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Lesson 7 Payment processing
Objective 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.

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.
2) A digitized check is encrypted (we will discuss security in a later module).
3) A consumer enters credit card information on a Web order form which is delivered to an authorization server.

Cash Check Credit model
Consumers may feel more secure about transmitting personal information over the Internet using certificates authenticating both parties in a transaction and encrypting the transaction.
In the next lesson, you will learn about the impact of e-marketplaces in B2C.

Ordering Payment Processing

Click the link below to read about e-commerce ordering, payment processing, and fulfillment.
Ordering Payment Processing