Describe the basics of payment processing for e-commerce.
Payment Processing for e-commerce Business Models
To process B2C payment, the electronic storekeeper verifies and transfers funds from the consumer's credit card, checking account, or ATM card to the merchant's bank. Approval must be quick so the merchant can expedite shipment of the order and still be sure of getting paid.
B2B sites often need to offer a more sophisticated range of payment processing. These may include wire transfer, letters of credit, and other forms of commercial transactions and finance. There are three models for payment in B2C e-commerce. They are the cash model, the check model, and the credit model.
Description and Web implementation
Advantage
Disadvantage
Cash model:
Buyers and sellers trade electronic value tokens, which are issued or backed by some third party, usually an established bank.
Assumes a digital wallet is stored on the consumer's PC.
During a transaction, funds are transferred immediately and no back-end processing is required.
Hardest to implement on the Web.
Check model:
A consumer presents a digital version of a check to a Web storefront.
Assumes a digital wallet is stored on the consumer's PC.
Easy to implement; clearing mechanisms are highly dependable.
Funds are not transferred immediately; back-end processing is required; susceptible to fraud.
Credit model:
A merchant in a traditional transaction scans the card through a reader and in turn authorizes the transaction through its financial institution.
This authorization may be performed over the existing phone network using modems.
The credit payment system leverages existing network infrastructure, and is familiar to consumers.
Susceptible to fraud; not appropriate for high value transactions.
Security for Payment Transactions
Web site security can vary from section to section on the site, depending on security needs. For example, HTTPS, a secure mode of Web processing where a portion of the Web site is encrypted, is used for all forms of B2C payment. B2B may involve more sophisticated forms of security, including digital signatures. As a business person, it is important to grasp the financial risk associated with accepting payments over the Web. It is equally important to recognize that many consumers, and even some businesses, remain afraid of actually paying on an e-commerce site.
The consumer buys the digital equivalent of money from an established bank and deposits it in a digital wallet
Cash Business Model 1) The buyer (consumer) buys the digital equivalent of money from an established bank and deposits it in a digital wallet, which is stored on the PC. When he or she makes a purchase from a website that accepts e-cash, the order software automatically deducts the correct amount from the consumer's digital wallet. 2) A digitized check is encrypted (we will discuss security in a later module). The Web storefront verifies the check through its financial institution, which in turn consults the consumer's financial institution to ensure that funds are available.
3) A consumer enters credit card information on a Web order form which is delivered to an authorization server. From there on, the transaction is similar to traditional commerce assuming that authorization was granted and there are enough funds in the consumer's account, a capture transfers the funds from the consumer's bank to the merchant's account. Cash Check Credit - Model
A digital wallet refers to an electronic device that allows an individual to make electronic transactions.
This can include purchasing items on-line with a computer or using a smartphone to purchase something at a store.
An individual's bank account can also be linked to the digital wallet. In addition, a person might also have their driver's license, health insurance and other ID documents stored on the phone. The credentials can be passed to a merchant's terminal wirelessly by means of (NFC) near field communication .
Increasingly, digital wallets are being made not just for basic financial transactions but to also authenticate the holder's credentials. The system has gained popularity in Japan, where digital wallets are known as "wallet mobiles".
Consumers may feel more secure about transmitting personal information over the Internet using certificates authenticating both parties in a transaction and encrypting the transaction. The following section discusses e-commerce ordering, payment processing, and fulfillment.
E-Commerce ordering, payment processing, and fulfillment
A customer accesses a Web site's catalog to shop for a desired product or service.
The customer places the order, and payment information is requested.
The merchant's software delivers credit card information to an authorization server.
Funds are transferred from the customer's account to the merchant.
A tracking number is generated
The tracking number is sent to the customer to confirm that the shipment is in progress.
Building Your Online Business: Creating an E-commerce Site
You have the perfect idea for an e-commerce business. Maybe you have invented the next must-have gadget, or perhaps you perform a unique service that no one else in your area offers. Whatever your idea may be, you need an e-commerce site.
But you should review the basics before you start building your site or hire someone else to do it for you.
The design, often called the customer interfac and the shopping cart.
The design or customer interface defines how the overall site will look and how an online shopper interacts with it. It includes organizational structure, layout, font choices, graphics, and color schemes. A clean, easy-to-use design is very important to the success of your site, but that is only half the story because you also need a solid shopping cart.
The shopping cart is the engine behind the e-commerce site. It is a robust database that stores information about your products that includes everything from photos to inventory.
There are many different types of shopping carts that offer varying functionality. Some are stand-alone units and can be managed through a web browser interface, while others are
more complex and can interact with database programs like MySQL. All of them handle order processing and work with payment processing services. Some shopping cart solutions
are sold with web site design packages for a one-time price, or you can choose a cart that offers monthly billing.
If you have a technical background you can also build your own transaction system using popular web tools.
E-Commerce Can Still Be Easy
There are a lot of options and it is easier than it seems.
You do not need to be an expert programmer or JavaScript guru to get your e-commerce site up and running.
You just need to find the right web design expert to meet your needs. If you are not technically minded, working with a web design and programming firm to build your e-commerce site is a great idea.
You will get a great website and you will get to focus on what matters most: your business.
There are many web design companies that specialize in building e-commerce sites. Before you contact any of them, do a little research. Make a list of your favorite online stores and jot down some notes about each one.
What do you like about these sites?
Are they easy to navigate? Do they have powerful search features?
Are there design elements that appeal to you?
Having a clear vision of what you want your site to look like and how it should function will speed up the build process tremendously.
With the advent of the Internet, the term e-commerce began to include:
Electronic trading of physical goods and of intangibles such as information.
All the steps involved in trade, such as on-line marketing, ordering payment and support for delivery.
The electronic provision of services such as after sales support or on-line legal advice.
Electronic support for collaboration between companies such as collaborative on-line design and engineering or virtual business consultancy teams.
In the next lesson, you will learn about the impact of e-marketplaces in B2C.
