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E-money . Chapter 12. 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

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e money


Chapter 12

learning objectives
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
money it s what we trust it is
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
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
digital coins
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)
advantages of e cash
Advantages of e-cash
  • It is simultaneously a payment mechanism and a system that protects personal information
  • Difficult to forge secure
disadvantages of e cash
Disadvantages of e-cash
  • The need to maintain huge databases of spent coins
  • Inflexible system
    • Preset amounts
    • No mechanism for giving change
  • Not enough users to create a networking effect
    • Government agencies and many financial institutions are so far unwilling to adopt it
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
virtual credit card
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
one time credit cards
One-time credit cards
  • The one-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
metered payments
Metered payments
  • Metered payments are charged to an existing account with a provider of regular, metered services, e.g.,
    • Utility companies
    • Telephone companies
    • ISPs
smart cards
Smart cards
  • Payment cards that use computer technology to store/process information
The major vehicle for the stored value model
    • The holder pays to store value either:
      • On a physical smart card, or
      • In an electronic account
two smart card technologies
Two smart card technologies
  • CONTACT cards
    • Must be inserted into a card reader
  • NONCONTACT cards
    • Must pass near a reader antenna to carry out the transaction
special readers
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
  • Cards designed for payments are such that usually the merchant cannot see the cardholder’s account number
  • 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
person to person p2p payments
Person-to-person (P2P) payments
  • Service offered by several companies
  • Some serious doubts about the validity of the business model
  • Security challenges
online stored value services
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
  • “electronic coupons”
  • Points can be gained by purchasing from many sources
e money23


Chapter 12