4.4 Alternative Payments
Online Bank Transfers
-Enable direct and secure real time online payments between merchants and consumers Characteristics: -real time payment through accepted and trusted interest banking that is already familiar to consumers -real time payment authorization by hte customer and real tiem confirmation to the merchant by the acquiring bank -ireevocable transfer of funds to hte merchant -suitability for online delivery, offline delivery and time critical payments -flexibility to make payments fro many different purposes -consumers do not need to register
Mobile Payments: Processes
mobile payment mobile authentication mobile ordering mobile delivery mobile banking mobile loyalty
Radio Frequency Identification (RFID):
mobile payments technology contactless technology for both proximity and vicinity communication. It refers to small electronic devices that consist of a small chip and an antenna which provide unique identifiers for objects. one way communication from chip to reader Ez pass
Host Card Emulation (HCE)
on-device technology that permits a phone to perform card emulation on an Near Field Communication (NFC)-enabled device without relying on access to a secure element.
Quick Response Codes (QR codes)
two-dimensional machine-readable codes usually consisting of a matrix of black and white squares. They contain data that can be read and displayed by a smartphone.
Pass through digital wallet
• Allows consumers to store payment information in one convenient and secure place. Consumers can load their digital wallet with all their credit, debit and prepaid cards. • Eliminates the need to enter detailed shipping information with every purchase. Characteristics: • From the consumer's perspective, pass-through digital wallets save time and provides additional security for their card details. • From the merchant's perspective, pass-through digital wallets lead to reduced cart abandonment and a higher rate of completed transactions. • Support the use of NFC, QR codes, tags and mobile devices used at points of sale.
Prepayment
• Authorisation • Authentication • Fulfilment • Contracting • Risk Management • Support • Report • Track/Review • Upsell/Cross-Sell
Proximity C2C
• Contactless Transfer: payment methods for contactless transfer of funds which is possible only when the payer and the payee are close to each other
Payment
• Credit Transfer • Direct Debit • Card Payment • Cheques
Remote C2C
• Mobile Fund Transfers: services to transfer money remotely from one account to another. These services can transfer money stored directly in bank accounts or in other virtual wallets
Remote B2C
• Mobile Online Payments: payments initiated through the mobile device for purchasing goods delivered at a later moment or for paying for digital goods which become available immediately. • Mobile Banking: an extension of online banking which the consumer uses to initiate a mobile banking payment which results in transaction carried out via the same payment instruments of online banking payments.
Proximity B2C
• Mobile POS Devices: mobile devices used by merchants as POS terminals - usually dongles attached to internet connected smartphones or tablets which the merchants use for card acceptance and other payments. • Contactless Payments: the consumer uses a mobile device at the POS and holds it in proximity at the reader.
Types of Alternative Payments
1. Bank transfers -online (real time) bank transfers [payments with immediate online cusotmer authoirzation - dutch] -offline bank transfers 2. Direct Debits 3. EWallets - fastest growing -Preloaded digital wallets (prepaid as an alternative to cash - users have to fund wallet before paying for online txn - add funds to wallet such as cards or bitcoins)-PAYPAL -Pass through digital wallet - use a card of file to pay [visa, masterpass by mastercard] 4. Mobile payments -Phone Bill (carrier billing)- payers only need to provide phone number to pay - buying digital goods -Mobile wallet 5. Pre-paid Vouchers -pay card or voucher before starting txn, card authorized immediately 6. Post-pay customer buys product online but pays for it later (in affiliate store) brazillians do this -cryptocurrency
Drivers for Change
1. Enabling Technology • Increases the demand for alternative payments • Change in the consumer behaviour • Change in the merchant demands • Supports the development of new devices and methods 2. Drive for Integration • Payments as part of the product 3. New Entrants: Retailers • Capture valuable consumer behavior data (apple, amazon, google) 4. Increased Security • New technological products and standards
onilne transfer flow:
1. The consumer chooses online bank transfer as a payment method.
Payment Protocal
6. The merchant sends a transaction request to the merchant bank, containing the consumer bank chosen by the consumer, the "Merchant Return URL" the amount and other transaction details. 7. The merchant bank sends a message to the consumer bank in order to collect additional information needed for the transaction. 8. The consumer bank responds with a message that contains the additional data including the consumer bank „Authentication URL". 9. The merchant bank sends the consumer bank "Authentication URL" and a unique "Transaction ID" back to the merchant via the transaction response message. 10. The consumer authorizes the payment. 11. The consumer receives a confirmation from the consumer bank.
Near Field Communication (NFC)
: a radio frequency technology that allows different devices to communicate with each other wirelessly in a short radius allowing faster data transfer speed and increased data security in the payments domain. used to transfer confidential payments
Instruments
A tool or set of procedures enabling the transfer of funds from a payer to a payee. The payer and payee can be one and the same person
Preloaded Digital Wallets
Allow payments and money transfers to be made through the internet with a focus on low cost international money transfers characteristics: -operate in 3 party system and close loop busienss model -high interoperability: connect their users across a wide range of available funding sources work with major cards schemes 3 paritise: consuer, merchant, preloaded digital wallet consumer and merchant have accounts on preloaded digirtal wallet -consumer has many ways to fund account: cards, credit transfers, direct debits, other alt patyments -merchant can alwasyu wirhtdraw to their merchant bank -consumer account is debited -merchnat is credited during transaction between consumer nad merchant, product delivery takes place
Domains of Alternative Payments
Alternative payments are composed of three domains: the pre-payment, the actual payment and the subsequent post-payment. 1. Prepayment 2. Payment 3. Post payment
Mobile Payments: Categories
C2C REMOTE: Mobile Fund Transfer C2C Proximity: Contactless Transfer B2C REMOTE: Mobile Online banking & mobile banking B2C Proximity: Contactless Paper & Mobile Card Payment (square)
Directory Protocal
Directory Protocol 2. The merchant sends a directory request to the merchant bank. This is a request to obtain the list of participating consumer banks from the merchant bank. 3. The merchant bank provides the list back to the merchant by sending back the directory response. 4. The merchant shows the list of banks to the consumer. 5. The consumer chooses his bank from the list.
online transfer flow
Directory protocal: between merchant and merchant bank merchant senmds directory request to merchant bank - want to get a list of pariticpanting consumer banks from merchant bank consumer chooses bank from this list payment protocal follows - merchant sends request to merchant bank about the bank chosen by the consumer/sends the amount and other transaction details/merchant return URL (used by issuer to redirect issuer back to consumers webiste once the consumer finishes paying merhcbnat bank sends reuqest for additional info to consumer bank next consumer bank responds with messgae that has consumer data info and also consumer bank authentication URL consumer sends autorization to consumer bank and consumer bank sends confirm back to consumer Status: merchant bank reuqests status from consumer bank, merchant bank gets that status and sends it over to merchant
Preloaded digital wallet: 3 corner processing flow
Paypal 1. The consumer chooses a preloaded digital wallet as a payment option. 2. The merchant redirects the consumer to the gateway and submits the payment parameters. 3. The consumer authenticates. 4. The customer selects the payment method (funding of the transaction). 5. The consumer confirms the transaction. 6. The digital wallet account of the consumer is debited and the digital wallet account of the merchant is credited. 7. The digital wallet confirms the finality of the transaction and redirects the customer to the merchant's website.
Services
Propositions built by banks and payment service providers for end-customers on top of the three layers "instruments", "processing" and "settlement".
Query Protocal
Query Protocol 12. The merchant sends a status request message to the merchant bank. 13. The merchant bank requests the transaction status from the consumer bank. 14. The consumer bank sends a status response to the merchant bank. 15. The merchant bank returns the transaction status to the merchant
Online Bank Transfer: Four corner model relationship
SLIDE*** Consumer bank Merchant Bank Consumer Merchant Payment servie provider = optional. merchant can use PSP to establish connection with merchant bank. PSP receives payment before its paid to merchant (called collecting PSP). Acts as the merchant for the purpose of the merchant and holds the contract.
Infrastructure of Alternative Payments
Services: Pingit, Google wallet, Visa, Paypal, Apple pay etc Instruments Processing Settlement 4th layer has arrived: Internet
Settlement
The completion of a transaction or of processing with the aim of discharging participants' obligations through the transfer of funds and/or securities. A settlement may be final or provisional.
Processing
The performance of all of the actions required in accordance with the rules of a system for the handling of a transfer order from the point of acceptance by the system to the point of discharge from the system. Processing may include clearing, sorting, netting, matching and/or settlement. -local automated clearing house structures and also global
Bluetooth Low Energy (BLE)
allows for wireless streaming of data with very low power consumption and operates at a much longer range than NFC
Alternative Payments
also called Electronic Alternative Payments, are all payment methods different than the traditional cash, cards and ACH payments. • Services built on top of existing interbank payment infrastructures such as the SEPA infrastructures • Used in e-commerce and m-commerce • Disrupt the existing business models and disintermediate banks • Often operate at regional level and offer niche products • The added value lies on a part of the payment transaction life-cycle. • Offer more convenience and higher efficiency
Definitions of the above
• Mobile Payment: a payment, defined as a transfer of funds in return for a good or service, where the mobile device is involved in both the initiation and confirmation of the payment. • Mobile Authentication: use of the mobile device to authenticate the user either as part of a payment transaction or to give access to some information or functionality. • Mobile Ordering: transactions where the mobile phone is used to initiate the order but not to make the payment. • Mobile Delivery: transactions where the mobile phone is used to receive delivery of goods or services without making the payment. • Mobile Banking: access to banking functionality via the mobile phone. • Mobile Loyalty: the use of a mobile device for storing and redeeming loyalty points.
Mobile Payments
• Mobile Payment: a transfer of funds using mobile telecommunications networks or diverse mobile devices in both the initiation and confirmation of the payment. • The location of the payer and the supporting infrastructure are not the key factors: • The payer may be "on the move" or at the Point of Sale. • The payment may be processed by credit cards or by a prepaid wallet. Funds can be transferred and deducted from the prepaid amount or billed by the mobile network operator. • Mobile payments often add more value to the payment and bundle loyalty offers, advertising platforms and other value added services to the payment transaction.
Post payment
• Payout • Contracting • Implementation • Risk Management • Support • Report • Track/Review • Upsell/Cross-Sell
Success Factors
• Real-Time: immediate information about an executed payment, certainty of the payments and availability of funds • Free/Low Cost: lower costs for both the merchants and the consumers • Mobility: payments capability everywhere • Multi-Channel: integrated multi-channel services which include the whole payment process • Ease of Use: simple and seamless 'one-click' solutions, less passwords, PINs, card numbers etc. • Secure: secured personal data, no risk of fraudulent payment transactions • Anonymity: converting cash into electronic money anonymously • Flexibility and Specialization: personal needs and expectations; specialized requests • Returns/Refunds: easy and less time consuming processes of handling returns and refunds