09/11/2015. ACS 3907 E-Commerce. Payment Methods. General Payment Systems. Instructor: Kerry Augustine November 10 th 2015

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1 ACS 3907 E-Commerce Instructor: Kerry Augustine November 10 th 2015 Payment Methods General Payment Systems Cash no authentication, no transaction fee, anonymous Easily stolen, no float time, hard for large transactions Cheque Have some float, require third-party institution Easier to forge, can be cancelled, can bounce Credit card Has float time (acts like loan), requires issuing bank, requires verification Merchants pay 3-5% transaction fee to issuing bank Stored-value payment systems Accounts created by depositing funds, funds withdraw immediately E.g., debit cards, gift certificates, prepaid cards Accumulating balance payment systems Accounts that accumulate expenditures where consumers make periodic payments E.g., utility bills, phone bills 3 1

2 EC Payment Systems Payment cards = general term for plastic cards Credit card most common for EC, has spending limit, pay off portion/all of the balance Debit card transfers sales amount from client account to merchant account Charge card spending limits set by card, entire amounts charged to card, payment due at end of billing period Advantages and disadvantages Some payment cards provide fraud protection Some limit cardholder s liability to $50 in case of fraud Many payment cards accepted worldwide Easy electronic checkout no special hardware needed Merchants charged per-transaction fee and monthly processing fees 4 Payment Acceptance and Processing To accept credit cards: Open merchant account: get bank approval, apply, sign contract, pay setup fee Purchase credit card processing software (also called credit card gateway): CyberCash and CyberSource provide software that accepts credit card numbers and transfers them to/from credit card system Integrate credit card processing software into transaction system Steps followed by payment card transaction: Merchant authenticates card Merchant checks issuer/clearinghouse to ensure available funds, holds amount on credit line Settlement occurs, funds transfer between banks, funds into merchant account 5 Payment Acceptance and Processing EMV = Europay/Mastercard/Visa is a global standard for inter-operation of integrated circuit cards for handling payment card transactions 6 2

3 Paypal: Online Store-Value Payment System Enables customers to make instant online payments to merchants/individuals based on value stored in online account Steps: Customer establish PayPal account Specify credit/debit/checking account to be charged/paid to payment to merchant s PayPal account PayPal transfers amount from customer s bank account to merchant s bank account No personal credit info is shared 7 Choosing PayPal as Payment Processor Merchants can now choose PayPal to process PayPal transactions In addition to or as an alternative to credit card processing (e.g., merchant accounts application declined) Customers must leave merchant site to pay via PayPal May appear disruptive to some customers PayPal payment pages can be customized to some extent to match look and feel of merchant site Once at PayPal pages, customers log into their PayPal account, confirm shipping/billing info, click continue to confirm purchase Customer returns to merchant site to review/confirm order 8 What Customers See Checkout data flow with PayPal (top) and credit card (bottom) 9 3

4 Benefits of PayPal Website Payments Standard Widely used and respected as reliable payment option Business accounts typically have quick approval times Offers fraud protection to sellers (e.g., account verification, address confirmation) Merchants pay transaction fees No setup/monthly fees for PayPal business accounts Some customization available to give quicker checkout experience Some customization available for look-and-feel of pages 10 What is Bitcoin? 11 Acquiring Bitcoins 12 4

5 Acquiring Bitcoins 13 Owning Bitcoins 14 Issues and Future of Bitcoins 15 5

6 Insight on Society: Class Discussion Bitcoin What are some of the benefits of using a digital currency? What are the risks involved to the user? What are the political and economic repercussions of a digital currency? Have you or anyone you know ever used Bitcoin? Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 5-16 Order Fulfillment Order Fulfillment taking orders over the Internet is the easy part; fulfilment and delivery to customers doors are the sticky parts Amazon Initially operated as totally virtual company Added physical warehouses + thousands of employees to expedite deliveries and reduce order fulfillment costs EC based on pull-order concept that begins with an order Order is often customized Harder to forecast demand Back-office operations Activities that support fulfillment of orders E.g. accounting, inventory management, shipping 18 6

7 The Amazon Case: Solution Changed its business model to handle own inventory Spent ~$2B to build warehouses nationwide Now leader in: Warehouse management Warehouse automation Packaging Inventory management Actual shipment to customers outsourced to UPS and U.S. Postal Service What we can learn: Complexity of order fulfillment by a large e-tailer Some solutions employed The Amazon Case: Solution (cont.) 1. Customer places online order program checks location of item identifies distribution center or vendor that will fulfill order Order transmitted to corresponding location [Continue with distribution centre example] 2. A flowmeister at distribution center receives all orders and assigns them electronically to specified employees 3. Items are stocked in a bin with a red light and a button Red light turns on when order for item(s) is assigned Pickers place order item into bin and push button to reset light Repeat until light goes off 21 7

8 The Amazon Case: Solution (cont.) 4. Picked items are placed in a crate on conveyor belt Belt system more than 10 miles long Tracks items at 15 points of the conveyor system using bar codes on items 5. Crates arrive at central location Match bar codes to order numbers Items move from crates to chutes to slide into cardboard boxes Sophisticated technology allows items picked by diff people in diff parts of the warehouse to arrive in the same chute 6. If gift wrapping was selected, manually complete this part 7. Boxes are packed, taped, weighed, labeled, routed to one of 40 truck bays in warehouse Boxes delivered to UPS or USPS 22 The Amazon Case: Results Each warehouse can deliver 200,000+ pieces per day Peak season: requires each warehouse to handle 3M per day Leases space to other retailers with online businesses (e.g., Toys R Us, Target) New system gives Amazon ability to offer lower prices and stay competitive Increase efficiency by combining items into one shipment Returns are outsourced 23 Order Fulfillment Order fulfillment evolved from the concept of direct marketing as part of the B2C business model and is focused on the distribution of products and managing their flow within the supply chain from the supplier directly to the customer. It includes all of the processes in the customer-centric supply chain including: Storing inventory Ordering Receiving orders Product selection (customization) and packaging Shipping Invoicing Cash receipts Providing customer operation instructions/product support 24 8

9 Order Fulfillment Nine Steps 1. Ensure customer will pay (e.g. credit card authorization) 2. Checking for in-stock availability 3. Making packaging and shipping arrangements 4. Insurance: some shipment contents require insurance 5. Replenishment of stock (manufactured/purchased) 6. In-house production needs to be planned in detail 7. Use of suppliers: either they send to us and we package, or we send them orders and they package and send to customers 8. Contacts with customers must be maintained (e.g., ) 9. Processing of returns: dealing with used products, policies for restocking fees 25 Improving EC Order Fulfillment Traditional commerce: movement of large amounts of products to a few places EC: movement of small amounts of products to many places Infrastructure of logistics often not well developed for EC Supply chain (from manufacturer to customer) Difficult to forecast demand Interfacing EC ordering with back office system can shorten cycle and eliminate errors Interfacing EC ordering and payment systems can also improve order fulfillment Fulfillment outsourcer = companies that specialize in order fulfillment 26 Options for Handling Returns Return item to the place where it was purchased Ship returns to an independent returns unit and handle them separately Outsource handling of returns Allow customers to physically drop off the item at a collection station 27 9