Introduction to Electronic Commerce, 3e (Turban)
Chapter 10 Electronic Commerce Payment Systems
10.1 True/False
1) The barriers to selling pay-per-page or chapter plans online are technical, not financial.
2) Purchases under $5 are called micropayments.
3) The disintermediation of cash and credit cards has been successful in the online world.
4) Evidence suggests that consumers are willing to use their credit cards for micropayments.
5) To date, companies such as Amazon.com and Random House have been very successful with
their pay-per-page and chapter plans for selling books.
6) The overwhelming majority of B2C purchases are paid for by credit card.
7) E-payment methods that require the payer to install specialized security software are likely to
succeed.
8) The success of an e-payment method depends on its interoperability with existing enterprise
systems and applications.
9) Currently, the percent of recurring bills paid electronically hovers around 75 percent.
10) To succeed, special e-payment methods, such as e-cash, have to maintain anonymity.
11) E-payment methods that address the lower or higher end of the price continuum are unlikely
to be widely accepted because of cost and security issues.
12) Credit cards and charge cards are e-payment instruments that allow the holder to make
purchases up to a fixed limit and charge interest each month on unpaid balances.
13) With a debit card, the money for a purchased item comes directly out of the holder‘s
checking account with the actual transfer of funds from the holder’s account to the merchant’s
taking place within one to two days.
14) In the settlement process, the system determines whether a buyer’s card is active and whether
the cardholder has sufficient funds available for the purchase.
15) Identification and settlement are the two major phases of card payment processing.
16) In the authorization process, money is transferred from the buyer’s to the merchant’s account.
17) For a given type of payment card and processing system, the processes and participants are
essentially the same for off-line (card present) and online (card not present) purchases.
18) CyberSource is a payment processing service that provides connectivity among merchants,
customers, and financial networks that enables authorization and payments.
19) In the online world, merchants are not held liable for fraudulent transactions.
20) Recent surveys by CyberSource indicate that fraudulent card transactions are a growing
problem for online merchants.
21) According to a recent CyberSource survey, larger firms are more susceptible to fraud than
smaller firms.
22) One problem with the Address Verification System (AVS) for fraud prevention is the
number of false positives, meaning that the merchant rejects a valid order.
23) One impact of anti-fraud tools is that merchants are rejecting a significant number of both
valid and invalid orders due to suspicion of fraud.
24) Smart cards are more secure than credit cards and can be extended with other payment
services.
25) Regardless of the vendor’s point of view, there is substantial evidence, at least in the offline
world, that consumers are not willing to use their credit or debit cards for micropayments under
$5 to minimize security risks.
10.2 Multiple Choice
1) Systems that aggregate online purchases are
A) closed-loop systems.
B) open-loop systems.
C) payment consolidation systems.
D) micropayment aggregation systems.
2) Factors that determine whether a particular method of e-payment achieves critical mass
include each of the following except
A) hardware and software independence.
B) full traceability of the buyers.
C) degree of security of the transfer.
D) interoperability with other enterprise systems and applications.
3) Which of the following spurred the use of debit cards by eliminating the requirement for
merchants to issue receipts for debit purchases of $15 or less?
A) Federal Deposit Insurance Act
B) Bank Service Company Act
C) U.S. Electronic Funds Transfer Act
D) Bank Protection Act
4) Each of the following is true regarding trends for B2C merchants except:
A) It is hard to run an online business without supporting credit card payments.
B) It is increasingly important to support payments by debit cards.
C) Merchants interested in international markets should support a variety of e-payment
mechanisms.
D) Merchants who offer multiple payment types have higher shopping cart abandonment rates
and lower order conversion.
5) Factors influencing whether a particular e-payment method achieves critical mass include
A) independence.
B) interoperability and portability.
C) security.
D) all of the above.
6) Each of the following is a true statement regarding e-payment methods except
A) to succeed, special payment methods, such as e-cash, must be well-known.
B) e-payment methods that require the payer to install specialized components are less likely to
succeed.
C) if the risk for the payer is higher than the risk for the payee, then the payer is not likely to
accept the method.
D) for B2C e-payments, credit cards are the standard due to their ease of use.
7) Each of the following is a payment card type except
A) debit card.
B) video card.
C) credit card.
D) charge card.
8) Which of the following provides the holder with credit to make purchases up to a limit fixed
by the card issuer?
A) charge card
B) credit card
C) debit card
D) rebate card
9) The type of payment card where the money for a purchased item comes directly out of the
holder’s checking account is a
A) credit card.
B) charge card.
C) debit card.
D) rebate card.
10) The process of determining whether a card is active and whether the customer has sufficient
funds for the purchase is called
A) settlement.
B) approval.
C) authorization.
D) procurement.
11) During the processing of card payments, which of the following involves the transfer of
money from the buyer’s to the merchant’s account?
A) acquisition
B) acceptance
C) authorization
D) settlement
12) Each of the following is a basic configuration for processing online payments except
A) own the payment software.
B) require the issuing bank to provide the software and the point of sale system.
C) use a point of sale system operated by an acquirer.
D) use a point of sale system operated by a payment provider.
13) Which of the following is the basic configuration for processing online payments where the
merchant system deals only with order information?
A) own the payment software
B) use a point of sale system operated by a payment service provider
C) use a point of sale system operated by an acquirer
D) require the payee to utilize specialized software
14) ________ offer Internet Merchant Accounts, which are special accounts for credit card
authorization and payment processing.
A) Acquiring banks
B) Issuing banks
C) Credit card associations
D) Payment processing services
15) Costs associated with fraudulent transactions include
A) additional fees and penalties imposed by card associations for accepting fraudulent
transactions.
B) the cost of manually reviewing orders.
C) the revenue that is lost from rejecting orders that are valid.
D) all of the above.
16) In a 2008 survey, CyberSource documented each of the following except:
A) The total dollars lost to fraud increased substantially, from $1.9 billion in 2003 to $4.0 billion
in 2008.
B) The fraud rate for international orders is 3.5 times less than the fraud rate for domestic orders.
C) In 2008, the median value of fraudulent orders was $200, which was 67 percent higher than
the average value of valid orders.
D) From 2006-2007, the amount spent on manual review of orders increased over 30 percent, or
by about $100 million.
17) The steps merchants have taken to combat fraud include each of the following except:
A) In 2008, merchants used more tools than in the past to combat fraud.
B) In 2008, the median number of tools used by merchants was 4.7, compared with 3 in 2003.
C) Of the .2 percent of online revenue allocated to combating fraud in 2008, most of the money
was spent on third-party tools and services.
D) Fraud screens and automated decision models were among the key tools used to combat
fraud.
18) Key tools used in combating fraud include
A) address verification.
B) manual review.
C) card verification number.
D) all of the above.
19) A tool that detects fraud by comparing the address entered on a Web page with the address
information on file with the cardholder’s issuing bank best describes
A) address verification system.
B) card verification system.
C) billing verification system.
D) point of sale system.
20) A file containing customer status and customer information that is used when processing
transactions to identify known problem customers is a
A) negative list.
B) problem child list.
C) cancellation list.
D) rejection list.
21) A smart card containing a small gold plate on the face that when inserted in a smart card
reader makes contact and passes data to and from the embedded microchip is a
A) plate card.
B) contact card.
C) proximity card.
D) dedicated card.
22) The type of contact card that is erasable and modifiable is
A) EPROM.
B) BIOS.
C) EEPROM.
D) RAM.
23) Which of the following is an open application operating system for smart cards?
A) Linux.
B) SMARTS.
C) Windows Vista.
D) MULTOS.
24) A ________ has two separate chips embedded in the card, contact and contactless, which
eliminates the need to carry multiple cards to support the various smart card readers and
applications.
A) dual-interface smart card
B) multi-debit card
C) hybrid smart card
D) RFID card
25) The European Commission initiative where all EU banks agreed to use the same basic bank
card standard, enabling the use of credit and debit cards throughout the EU is
A) SEPA.
B) CUPA.
C) EECA.
D) EUCP.
26) Stored-value cards that are issued by a specific merchant or merchant group and that can
only be used to make purchases from that merchant or merchant group are called
A) open-loop cards.
B) closed-loop cards.
C) merchant-specific cards.
D) designated cards.
27) The micropayment model where payments from a single consumer are batched together and
processed only after a certain time period has expired or a certain monetary threshold is reached
describes
A) aggregation.
B) stored value.
C) subscriptions.
D) direct payment.
28) The micropayment model where up-front payments are made to a debit account, and then
purchases are deducted as they are made is
A) aggregation.
B) stored value.
C) subscriptions.
D) direct payment.
29) An advantage of e-checks is that they
A) involve simple processing systems.
B) operate outside the traditional banking industry.
C) contain much more information then traditional paper checks.
D) fit current business practices, and so require little process reengineering.
30) The nationwide batch-oriented electronic funds transfer system that provides for the
interbank clearing of electronic payments for participating financial institutions is the
A) Automated Clearing House Network.
B) Federal Reserve System.
C) E-bill Presentment and Payment Network.
D) Receiving Depository Financial Institution.
10.3 Fill in the Blank
1) Purchases under $5 are ________.
2) The ________ eliminated the requirement for merchants to issue receipts for debit purchases
of $15 or less.
3) When a credit card is used for payment, the merchant pays a ________ of up to 3 percent of
the item’s purchase price.
4) A number of international, federal, and state ________ govern all payment methods.
5) ________ are electronic cards that contain information that can be used for payment purposes.
6) A ________ is a type of payment card that provides the holder with credit to make purchases
up to a limit fixed by the card issuer.
7) A ________ is a type of payment card where the balance is supposed to be paid in full upon
receipt of the monthly statement.
8) With a ________, the money for a purchased item comes directly out of the holder’s checking
account.
9) In a card payment system, ________ determines whether a buyer’s card is active and whether
the customer has sufficient funds.
10) ________ and ________ are the two major phases of processing card payments.
11) In the processing of card payments, ________ involves the transfer of money from the
buyer’s to the merchant’s account.
12) ________ is a third-party service connecting a merchant’s EC system to the appropriate
acquiring bank or financial institution.
13) Most merchants use the fraud detection method known as ________. This method compares
the address entered on a Web page with the address information on file with the cardholder’s
issuing bank.
14) ________ detects fraud by comparing the verification number printed on the signature strip
on the back of the card with the information on file with the cardholder’s issuing bank.
15) A ________ is an electronic card containing an embedded microchip that enables predefined
operations or the addition, deletion, or manipulation of information on the card.
16) The ________ activates and reads the contents of the chip on a smart card, usually passing
the information on to a host system.
17) A ________ is a smart card containing a small gold plate on the face that when inserted in a
smart card reader makes contact and passes data to and from the embedded microchip.
18) A ________ is a special system that handles file management, security, input/output, and
command execution and provides an application programming interface for the smart card.
19) A ________ card has an embedded antenna that passes data and applications to and from a
card reader unit without contact between the card and reader.
20) In general, smart cards are ________ secure than conventional payment cards.
21) A ________ is a card that has monetary value loaded onto it and that usually is rechargeable.
22) ________ and ________ are two varieties of stored-value cards.
23) ________ are small online payments, typically under $10.
24) A(n) ________ is a legally valid electronic version or representation of a paper check.
25) The ________ is a nationwide batch-oriented electronic funds transfer system that provides
for the interbank clearing of electronic payments for participating financial institutions.
1) List nine factors that come into play in determining whether a particular method of e-payment
achieves critical mass.
2) List the three basic configurations for processing online payments.
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3) What costs do online merchants incur for fraudulent transactions?
4) What is a smart card? Briefly describe two types of smart cards.
5) Briefly describe five basic micropayment models.