The consumer's credit card bank sends its response back through the merchant's financial institution to the merchant's CashRegister.
               • The shopper also receives confirmation of credit card approval.
               • The entire authorization process takes under 20 seconds.<\li>
               
            5. Transaction is Completed and Captured
               • The merchant delivers the item to the shopper.
               • The merchant requests financial settlement, or "capture", of the transaction through the CashRegister server.
               Funds are transferred to the merchant's account by its financial institution
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               Electronic Payment Association<\b>
               The National Automated Clearing House Association (NACHA) is the Electronic Payments Association, has helped increase the use of e-payments and e-checks. This not-for-profit association develops operating rules and business practices for the ACH network to make sure it stays efficient, reliable and secure for keeping electronic payments that way, too. NACHA governs the nationwide Automated Clearing House (ACH) network. Through this network NACHA's 11,000 member banks and other financial institutions offer direct deposit, direct debit and e-checks for consumers and businesses. It facilitates check bank account balances online, make purchases from online stores with a debit card or pay bills from bank's Web site The association develops electronic payment practices beyond the ACH network for areas like Internet commerce, financial electronic data interchange (EDI) and international payments. As one of its services, NACHA tracks the growing use of electronic payment through quarterly and annual reports. For example, the ACH network handled nearly 16 billion payments totaling $30.3 trillion in 2006, a 14.5 percent increase over 2005, according to NACHA statistics. That includes payroll direct deposits, Social Security benefits, tax refunds, payment of 8 billion consumer bills and more. The rate shows that the volume of electronic payments continues to double every five years. While most of NACHA's offerings are targeted to its member financial institutions, the association offers help for consumers and small businesses through an interactive Web site. on paper to save trees, fuel and water. The alliance brings together NACHA, the U.S. Federal Reserve, and leaders of the financial and consumer billing industries.
               
               
               Electronic payments:
               Merchant's website must be able to accept and process secure online payments. Two important things required are:
               
               1. Internet Payment Service : The Internet Payment Service, such as CyberCash, enables the merchant to accept online payments from their customers and securely processes these payments from a Merchant's Web storefront through the existing system of financial institutions and credit card processors. The three key qualities merchants expect in an Internet payment service are security, ease-of-use, and price performance. With the right payment service, merchants can have all three. Here are some features to consider:
                  a. Security
                  Merchants want the guarantee that they will get paid for their goods and services and that their customers will feel confident and comfortable shopping at their website. Thus merchants need an Internet payment service that will provide them with the security to deal with credit card authentication, transaction confidentiality, server host integrity, and server virus protection. At a minimum, an Internet payment service should provide SSL (Secure Socket Layer) protocol security, which encrypts the customer's payment information while it moves over the Internet so that it cannot be deciphered. But SSL alone may not be strong enough for this entire transaction process. CyberCash, for example, offers powerful triple DES encryption, as well as SET (Secure Electronic Transaction) capable encryption and authentication. Though electronic commerce is continuing to grow at a rapid rate, shoppers are still skeptical about security, and have not been quick to trust that personal information, such as a credit card number or address, is safe to send over the Internet. However, an Internet payment service like CyberCash, with a reputation for using the strongest Internet security technology, improves consumer perceptions about security.
                  b. Ease-of-Use
                  For Internet payments, ease-of-use means more than just simplicity. Merchants need a payment service that meets the short-term and long-term needs of their business with 24x7 reliability so they can focus on what they do best - selling. The primary Internet payment features that make managing a business easier, include:
                  • Real-time payments – Real time "authorization" (bank approval of the sale) and "capture" (depositing and settling a payment) enable the merchant to complete the transaction immediately, without chasing down declined credit card numbers. Shoppers receive confirmation that their purchase was approved in real-time; merchants get the payment moved to their bank in real-time.
                  • Scalability - Merchants want an Internet payment service that can smoothly manage and support the growth of their transaction volume and their needs for additional payment features. A payment service that fails to scale with increased transactions will hold back the merchant's revenue growth.
                  • Installation, Upgrades and Additional Payment Features - This is a huge "ease-of-use" factor. Merchants need to be aware of the level of integration and maintenance work that the Internet payment service's technology will require.
                  • Multiple payment methods - Currently, credit cards are the primary choice of payment in the United States. Yet globally, other Internet payment methods, including electronic checks and cash, have become common forms of payment. Thus, merchants across the world are likely to begin using multiple payment methods to expand their business model, the types of products and services they can offer, and the number of customers to which they can sell. Merchants should not let their payment options limit their sales options.
                  c. Price Performance
                  Merchants have several factors to consider in assessing the price performance of an Internet payment service. Most important Service Quality - An Internet payment service can save merchants money and time with a proven technology that provides security, reliability, and built-in, easy-to-use features. Further less technical integration needed between the storefront software application and the Internet payment service, the smaller the effort required to enable the merchant to take Internet payments, and the greater the effort invested in selling. Relationship with Merchant's Financial Institution - It is important that the Internet payment service and the merchant's bank operate effectively together so that they can be responsive to the merchant's business and support needs. For example, Financial Institutions partnering with CyberCash are committed to getting merchant accounts created in just two or three days for CyberCash-enabled merchants.<\li>
                  
               2. Merchant Credit Card Account The Merchant's financial institution provides the merchant with a bank account that enables them to accept, process, and deposit payments from their customers, and delivers regular reporting based on these transactions. Each Merchant Needs a Merchant Credit Card Account. Just as in the physical world, a merchant on the Internet needs to establish a merchant account with an acquiring financial institution in order to accept credit cards. Even if a merchant already has a merchant account, they may not have the type of account required for accepting transactions over the Internet. The merchant account setup process can take anywhere from 48 hours to 14 business days to complete. So move quickly on this task, as it is among the most critical to the success of the Web store. The following are guidelines and instructions to help merchants get started quickly:
                  
                  About Merchant Accounts
                  
                  There are two types of merchant accounts for accepting credit cards:
                  1. "Card Present" Account
                  This type of account requires the consumer and merchant to be physically at the same location during the time of the transaction. For a card present transaction, the credit card is typically swiped through a card reader (or physical point-of-sale terminal), and the consumer signs an authorization slip, or sales receipt.
                  2. Mail Order/Telephone Order (MOTO) or "Card Not Present" Account
                  In a MOTO transaction, the merchant and shopper are not in the same physical location, and there is no card swiped or signature received. This method of payment was originally adopted for mail order and catalog businesses. All Internet transactions are treated as MOTO transactions and require a MOTO merchant account.
                  If the merchant currently accepts credit cards but is not sure if they have a MOTO account, they should contact their merchant financial institution. If they already have a MOTO account, see the section below on "Setting up on Account to Accept Online Payments."
                  Fees and Rates
                  As a merchant initiates the process of setting up a relationship with an acquiring financial institution, it is important to check more than one source to compare costs. Fees and rates will vary widely, based on the financial institution and the risks associated with the merchant, including the:
                  • Type of products and services being sold
                  • Market in which the merchant competes
                  • Method in which products and services are being sold and delivered
                  • The prices of these products and services
                  • The expected volume of transactions
                  • What forms of payment the merchant will accept
                  • The merchants credit history
                  Regardless of these factors, a merchant should expect to pay the financial institution:
                  • an application fee, setup fee or both
                  • a discount rate (i.e. percent of each transaction), typically not more than 4%
                  • per-transaction and/or monthly fees
                  • large fees for research, fraud and dispute resolution
                  • any additional fees for value added services
                  Credit Card Processing Models
                  Not only are there many rules and regulations surrounding credit cards payments, there are many procedures and processing methods to a transaction. For example, there are two parts to a credit card transaction: the "authorization" and the "capture". And within these types, there are many processes that occur, including processing, billing, reporting, authorization, and settlement.
                  For more detailed information on establishing an Internet merchant account, and becoming familiar with the several components of the credit card accepting process, contact a financial institution for an overview of credit card processing models. Ask for a merchant handbook that explains how to accept credit card payments, how to handle and resolve disputes, and how to process voids, returns and partial credits. Also understand the rights of consumers and the rights of merchants, and become familiar with address verification services (AVS) and other fraud detection mechanisms.
                  How to Setup a Merchant Account
                  New Account:
                  If a merchant does not currently have a MOTO account, the merchant must set up a new account with an acquiring financial institution. There are a number of financial institutions that have designed an account process specifically for Internet merchants by partnering with Internet payment services, such as CyberCash.
                  Existing Account:
                  If a merchant already has a MOTO account, they should contact their financial institution or one of its agents to let them know they would like to use CyberCash to accept Internet transactions.
                  Setting up the Merchant Account to Accept Online Payments
                  Regardless of whether a merchant needs a new MOTO account or would like to keep an existing MOTO account, a merchant should do the following to accept credit card payments over the Internet:
                  • Ask the financial institution if they are authorized to underwrite credit card services to merchants.
                  • Inform the financial institution to set up the merchant account to accept credit cards over the Internet using the merchant's choice of Internet payment services, such as CyberCash.
                  • Ask the financial institution to explain the details of establishing a merchant account, including the application and approval process, the fees and charges, and requirements for opening a deposit account for doing business.
                  • Plan for the merchant account setup process to take from 48 hours up to 14 business days to complete.
                  After the Merchant Account is Approved
                  Once the financial institution approves the merchant for online commerce, the financial institution will typically perform the following tasks:
                  • Issue the merchant a Merchant ID (MID)
                  • Issue the merchant a Terminal ID (TID)
                  To process a merchant's transactions, an Internet payment service typically requires specific information on the merchant's account, including their MID and TID. CyberCash, for example, only accepts merchant account information from credit card processors to ensure the protection of this sensitive data from one trusted source.
                  The credit card processor in this case would communicate the MID and TID to CyberCash once the merchant's account has been approved. CyberCash will immediately add the merchant bank account information into the Internet Merchant Registration (IMR) system. If the merchant has already registered for service, CyberCash will send an email indicating that the service is ready to go live upon request from the merchant. If the merchant has not yet registered with CyberCash, when the merchant uses the IMR, the pending bank account information is automatically linked during the sign-up process to accelerate the merchant's ability to "go live".
                  As the financial institution is processing the merchant's account and working on these tasks, the merchant can continue to integrate their storefront with the payment component(s) and register with their Internet payment service.
                  
                  
                  
                  
                  
                  
                  CyberCash
                  CyberCash is a pioneer in the electronic commerce industry. It is a leading provider of Internet payment technologies and services. CyberCash enables merchants to accept secure payments on the Internet with more ease, flexibility, reliability and cost-savings than any other solution. Characterstics of Cybercash are
                  1. Secure Internet payments made simple
                  2. Easy to install, operate and manage: The CashRegister 3 Service eliminates the need for complex software, large databases, and heavy-duty processing at your merchant site. Instead, all payment operations are handled by CyberCash's own 24x7 Payment Gateway Servers. Unlike other Internet payment solutions, CyberCash's software installation, integration and management eliminates the major hurdle to setting up a commerce enabled Web site. Using a small payment component that integrates with the Web storefront, a merchant connects to the CashRegister Service quickly and doesn't require specialized or dedicated personnel to operate.
                  3. Automatic upgrades and scalability
                  With the bulk of the CashRegister's software residing on CyberCash's servers, merchants can quickly and easily take advantage of new payment technologies, standards and services as they become available - without expensive and time-consuming software changes to their site.
                  4. Hard or soft goods
                  Since merchants should not be restricted to the types of products and services they want to sell, the CashRegister 3 Service handles sales of "hard goods" made via shopping baskets, or "soft goods" such as pay-for-view areas and digital downloads. CyberCash also processes recurring bill payments. Payments are completely separate from fulfillment, so merchants can deliver their goods or services to their customers any way they choose.
                  Single platform for all payment services
                  CashRegister 3 Service's unified architecture supports the Internet's widest range of secure payment options:
                  • Secure payment card -- Consumers select from their existing VISA™, MasterCard™, American Express™, Novus™/Discover™, Diners Club™, JCB™ or Carte Blanche™ cards to safely purchase goods and services on-line, without picking up the telephone.
                  • CyberCoin® -- The CyberCoin service enables small cash payments for instantaneous electronic delivery of information, products and services.
                  • PayNow™ Electronic Check -- Consumers can pay their bills directly via the Web, allowing billers to reduce float, cut billing costs, and forge stronger customer relationships at their own Web sites. The PayNow service will soon extend to point-of-sale check payments as well.
                  Merchants win by: selecting payment options that best support their business model, providing more convenient payment choices for their customers, and benefiting from more ways to "close the sale" - all on a single platform.
                  
                  Leading-edge flexibility
                  To provide greater payment flexibility to merchants and their customers, the CashRegister 3 Service supports multiple consumer payment interfaces-including the light-weight CyberCash Agile Wallet,[jt3] the Microsoft Wallet, Secure Socket Layer (SSL) forms, store- and bank-branded wallets, and other custom payment applications. Merchants simply select the options and interfaces they want to offer, and easily add new choices at any time to expand their pool of potential customers.
                  In addition to online transactions, the CashRegister 3 Service also supports 800#, fax and mail orders, so merchants can consolidate all "card-not-present" credit card transactions from a single interface.
                  Industrial-strength encryption for maximum security
                  To protect the integrity of transactions, the CashRegister 3 Service supports the Internet's strongest security technologies, including SSL (Secure Sockets Layer). In CyberCash-based transactions, all financial information transmitted over the Internet is encrypted using CyberCash's industrial-strength triple DES encryption.
                  CyberCash transactions are protected by the highest levels of encryption available to ensure security and privacy for anyone who wants to conduct business on the Internet. Further CyberCash has also adopted the new Secure Electronic Transaction (SET) protocol and is incorporating it into its latest suite of Internet payment solutions. The transition to SET will facilitate following tasks:
                  1. Authenticate cardholders, merchants and banks;
                  2. Assure confidentiality of payment information;
                  3. Ensure that messages have not been corrupted during transit;
                  4. Provide for interoperability among different software and hardware platforms.
                  
                  Multi-platform support for maximum flexibility: CyberCash's service is compatible with Microsoft Windows NT™ and leading versions of the Unix™ operating system, including Solaris (Sun Sparc & Intel), Linux etc..
                  Multiple Banking Relationships:Cybercash holds connectivity with many financial institutions and third party processors, so merchants can either maintain their existing banking relationships or enjoy a broad list of options if they need to create a merchant account.
                  Transaction logging and reporting
                  To support non-repudiation, balancing, reporting and other back-office functions, the CashRegister 3 Service automatically logs every transaction - including sales, credits and voids - in a powerful database. A Web-based reporting feature provides password-protected visibility into this transaction-level information, allowing you to zero in on problems and drill down into any individual transaction for complete details.
                  Notifications
                  Today's Web storefronts need to interoperate with numerous entities-consumers, inventory systems, customer service, accounting, even outside partners. While the Web is a command and response environment, the CashRegister 3 Service can follow up the standard response with additional communications to other systems, both internal and external to your business.
                  Proof-of-Purchase
                  CashRegister 3 can also issue a digital receipt in the form of a Proof-of-Purchase, or POP, to verify that a consumer has paid. This way, a consumer can come to the merchant's site at any time to redeem a purchase, while bill payers have the Internet equivalent of a cancelled check to verify that payment has been accepted.
                  
                  
                  
                  
                  
                  Source: How stuff works.com
                  www.cybercash.com
                  http://www.vivtek.com/cybercash/info.html