Turban- 3e
Instructor’s Manual
Chapter 10
Electronic Commerce Payment Systems
Learning Objectives
Upon completion of this chapter, you will be able to:
1. Understand the shifts that are occurring with regard to online payments.
3. Discuss the different categories and potential uses of smart cards.
5. Describe the situations where e-micropayments are used and the alternative ways for
handling these situations.
6. Describe the processes and parties involved in e-checking.
Content
Opening Case: Pay-Per-View Pages:
The Next iTunes
10.2 Using Payment Cards Online
10.4 Stored-Value Cards
10.6 E-Checking
Managerial Issues
Closing Case: Freemiums in the Social Gaming World
Supplementary Videos for this Chapter
1. Product Fulfillment; eCommerce Fulfillment; 3PL; Order Fulfillment Center (3:48
min)
4. E Invoicing (3:25 min)
Chapter 11
Page 3
Answers to Pause/Break Section Review Questions
Section 10.1 Review Questions
1.Describe the trends that are occurring in cash and non-cash payments in the United
States.
2. What types of e-payments should B2C merchants support?
3. What is the “chicken-and-egg” problem in e-payments?
4. Describe the factors that are critical for an e-payment method to achieve critical mass.
• Independence
• Interoperability and Portability
Section 10.2 Review Questions
1. Describe the three types of payment cards.
2. What options does a merchant have in setting up an e-payment system?
A merchant can choose to:
3. List the major participants in processing credit cards online.
For a given type of payment card and processing system, the processes and participants
4. What costs does an online merchant incur if it submits a fraudulent credit card
transaction?
5. Describe the major trends in fraudulent orders perpetrated against online merchants.
6. What steps are often taken by online merchants to combat fraudulent orders?
Merchants can take several steps to attempt to avoid fraud. These include:
Section 10.3 Review Questions
1. What is a smart card? Contact card? Contactless card?
2. What is a smart card operating system?
3. Describe the use of smart cards in metropolitan transportation systems.
Section 10.4 Review Questions
1. What is a closed-loop stored-value card? What is an open-loop card?
2. What are the major markets for stored-value cards?
Section 10.5 Review Questions
1. What is a micropayment?
2. List some of the situations where e-micropayments can be used.
3. Outside of using credit or debit cards, what are some of the alternative ways that an
online merchant can handle micropayments.
Chapter 11
Page 6
Section 10.6 Review Questions
1. What is an e-check?
2. Briefly describe how third-party e-check payment systems work.
Most businesses rely on third-party software to handle e-check payments. CheckFree,
3. What is the ACH?
4. List the benefits of e-checking.
• It reduces the merchant’s administrative costs by providing faster and less paper–
intensive collection of funds.
Answers to EC Application Case Questions
EC Application Case 10.1: TaiwanMoney Card
1. What is the TaiwanMoney Card?
2. Why did KCG decide to use a smart money card for their transportation system rather
than a specialized transportation card?
3. Why can’t the TaiwanMoney Card be used with KCG’s metro system?
EC Application 10.2: To POP or BOC: Digital Checks in the Offline World
1. What does POP stand for and how does it work?
2. What does BOC stand for and how does it work?
3. What are the advantages and disadvantages of POC?
Advantages include:
Disadvantages include:
• Required readers
Answers to Individual Discussion Questions
1. PayMo recently introduced a system enabling buyers to charge their purchases to their
cell phone accounts. Do you think PayMo’s system will succeed? What factors will play a
major role in its success or failure?
2. A textbook publisher is interested in selling individual book chapters on the Web. What
types of e-payment methods would you recommend to the publisher? What sorts of
problems will the publisher encounter with the recommended methods?
Student answers will vary.
3. Recently, a merchant who accepts online credit card payments has experienced a wave
of fraudulent orders. What steps should the merchant take to combat the fraud?
Student answers will vary. The merchant has several options, these may include:
4. A retail clothing manufacturer is considering e-payments for both its suppliers and its
buyers. What sort of e-payment method should it use to pay for office supplies? How
should it pay suppliers of raw materials? How should its customers—both domestic and
international clothing retailers—pay?
5. A metropolitan area wants to provide riders of its public transportation system with
the ability to pay transit fares, as well as make retail purchases, using a single
contactless smart card. What sorts of problems will they encounter in setting up the
system, and what types of problems will the riders encounter in using the cards?
Answers to Class Discussion Questions
1. Apple’s iTunes clearly dominates the online music business. In the long run, which
company has the best chance of dominating the e-book business, Google, Amazon.com,
or one of the other sellers like Barnes & Noble? Explain.
Student opinions will vary.
2. If you were running an online retail store would you permit purchases with e-
checks? Why or why not?
Student opinions will vary.
3. Why is the marketplace for electronic payment systems so volatile? Is there a need
for some other form of electronic payment?
Student opinions will vary.
4. Besides e-books and online music, what are some of the other places where e-
micropayments could be used?
Student opinions will vary.
Internet Exercises
(Note: URLs may change over time; please check the Internet Exercises on the
1. Use various online sources to research the dispute involving the Authors’ Guild,
various book publishers (e.g., Penguin), and Google over Google’s Book Search Library
Project. Describe some of the details of the settlement that was reached among these
parties.
Student reports will vary.
2. A number of years ago, eBay offered a payment system called Billpoint. It was a head-
to-head competitor with PayPal. Use online sources to research why PayPal succeeded
and Billpoint failed. Write a report based on your findings.
Student reports will vary.
3. Select a major retail B2C merchant in the United States and one outside of North
America. Detail the similarities and differences in the e-payment systems they offer.
According to CyberSource’s “Insider’s Guide to ePayment Management”
(cybersource.com/cgi-bin/pages/prep.cgi?page=/promo/InsidersGuide2008/index.html),
what other payment systems could the sites offer?
Student reports will vary.
4. Download Transit and Contactless Financial Payments (October 2006) from
smartcardalliance.org//pages/publications-transit-financial. Based on the report, what
type of payment system is New York City Transit (NYCT) piloting? Who are NYCT’s
partners in the pilot? What factors helped determine the type of system to be piloted?
How does the pilot work?
Student reports will vary.
5. Kohl’s utilizes Solutran’s SPIN for its BOC system. So does Walgreens. Based on
information provided at Solutran’s Web site (solutran.com) and information found in
Chapter 11
Page 10
online articles about the system, what sorts of capabilities and benefits does the system
provide? What is unique about the system?
Student reports will vary.
6. Go to nacha.org. What is NACHA? What is its role? What is the ACH? Who are the
key participants in an ACH e-payment? Describe the “pilot” projects currently underway
at ACH.
Student reports will vary.
Team Assignments and Role Playing
1. Select some B2C sites that cater to teens and some that cater to older consumers. Have
team members visit these sites. What types of e-payment methods do they provide? Are
there any differences among the methods used on different types of sites? What other
types of e-payment would you recommend for the various sites and why?
Student reports will vary.
2. Write a report comparing smart card applications in two or more European and/or
Asian countries. In the report, discuss whether those applications would succeed in North
America.
Student reports will vary.
3. Have one team represent MasterCard PayPass and another represent American
ExpressPay. The task of each team is to convince a company that its product is superior.
Student reports will vary.
4. Have each team member interview three to five people who have made a purchase or
sold an item at auction over the Internet. Find out how they paid. What security and
privacy concerns did they have regarding the payment? Is there an ideal payment
method?
Student reports will vary.
Closing Case: FREEMIUMS IN THE SOCIAL GAMING WORLD
1. What does the term freemium refer to? Give some examples.
2. On the social networks, why is it difficult to generate revenue through advertising?
Why is it particularly hard for social games?
3. How does the Zong system differ from the Spare Change system?
4. What is the long-term prognosis for companies like Zong and Spare Change?