Week 11 - Electronic Payment Systems

Question 1

credit card: key features, cash requirement, spending limit, issuing entity and example

Answer 1

• Most popular for online payments.
  -Doesn’t require physical cash
  -Has a spending limit, based on user’s credit history
• Banking Companies
• Visa, Mastercard

Question 2

debit card: key features, cash requirement, spending limit, issuing entity and example

Answer 2

• Removes an amount from a cardholder’s bank account.
  Transfers it to the seller’s bank account
• Must have the physical cash
• Limited by available bank balance
• Banking Companies

Question 3

charge card: key features, cash requirement, spending limit, issuing entity and example

Answer 3

• Sometimes preferred as it has no limit.
  Amount charged on card is due at the end of billing period (month)
• Doesn’t require physical cash
• No spending limit
• Non-Banking Companies
• American Express

Question 4

what is an online payment gateway?

Answer 4

Usually a third party / intermediary that checks credit card details & ensures details are encrypted between buyer & seller.
- Services that process payment information for websites
o checkout process fast and easy
o provide encryption to keep your customer’s information secure

Question 5

list the steps of payment acceptance & processing (e.g., after the merchant recieves the customers payment card information)

Answer 5

1. Merchant authenticates payment card
   a. The credit card number matches the CVV number & the card is within its expiry
2. Merchant checks with payment card issuer
   a. To ensure that credit or funds are available
   b. Puts a hold on the funds needed to cover the charge
3. Settlement occurs
   a. Funds are released from the bank to the merchant or vice versa
   b. Two types of settlement  open & closed loops

Question 6

open loop systems (aka clearinghouse)

Answer 6

involves 3 / + parties

Bank offloads their responsibility for payment verification to the clearing house.
(2) Check for https, to ensure payment details are encrypted & a secure transaction
(3) Browser is open.
(4) Clearinghouse verifies all details & ensures sufficient funds for a hold to take place on those funds.
(5) Receipt / Record of Transaction is sent
(6) Monthly statement issues to consumer of your expenses

Question 7

closed loop systems (e.g., no clearinghouse/ACH)

Answer 7

• Card issuer directly pays the merchants – no intermediary
• Works the same way as open loop, but without automated clearing house.
• Merchant bank checks all the details that would have been done by the clearing house. Then transaction continues as normal.

Question 8

what is a stored value card?

Answer 8

A card that has monetary value loaded onto it and that is usually rechargeable - e.g., uc card to print.
closed systems have a finite amount
open systems can be recharged (topped up)

Question 9

issues with epayment?

Answer 9

• Independence (opp. to choose various payment methods)
• interoperability and portability (how well new payment techniques will work with existing one)
• security (avoid loopholes)
• anonymity (bank will always know every transaction youve made)
• ease of use
• transaction fees
• international support
• regulations (no standard set)