Payment Methods and Business Transactions Quiz

Electronic Payment Overview

• Electronic payment methods are used for e-commerce, replacing cash transactions.
• Money acts as a "lubricant" for economic activity, enabling business transactions.
• Economic areas without money are usually restricted to small geographic areas.
• Money is a means of buffering value over time.
• The economic cycle involves delivering a product or service, receiving payment, offering money to get a product, receiving the product, and spending the money.

Traditional Payment Methods

• Cash (notes and coins): Simple, low transaction costs, and allows anonymity, but vulnerable to fraud and loss.
• Physical currency's business value is higher than its physical value, needing central bank authorization.
• Restrictions due to different currencies limit the use of physical currency in various economic areas.

Problems with Traditional Methods

• Authenticity may be questionable.
• Possible loss or theft.
• Acceptance by both parties is required.

Book Money Overview

• Today, most business transactions use book money rather than physical notes and coins.
• Book money requires a banking account for customers and suppliers.
• A bookkeeper guarantees account balances and enables money transfers.
• Book money transactions cannot be completely anonymous.
• Suppliers are guaranteed payment with book money, but transactions come with costs.

Different Types of Money

• Money in cash
• Book money
• E-money

Primary Payment Methods

• Cash payment
• Bank transfer
• Debit note
• Wallet payment

Assessment Factors for Payment Methods

• The supplier assesses payment methods based on customer acceptance, prevention of payment shortages, and costs.

Technical Parameters for Choosing Payment Methods

• Payment periodicity (one time, periodic, or subscription-based).
• Business internationality.
• Customer anonymity.
• Level of payment guarantee (protection against payment shortfalls or delays).
• Distribution and acceptance of the method.

Payment Amounts and Costs

• Invoiced amount.
• Payment-dependent costs (customer and supplier costs based on transaction or volume).
• Payment-independent costs (one-time procurement or setup costs, and periodic costs).

Security Requirements

• Transaction control and monitoring.
• Secure authentication procedures.
• Defined liability scope.

Payment Procedures (Invoice-Based)

• The basic process typically includes ordering, delivery, sending an invoice (possibly integrated with delivery), payment (e.g., bank transfer), and confirmation of payment.

Potential Problems (Invoice-Based)

• Delivery without invoice.
• Invoice without delivery.
• Discrepancies between delivery and invoice.
• Non-payment by the customer.
• Delayed payment.

Assessment of Payment per Invoice Methods

• This method is not an integral part of e-commerce.
• Risk is carried primarily by the supplier.

Payment Procedures (Cash in Advance)

• The key steps are ordering, invoicing, payment, and delivery after payment receipt.

Issues with Cash in Advance Payment Methods

• The customer bears the risk for non-delivery.

GiroPay Method

• Introduced in 2000.
• Founded by a group of German banks.
• Steps of transaction include confirming a pre-filled money transfer form and crediting the supplier.
• Customer and supplier accounts must allow online bank usage.
• Suppliers and customers must contract with a bank.

Potential Problems (GiroPay)

• Duration from payment to delivery.
• Differentials between payment amount and delivery volume.
• Confirmation of payment receipt.

Assessment of GiroPay Method

• This method is not embedded in e-commerce; the risk remains with the customer.

Cash on Delivery Payment Methods

• Customer places an order with cash on delivery (COD) and specifies the delivery address.
• Delivery occurs with an invoice.
• Supplier forwards the parcel with the invoice to the delivery service provider.
• Delivery service provider delivers to the customer.
• Customer pays delivery service provider, who forwards the money payment to the supplier.
• Supplier confirms payment.

Problems and Conditions (COD Payment Methods)

• Delivery unavailability (customer absence).
• Invoice and delivery issues.
• Customer cash availability and change issues.
• Delivery provider handling of transactions.

Assessment of Cash on Delivery Methods

• Not an integral e-commerce part; risk neutral, but with customer facing issues.

Payment per Debit Note (or Credit Memo)

• Involves order placement, debit note submission by the supplier at the bank, bank account clearance, the supplier's bank taking the requested money amount from the customer's account—delivery, and invoice forwarding.

Payment per Credit Note Surrounding Conditions

• Customer has a giro contract with the bank.
• Suppliers have a cashing contract with a bank.
• Customer and supplier banks have debit-note handling contracts.

Payment per Debit Note Problems

• Money collection issues.
• Non-delivery.
• Discrepancies between delivery and invoice.

Assessment of Payment per Debit Note

• Simple application, trustee function of the bank, greater customer risk, possible security issues related to data on the web.

Payment via Credit Card (Payment per credit note)

• Order, invoicing, credit card payment acceptance, and delivery, forwarding invoice (if not online).

Surrounding Conditions (Payment per Credit Card)

• Customer has a credit card contract.
• Merchant must have credit acceptance contract with a bank and be linked to a payment service provider.

Payment per Credit Card Potential Problems

• Non-delivery.
• Invoice differences.
• Payment malfunctions.

Credit Card Payment Assessment

• Payment guaranteed by the credit card company, making the method risk-neutral.

E-Payment Overview

• E-Payment methods supplement traditional methods, simplifying e-commerce for sellers and buyers.
• Often combining several traditional payment options.

General E-Payment Procedure

• Customer initiates payment, supplier requests payment from an e-payment service provider, vendor forwards customer to the e-payment platform, customer confirms transaction, e-payment firm processes transaction, and credits the supplier's account.

Examples of E-Payment Systems

• PayPal
• Smart Card-based systems (Paysafecard, T-Pay)
• Mobile-based systems (mpass, ClickandBuy).

Mobile Phone-Based Systems (e.g., mpass)

• Mpass integrates online shopping with mobile technology.
• Requires a German mobile number and bank account.
• Secure authentication process using personal PIN and SMS verification.
• Registration is simple and free; the customer can use it whenever they choose.

ClickandBuy Method

• ClickandBuy stores customer data (bank and credit details) on its server.
• Customers do not need to display banking credentials; the data is kept safe.
• ClickandBuy supports various online shops, including Apple iTunes Store, T-Online Musicload, Steam, bwin, Test.de, FAZ.NET, and iStockphoto.

Receivables Management

• Delays in payment can be caused by chargebacks (for credit or debit cards) or delayed invoice payment.
• Methods for managing or chasing unpaid receivables include dunning letters, phone calls, and in-person visits.

Legal Actions and Court Procedures

• If internal cashing attempts fail, lawyers can initiate legal action and take the matter to court.
• These actions may involve notifying the receiver of the activities, citing past judgments, and submitting details that constitute a case.

Cyber Money Overview

• Cyber money (or digital currency) involves electronically created and stored money used for online transactions.
• Key difference is that it's not a legal tender.

Virtual Money

• Virtual money consists of value units stored electronically.
• Neither the buyer nor the seller needs to be the issuer of the virtual currency.
• Virtual money methods, if properly implemented, can potentially replace physical cash and bank reserve systems.

Virtual Money Requirements and Problems

• An agreed upon currency unit is needed.
• Defining authority for issuing money documents (similar to a central bank).
• Private currencies need their value ensured by the issuers.
• Exchange rates must be fixed.
• Complete anonymity isn't achieved in web transactions.