Development of an Internet Payment Processing System

E-Commerce Applications

Before we proceed any further, we have to distinguish two types of transactions on the Internet:

Transactions of the first type are not performed in real-time. When a card holder submits payment and gets a response, payment is only posted for further processing. Actual authorization of the transaction is performed (manually) at a later time and consequently at a higher operating cost. This is acceptable when delivery of goods and services is slow, e.g., via regular mail. As an example, when the author purchased a book from Amazon.com in August 2000, the order was approved after an hour or so.

The other type of transaction is performed in real-time. When a card holder submits payment and gets a response, payment is completed. Money on the card holder's bank account is earmarked and transfer of money to the merchant's bank account is guaranteed. This type of transaction is required when delivery of goods and services is imminent (e.g., download of software or MP3 files). Despite this requirement, some e-commerce sites use the first type, and deliver goods and services based on an assumed success of authorization in the future. This approach risks losses due unauthorized transactions.

The system described in this article can configurably work in either mode. When it works in the second, fully automated mode, the system interfaces with the BankWorks system in order to authorize transactions. This interface is simple and should be easy to adapt to other systems for authorization.

Business Model

In order to offer the best options (e-commerce application cost vs. sophistication tradeoff) to merchants and card holders, based on the above discussion, a business model of transaction processing has been developed. It divides merchants on the Internet in three groups, depending on their e-commerce application:

1. Those interested in collecting payments
   
   
2. Those requiring pre-processing and authorization
   
   
3. Those requiring preprocessing, authorization, and post-processing

Merchants in the first group are only interested in collecting (often periodic) payments on their goods and services. The best examples are utility companies and subscription services. Such payments are identical to payments made at some ATMs. A card holder logs on an ATM, selects a merchant (e.g. a phone company), and enters the amount and the payment reference ID (e.g., his/her phone number). Similarly, on the Internet, a card holder can log on the portal of the Internet payment processing company and pay bills. In order to further facilitate the payment process, merchants can, for a fee, keep account balances of their customers in the Internet payment processing system. In such a way, card holders may review their account balances, get a pre-filled payment form, and simply confirm payment.

Note that, merchants do not even need their own web site. Mobtel (http://www.mobtel.co.yu), a post-paid mobile phone company, operated in such a way for a brief period of time, when it was redesigned to a more sophisticated e-commerce application (also developed by the author) that includes calculation of promotional discounts and payment pre-processing.