Payment

Gateways
Payment Processing in E-
Commerce
• trusted and respected payment method

• Many users are still reluctant to use credit cards over the Internet,
fearing theft and fraud.

• two approaches to implementing a payment process. The first

approach gathers information online, but does not actually process
the transaction online. The second approach is a fully integrated
online transaction method.
Choosing Payment-Processing
Methods
• Cash on delivery (c.o.d.)
• Advanced payment using check or money order
• Credit card with offline processing
• Credit card with online processing
• Online checks or bank account debit
• Online payment services
Choosing Payment-Processing
Methods
• C.o.d. payments rely on the delivery service (for example, United
Parcel Service or the U.S. Postal Service) to accept payment on
delivery of the product.
• You can determine whether to accept check, money order or cashier's
check for c.o.d. payments. Money orders and cashier's checks are
guaranteed payment.
• Checks might be returned for a variety of reasons, the most common
being insufficient funds. Because the customer already has the
product, the balance due for a returned check and any bank charges
that ensue might be difficult to collect.
Choosing Payment-Processing
Methods
• Purchase order and post-purchase billing
• Accepting purchase order numbers and billing the customer later is
most appropriate in a B2B scenario. If you decide to support this
method for managing receivables, you will need to ensure you have
the accounting infrastructure to handle the following:
Sending bills
• Tracking payments
• Pursuing collections, if necessary
Choosing Payment-Processing
Methods
• Credit card with offline processing

• If you are implementing an e-commerce site for a brick-and-mortar or

mail order business that already accepts credit cards, you might
decide to use offline processing during a transitional phase.
• However, you will need to notify your merchant services provider that
you are accepting orders online. Fees for transactions that do not
occur in person are generally higher because of the greater risk for
fraud.
Choosing Payment-Processing
Methods
• Credit card with online processing

• The most common solution for accepting payments over the Internet
is to accept credit cards and validate them using online processing.
The two main advantages to this method are as follows:
Better efficiency for order fulfillment
• Immediate customer notification

• Order fulfillment efficiency

• Customer notification
Choosing Payment-Processing
Methods
• Online checks or bank account debit
•
• More and more people are using online banking and online bill payment
services. Accepting online checks from customers might be an appropriate
choice for your business.
• An automated debit from the customer's bank account might also be
appropriate if you require periodic payment, such as for a subscription.
• Although customers are becoming more accustomed to automatic
debits for recurring bills, some might be nervous about such charges
because they cannot control when the debit occurs.
Choosing Payment-Processing
Methods
• Online payment service (PayPal)
• PayPal is a payment service specific to e-commerce. It began as a way
to pay for purchases on eBay, but has become a general-purpose
payment service.

• PayPal offers currency conversion to allow buyers and sellers to

conduct commerce using any of the following currencies, regardless
of the currency of the bank account linked to the user's PayPal
account
Credit Card
Processing
• Set up an online merchant account. An online merchant account is
needed to process the payment transactions online. A merchant account
typically requires an application and approval. Generally, a monthly fee and
per-transaction fees are associated with a merchant account.
• Install or connect to payment gateway software. A growing number of
payment software products are available today from companies such as
CyberSource and VeriSign. Both online solutions and solutions you install
on your Web server are available.
• Prepare the server and e-commerce site. Preparing your host or Web
server, along with programming or configuring your Web pages to link to
the payment gateway, is essential. Your Web pages must be able to handle
requests and integrate with the database for each transaction.
Credit card processing: Behind the
scenes
• Authorization
The authorization process validates that funds are available. However,
you will not actually receive the money until settlement is complete.
Figure 14-1 illustrates the authorization process.

• When a customer decides to pay by credit card, he or she enters the

credit card information on your Web site and then confirms the order.
Next, the credit card information is passed to a payment gateway.
The payment gateway can be located on a different server on the
Internet (an online gateway) or it can be software installed on your
Web server
Credit card processing: Behind the
scenes
Authorization
Credit card processing: Behind the
scenes
• Settlement
The payment gateway initiates the settlement process. During the settlement
process, the processor contacts both the issuing bank and the acquiring bank.
• The issuing bank is notified that the customer's account should be charged and
the acquiring bank is notified that the merchant's account should be paid. The
acquiring bank is the one that provides the merchant account
• The process that is used to move the transaction to the settlement stage is called
batching. In this process, all the transactions are collected, verified and submitted
for settlement. Typically, the two types of batching are automatic and manual.
• The advantage of automatic batching is that the merchant need not manually
batch the transactions daily, which can be a time-consuming process, depending
on the number of transactions. The disadvantage of automatic batching is that
errors might occur and unwanted transactions might be processed.
Credit card processing: Behind the
scenes Settlement
Managing
Transactions
• A transaction is a set of actions that depend on one another. If one
action in a transaction is successful, they must all be successful. If any
one action in a transaction fails, all the actions must be rolled back.
The typical actions in a successful e-commerce transaction are as
follows:
Items must be in stock.
• Payment must be approved and settled.
• Item quantities must be deducted from inventory.
• Order must be shipped.
Managing
Transactions
• Manual transactions
• Although most transactions will occur automatically, you will
occasionally need to perform manual transactions. A common
example is refund transactions that might be necessary in case of any
of the following:
Product out of stock
• Order canceled
• Item returned
Managing
Transactions
• You might also need to initiate a manual transaction when an order is
placed over the phone or if a customer mails a printed order.

• Another scenario in which you might need to modify a transaction is if a

customer's transaction is rejected because of an incorrect billing address,
incorrect number or incorrect expiration date.

• If the customer calls customer service, the customer service

representative will need to be able to modify the transaction information
and resubmit it.
Online Check
Processing
• Online check processing is becoming more popular because more than twice as
many people use checking accounts as credit cards.

• With online check processing, the merchant enters the transit numbers from
the customer's check instead of a credit card number.

• The process is similar in that payment transactions are still required and
financial institutions must still conduct them.

• On average, online check processing is slower than credit card processing, and
has a greater chance of incomplete transactions due to insufficient funds.
Online Check
Processing
• Hard-copy deposit

• A hard-copy deposit requires users to enter their checking

information in a form, including the transit numbers at the bottom of
their checks.
• Then the online check-processing service prints a hard copy of that
information in the form of a check.
• That hard-copy check is deposited by traditional means to the bank,
and the normal check-processing sequence begins.
Online Check
Processing
• Electronic processing

• The second model gathers the same information but retains it in

electronic format and completes the processing via an electronic
funds transfer (EFT) system.
• Essentially, the information is the same except that a hard copy of a
check is never used in the transaction.
Online Check
Processing
• Automated Clearing House (ACH)

• The Automated Clearing House (ACH) network is a nationwide batch-

oriented EFT system governed in the United States by the National
Automated Clearing House Association (NACHA) operating rules (
www.nacha.org).

• These rules provide for the inter-bank clearing of electronic payments

for participating financial institutions.
Online Check
Processing
Online Check
Processing
• The following parties participate in an ACH transaction, as illustrated in the
preceding figure.
Originator — any individual, corporation or other organization that initiates
entries into the ACH network.
• Originating Depository Financial Institution (ODFI) — a participating financial
institution that originates ACH entries at the request of and by agreement with its
customers and merchants. ODFIs must abide by the NACHA Operating Rules and
Guidelines.
• Receiving Depository Financial Institution (RDFI) — any financial institution
qualified to receive ACH entries that agrees to abide by the NACHA Operating
Rules and Guidelines.
• Receiver — an individual, corporation or other organization that has authorized
an Originator to initiate a credit or debit entry to a transaction account held at an
RDFI.
Preventing
Fraud
• Loss of revenue from products purchased fraudulently
• Charge-back fees assessed by financial institutions
• Possible lawsuits for identity theft losses
• Loss of goodwill due to the publicity of a break-in
• Loss of revenue from sales with payment information that appears to
be suspect, but which is actually legitimate
• Fines assessed by financial institutions for a high percentage of
fraudulent transactions
Preventing
Fraud
• Protecting customer data

• As data is transferred from the Web page to the server

• As data is transferred through the payment gateway
• As data is transferred to the database server for storage
• In the database
Preventing
Fraud
• Detecting fraudulent transactions

• Verify the billing address

• Verify the card security code (CSC)
• Use the Buyer Authentication Program
Preventing
Fraud
• Preventing cash theft

• Use a password that is difficult to guess (a strong password).

• Do not write down the password and leave it where people can find
it.
• Change the password frequently.
• Do not share the password with co-workers unless they need it to
perform their job.
Thank You