electronic payment systems 20 763 lecture 12 peer to peer payments electronic banking l.
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purchasing online content. micropayments. Distinguish between P2P payments and P2P ... Online Payment Revenue Growth. SOURCE: CELENT. Non-Card eCommerce ...

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outline
Outline
  • Peer-to-peer payments
    • PayPal
    • eCount.com
  • Electronic banking
  • Aggregation, screen-scraping
  • B2B payments
peer to peer p2p concepts
Peer-to-Peer (P2P) Concepts
  • P2P
    • payments not involving a bank
    • payments “directly” between payor and payee
    • classic example: cash
    • email payments, transfers between digital wallets
    • purchasing online content
    • micropayments
  • Distinguish between P2P payments and P2P technology
    • Napster, Gnutella
  • Someday we may use P2P technology for P2P payments
paypal
PayPal
  • > 40,000,000 accounts
  • RTGS payment system
  • Credit card hub
  • Bookkeeping & accounting system
  • Low-value foreign exchange system
paypal structure
PayPal Structure

PUBLIC COMPANY

eBay

BETWEEN TWO PAYPAL

USERS, TRANSACTIONS

ARE PURELY BOOK ENTRIES

ONLY MAINTAINS LEDGERS

NO MOVEMENT OF REAL

MONEY WITHIN PAYPAL

PayPal

Private Bank

IF REAL MONEY MUST

MOVE, PAYPAL SENDS

INSTRUCTIONS TO ITS

BANK

X.COM’s BANK

INTERACTS WITH

BANKING SYSTEM

THROUGH ACH

USER INTERACTS

WITH PAYPAL

THROUGH BROWSER

User’s Bank

User

USER MAINTAINS NORMAL

RELATIONS WITH HIS BANK

paypal6

SHAMOS

WEISS

PayPal
  • It’s a big disk drive!

- $100

+ $100

paypal7

PAYPAL

ACCOUNT A

. . .

ACCOUNT X

PayPal

1. A PAYS X VIA

PAYPAL (A HAS

ENOUGH IN PAYPAL

ACCOUNT)

6. PAYPAL NOTIFIES

X OF PAYMENT. X

CHOOSES PAYMENT

METHOD

ACCOUNT

HOLDER A

ACCOUNT

HOLDER X

INTERNET

EMAIL

5. PAYPAL CREDITS

X’S PAYPAL ACCOUNT

ACCOUNT

HOLDER A’S

CREDIT CARD

2. OR: PAYPAL

CHARGES X’S

CREDIT CARD

3. OR: PAYPAL

INITIATES ACH

DEBIT

ACCOUNT

HOLDER A’S

BANK

ACCOUNT

HOLDER X’S

BANK

7. OR: PAYPAL

INITIATES

ACH CREDIT

ACH

PROCESSOR

PAYPAL’S

BANK

4. FUNDS ARE

DEPOSITED IN

PAYPAL’S BANK

8. OR: PAYPAL MAILS CHECK TO X

paypal concepts
PayPal Concepts
  • Merchants pay low fees; individuals pay nothing
  • Interest paid on deposits
  • Mass (bulk) payments possible
  • Business model: fees + float
  • FDIC pass-through insurance
    • Against bankruptcy of PayPal
    • Different protection for fraud
  • Mobile payments supported
paypal fees
PayPal Fees

SOURCE: PAYPAL

paypal and foreign exchange
PayPal and Foreign Exchange

eBay

£

$

U.S.

PayPal Bank

U.K. PayPal $ Acct

U.K.

PayPal Bank

U.S. PayPal £ Acct

PayPal U.K.

PayPal U.S.

U.S.

User’s Bank

U.K.

User’s Bank

U.K. User

U.S. User

paypal worldwide
PayPal Worldwide

38 countries

Currencies: USD, CAD, GBP, EUR, JPY

PayPal available

PayPal available + Local Bank Acct. Withdrawal

SOURCE: PAYPAL

paypal statistics
PayPal Statistics
  • Average ticket (2003): $54
  • 69% of payments auction-related
  • Payment volume ~USD 15B/year
  • Profit: ~230M/year, about 1.5% of volume
  • Growth, payment volume (2002-2003): 68%
  • Growth, number of users (2002-2003): 49%
  • What would happen if PayPal could be used for everything?
paypal concepts13
PayPal Concepts
  • Merchants pay low fees; individuals pay nothing
  • Interest paid on deposits
  • Mass (bulk) payments
  • Business model: fees + float
  • Mobile payments possible
  • What would happen if PayPal could be used for everything?
total paypal payment volume
Total PayPal Payment Volume

2003 TOTAL > 14 BILLION

SOURCE: PAYPAL

paypal growth by number of users
PayPal Growth by Number of Users

APRIL, 2004 > 41 MILLION

SOURCE: PAYPAL

email payments market
Email Payments Market

SOURCE: CELENT.COM

ecount com
Ecount.com

SOURCE: LAUDON & TRAVER

ebanking an integrated activity

eBanking

B2B

B2C

Customers

Banks

Vendors

payments

balances

AP

AR

Cash

forecasts

hedging

Management

investment/

debt

30

general

ledger

20

40

10

50

$

$

$

$$

eTrading

eCRM

Production Mgmt

Brokers

Operations

ERP

Accounting

eBanking: an Integrated Activity

SOURCE: SELKIRK

electronic banking opportunities
Electronic Banking Opportunities
  • Financial supply chain (FSC)
  • Consumer marketing (statement has hyperlinks!)
  • Data-rich environment
  • Customized financial services & relationship
  • Moving toward fee for services instead of floats and spreads
  • Greater security through digital signatures
  • Risk reduction through speed
  • Computer-initiated services means more services
banking services
Banking Services
  • Business
    • Payments
    • Cash management
    • Credit
    • Financial instruments
    • Factoring
    • Trade financing
    • Insurance
    • Foreign exchange
    • Accounting
    • Integration with business systems
  • Consumer
    • Payments, eCheques
    • Savings
    • Loan services
    • Aggregation of accounts
    • Securities
  • Both
    • Bill presentment
    • Reporting
      • Terrorism, laundering
    • 24/7 generates business
slide21

Government Outputs: Budget Sector

Public Ledger and Central Agencies

Departmental Accounting

Revenue

Expenditure

  • Human Services
  • Justice
  • Taxes
  • Tolls
  • Commonwlth
  • Educat, NRE
  • Parliam, AG
  • Salaries
  • Suppliers
  • Service Providers
  • Transfer Payments

Cash Management

E-Business

E-Commerce

Payments

Bank

Value Transfer

Value Transfer

Bank Service and Transaction Mgmt

  • internet
  • electronic
  • Maxi
  • teleph
  • mail
  • counter
  • EFT
  • cards
  • cheq
  • cash

Single Acct for Govt OR

Single Acct for Dept

  • EFT
  • cards
  • cheq
  • cash
  • internet
  • electronic
  • teleph
  • mail

TCV

Outer Budget

Balances

Information Flows

Financial Markets

Fund Flows

Australia Integrated eBanking Framework

Receipts

SOURCE: VICTORIA DEPT OFTREASURY AND FINANCE (AU)

internet banking services 2001
Internet Banking Services 2001

% of Banks Surveyed

SOURCE: GRANT THORNTON 2001

financial aggregation
Financial Aggregation
  • Idea: allow access to all assets through a single portal

SOURCE: VERTICAL ONE

slide24

Aggregator/

Portal

Arrangement

Methodology

What’s Aggregated

Brokerages

Data Feed

FI

Contractual

Banks

Screen Scraping

lnsurers

FI with

3rd Party

  • Non-
  • Contractual
  • Knowledge/
  • Permission
  • No Knowledge/ Permission

Mortgage

Originators

Screen Scraping

Non-

FI with

3rd Party

Non-Financial Info

Aggregation Process

FI = Financial institution

SOURCE: BANKING INDUSTRY TECHNOLOGY SECRETARIAT

screen scraping
Screen Scraping

Obtaining data from screen display commands

Legacy system(mainframe)

Terminalscreen data

HTML data

HTMLdata

Screen scraper

Existing application

Legacy database

Web server

Client

SOURCE: WIM GEVERS

screen scraping26

Move to row 02, column 38 and display “Feb. ”

Screen Scraping
  • Some systems produce as their only output commands to 80 x 24 display terminals
  • Sequences of characters telling the terminal to move its cursor and display data, e.g. ^M0238Feb. ^M024416, ^M02482004displays “Feb. 16, 2004” in row 2, starting at col. 38
  • Screen scraping involves virtual simulation of the display terminal to retrieve the data
  • Vendors
    • Teamstudio screensurfer
financial aggregation issues
Financial Aggregation Issues
  • Account consolidation
    • Different accounts in one bank
    • Different accounts in different banks
      • Screen scraping
    • Combine brokerage, insurance with banking
  • Web BillPay
    • Requires registration of vendors
  • EIPP
treasury workstation
Treasury Workstation

TWS SCOPE

SOURCE: SELKIRK FINANCIAL TECHNOLOGIES

slide30

Online Customers Hold More Products with Wells Fargo

15%

14%

13%

13%

13%

12%

11%

10%

9%

9%

8%

6%

6%

SOURCE: WELLS FARGO, 1999

slide31

95% have Higher Balances

Online vs. Offline Customers’ Balances

% Difference

37%

32%

28%

24%

25%

24%

20%

20%

15%

13%

6%

-2%

-11%

SOURCE: WELLS FARGO, 1999

slide32

Attrition is Lower

(36%)

(54%)

SOURCE: WELLS FARGO, 1999

slide33

Consumers Strongly Prefer 24-hour Access To Banking

AGE:

18-34

35-49

50-64

65+

SOURCE: SYNERGISTICS

slide38

B2B Payment Types

Payment Type

Payment Order

Payment Obligation

Certification

Conditional

Example

Like wire transfer

Like promissory note or purchase order

Like bank-accepted bill

of lading

Like a letter of credit or escrow payment

Purpose

Buyer trusts Seller to deliver

Seller trust Buyer to PAY

Seller doubts Buyer

ability to PAY

Buyer doubts seller ability to DELIVER

  • Payment Orders & Obligations can be future dated
  • Attributes can be combined, eg conditional certified payment obligation
  • Obligations can be discounted by seller’s bank & traded freely

SOURCE: DEBRA MITTERER

slide39

Initiation response

Initiation confirmation

3

3

Initiation

2

e-paymentsPlus

bank co-branded

Initiation confirmation

Initiation

TrustAct Server

2

5

4

Signed receipt

Initiation confirmation

1

Agree on terms of purchase

B2B Payments

Buyer’s bank

Seller’s bank

Syntax validation

Non repudiation

Transaction status

Buyer

Seller

slide40

7

Funds transfer

Debit

confirmation

Credit

confirmation

8’

9’

6

Confirm conditions*

e-paymentsPlus

bank co-branded

8

9

Debit advice

Credit advice

TrustAct Server

Confirm conditions*

6

*Optional flow

B2B Payments

Buyer’s

bank

Seller’s

bank

Buyer

Seller

major ideas
Major Ideas
  • P2P is cheap
  • P2P can be ubiquitous (email)
  • P2P is real-time
  • eBanking is unexplored territory
    • Start: replicate paper statements
  • Aggregation
  • B2B payments as part of a larger trade process
slide42

Q

A

&

banking services43
Banking Services
  • Business
    • Payments
    • Cash management
    • Credit
    • Financial instruments
    • Factoring
    • Trade financing
    • Insurance
    • Foreign exchange
    • Accounting
    • Integration with business systems
  • Consumer
    • Payments, eCheques
    • Savings
    • Loan services
    • Aggregation of accounts
    • Securities
  • Both
    • Bill presentment
    • Reporting
      • Terrorism, laundering
    • 24/7 generates business
obi with b2b payment

Catalog Mgmt.

Price Info. Mgmt.

Order Entry & Inv. Mgmt.

OBI with B2B Payment

Supplier

Requisitioner

a

b

Buying

Organization

Supplier Search

Payment Authority

Requisitioner Profile Mgmt.

Approval

1. Connect to BO's Web Server and Select a Hyperlink to SO's catalog.

2. Authenticate Requisitioner using Digital Certificate

3. OBI Order Request

4. Add Administrative Information

5. OBI Order

6. Obtain Credit Authorization

7. Issue Invoice and Receive Payment

SOURCE: JAE KYU LEE

non card ecommerce payments
Non-Card eCommerce Payments

ACH

PayPal

Checkfree

SOURCE: CELENT