Lecture 3Title: Online Payment: Credit Card and PayPal

By: Mr Hashem AlaidarosMIS 326

Main PointsCredit Card: How Credit Card Transaction process works?• How to Accept credit card payment to your E-Business?• What is Merchant account and Where would an e-business go to obtain

it?• What does Payment gateway do and Where would an e-business go to

obtain it? • What are the features to consider when choosing a payment gateway?• What are the strategies an e-business owner should consider to help

prevent credit card fraud?Paypal:• What is Paypal• How paypal links• Why and why not Paypal• Paypal express checkout• How Paypal transaction work

Introduction• For online merchants, the acceptance and growth of e-

commerce have simplified the process of credit card use.• The e-business owner must have a good understanding of

how credit card purchases work.• If so, it is time to add credit card function to the web.• Demo of online purchase http://demo.cs-cart.com/• Refer to Ch6 page 165 in your book

How credit card payment works1. A customer goes shopping on a web site and puts products into a

virtual shopping cart. • When customers are ready to check out, the shopping cart starts

the process of computing the sale.2. The customer pays the product by using a credit card. The shopping

cart program should provide an online form for the customer to complete, including:• Personal information• Shipping details• A credit card number• An expiration date... etc

Cont.3. The web site sends that credit card information to a payment

gateway.• The gateway is a virtual gate through which information is

transmitted, or passed, between the web site and a credit card processing site (payment processor).

4. The payment gateway sends the customer’s credit card information to a payment processor ( customer’s bank) to verifies it.• The processor’s job is to talk with the company or bank that

issues the credit card.• The processor ensures that the card is valid and has sufficient

credit to pay the product.

Cont.5. The payment processor sends a credit decision back to the

payment gateway.• The decision include the customer approval or denial for

the purchase.6. The payment gateway passes along the approval decision to

the shopping cart and finalizes the shopping transaction.• The customer receive approval message on the web• The customer is provided a receipt and invitation again• Step 2-6 take only a few seconds, and the customer

purchase is complete

Cont.7. The payment processor sends the money to the e-business’s bank

account ( Merchant account)• Merchant account is specialized bank account that allows a

business to accept credit card.

Accepting Credit CardWhat you need to accept credit card payment in your e-

business website?• To accept credit card you must set up:

1. Merchant Account2. Payment Gateway

1. Merchant Account• Merchant account is a specialized bank account that allows a

business to accept credit card payments.

• Merchant account Types:o Card present (e.g. POS)o Card not present (fees higher)

1. Merchant Account• How to be obtained?• Banko Most banks now offer e-commerce merchant services as

part of their standard small-business service package.o Banks often have a more rigid approval process for online

business because they are still considered high-risk venture

• Fees for credit card merchant:o Application, Set up, Statement, Transaction...etc

Cont.• Online services represent another option for finding merchant

account.• Companies that offer shopping cart program are now

accessing you to multiple companion services that set up merchant account.

2. Payment Gateway• After gaining approval to accept credit card, an e-business’s

next action is to choose a payment gateway.

• The payment gateway is an e-commerce service provider that communicates with:1. the credit card companies (payment processor),2. merchant bank, 3. and the website.

• Why payment gateway is important?o No face-to-face

Cont.• How to obtained payment gateway?• Merchant account provider might already have a designated

payment gatewayo It indicated that a relationship is already established.

• Alternatively, Merchant bank might have partnership set up with several gateways.

• Refer to better-known payment gateways in your book Ch6 page 169

Payment Gateway features• Look for a payment gateway that meets the following criteria:

1. Diverse• A gateway needs to work with all major credit cards,

including MasterCad, Visa, and American Express

2. Compatible• A gateway integrates with a web site’s shopping cart

software• Some programming might be required to get the gateway

communicate with the web site

Cont.3. Pays in a timely manner

• Choose a gateway that deposit money within a few days.4. Supportive

• A gateway should have customer service support available any time of the day or night

5. Accessible• Clients should be able to view the status of their web site’s

transaction in an online report6. Connection to Merchant bank

Strategies to prevent credit card fraudStrategies for preventing credit card fraud:

1. Post an anti-fraud policy that warns fraudulent that systems are in place to monitor all transaction

2. Ask customers for enough information to verify the validity of a card (demo)

3. Be aware of customers that use email addresses from free services such as Hotmail and Yahoo.• Such addresses are simple to obtain under a false name• Tracing these addresses can lead you to nothing

Cont.4. Ask customers for shipping and billing address.

• This can assist credit card issuers when tracking down fraudulent activity

5. Use a phone call or email to contact the customer to confirm the authenticity of an order

6. Be cautious of international orders, and send products via a national shipping company that offers tracking on every package sent.

PayPal

Paypal• PayPal is an Internet business which allows the

transfer of money between email users and merchants.

• Founded in December 1998 by Peter Thiel and Max Levchin in Silicon Valley, California.

• In October 2002 PayPal was acquired by eBay.

How PayPal links1. Links to a credit card and/or a bank account2. Transfer money from the credit card or bank

account into their PayPal account. 3. Pay for goods with your PayPal balance.

4. The specified dollar amount is then transferred from the buyer's PayPal account into the seller's PayPal account.

Why PayPal (from Buyer)• Merchant won't receive sensitive financial information like

your credit card or bank account number. This way, you don't have to worry about paying people you don't know.

• Free• They can send money also using email address

Why PayPal (from Seller)• Easy and cheap to use. • No need for a merchant account• No need gateway• Time to market. (can set up a PayPal account to accept

payments in minutes). • Offers user another payment option. 25 million people

have PayPal accounts.• In the future PayPal looks to expand to more countries • No monthly or setup fees

WHY PAYPAL CHEAP

Why Not PayPal• Customer needs to leave your Web site to complete the

transaction. This can be seen as unprofessional and also confusing to the user.

How PayPal solve it?

MAJOR ONLINE PAYMENT OPTION

PayPal is more popular than debit cards for online payments

LEADING GLOBAL BRANDS ACCEPT PAYPAL

PayPal Express Checkout• PayPal’s Express Checkout lets your customers pay

quickly and conveniently.o With PayPal Express Checkout, your customers

get the fastest, most streamlined PayPal checkout experience.

o Your customers select items to purchase and proceed to check out. When your customers choose to pay with PayPal, they are securely transferred to PayPal.

o Your customers also have the option of using your existing checkout for credit card payments.

How PayPal Transaction Work1. With PayPal Express Checkout, customers who choose to pay

with PayPal are sent to secure PayPal pages to approve using PayPal to pay. The PayPal-hosted pages can be customized to match the look and feel of merchant website.

2. Once customers approve the use of PayPal, they are automatically returned to merchant website to complete their order and pay. PayPal accepts, authorizes, and processes the payment instantaneously.

3. Once the payment is successfully processed, the funds are deposited directly into PayPal e-business account and can be withdrawn or transferred to merchant bank account easily.

Cont.