****Payment cards are plastic cards used for purchases  -Categories: credit cards, debit cards, charge cards,prepaid cards, and gift cards

Credit cards (Visa, MasterCard) have a spending limit based on user's credit history  - Pay off entire credit card balance or minimum amount with interest charged on unpaid balances   - Widely accepted and provides consumer protection: 30-day dispute period   - Card not present transactions include an extra degree of risk for merchant and bank

Debit card (electronic funds transfer at point of sale(EFTPOS) cards) removes funds from cardholder's bank account and transfers it to seller's account   - Issued by bank with major credit card issuer's name

Charge card (American Express) has no spending limit with entire amount due at end of billing period

Retailers may offer their own store charge cards

Prepaid cards are called gift cards

Single-use cards had disposable numbers, valid for one transaction, but not adopted by consumers

****Advantage for merchants include fraud protection   - Can authenticate and authorize purchases using a payment card processing network

Interchange network is a set of connections between banks and associations owning credit cards

Advantage for U.S. consumers is limited fraud liability of $50 which is often waived if card is stolen

Merchants view the per-transaction and monthly processing fees as a cost of doing business

Consumers pay a slightly higher cost for goods due to these cards and some charge an annual fee

****Merchant Accounts

*Acquiring bank does business with sellers that want to accept payment cards    - Business must set up a merchant account with acquiring bank to process Internet transactions

One type similar to a checking account with bank collecting accounts net of processing fees

Commonly account acts like a credit line where the acquiring bank makes a non-interest bearing loan in the amount of daily net receipts, reduced by collections

*Obtaining account requires merchant to provide business information and the bank to assess risk

*Chargeback occurs when cardholder successfully contests charge

*Acquiring bank must retrieve money from merchant account which may have funds on deposit

Acquirer fees are charges for providing payment card processing service   - Per month and transaction, set by the acquiring bank

*Interchange fees are charged at rates that depend on the merchant's industry  - Set by card association, charged to acquiring bank and usually passed along to merchant

*Level of fraud is higher online    -Under 15% of all credit card transactions responsible for 64% percent of total dollar amount of credit card fraud (declining since 2008)

*Antifraud measures include   - Scoring services that provide risk ratings for individual transactions in real time    - Shipping only to card billing address and requiring card card verification numbers (CVNs) for card not present transactions   . Three- or four-digit number printed on the credit card but not encoded on the card's magnetic strip

****Digital Cash

*Also called electronic cash or e-cash

*Describes any value storage and exchange system created by private (nongovernmental) entity  -Does not use paper documents or coins   -Can serve as substitute for government-issued physical currency   -No common standard adopted so far   -None adopted so far

*Can be held in online storage or offline storage

*With online cash storage consumer has no personal possession of digital cash  -Trusted third party (online bank) involved in all transfers, holds consumers' cash accounts   -Merchant contacts consumer's bank for payment   -Helps prevent fraud (confirm valid cash)

*Fills a need in developing countries that rely on cash as they conduct B2C electronic commerce   -Need does not exist here because U.S. consumers already have payment cards

*Bitcoin is the most well-known provider today  -Online ledger book that tracks balances while participants remain anonymous  -Public-key cryptography is used (cryptocurrency)    -Large percentage of uses involve illegal purchases and currency speculation

*Concerns include privacy and security, independence, portability, convenience   -Must be impossible to spend more than once, easy to use and not traceable to the person who spent it  . Anonymous digital cash

****Payment System Threats: Phishing and Identity Theft

*Phishing attacks are techniques for committing fraud against online businesses customers   -Particular concern to financial institutions

*Attacker sends e-mail message to accounts with potential for an account at targeted Web site   - E-mail message tells recipient account compromised and recipient must log in to correct problem     . Includes link that appears to be Web site login page     .Actually leads to perpetrator's site so that victim's log in information can be captured and used

Spear phishing is a carefully designed phishing attack targeting a particular person or organization    - Requires considerable research which increases change of e-mail being opened

*Example: 2008 government stimulus checks  -Phishing e-mails that seemed to be from the IRS appeared within one week of passage

*E-mail link disguise the real URL by using "@" which causes the Web site to ignore characters before it -https://[email protected]/fl/ login.html     -Phony site invisible due to JavaScript code

*Pop-up windows look exactly like browser address bar including Web site graphics to make it even more convincing