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Steps of Electronic Payment Systems

1) The buyer establishes an account with an online payment provider. 

2) The seller, also with an active online payment account, indicates the user ID to which payment is to be forwarded (separate from an eBay user ID). 

3) The buyer posts the agreed-upon payment amount via the specified online payment site and is provided verification of the seller's account that will receive funds. 

4) Payment is posted to the seller's account and deducted from the buyer's account, and a notification of the transaction is provided via e-mail to both parties.


Figure 3.6 provides a complete guide to the various processes involved while making payments via Internet for the purchase of goods and services. These are: 
1) Acquiring Bank: In the online payment processing world, an acquiring bank provides Internet merchant accounts. A merchant must open an Internet merchant account with an acquiring bank to enable online credit card authorization and payment processing. Examples of acquiring banks include Merchant banks and most major banks.
 
2) Authorization: The process by which a customer's credit card is verified as active and that they have the credit available to make a transaction. In the online payment processing world, an authorization also verifies that the billing information the customer has provided matches up with the information on record with their credit card company.
 
3) Credit Card Association: A financial institution that provides credit card services that are branded and distributed by customer issuing banks. Examples include Visa and MasterCard

4) Customer: The holder of the payment instrument-such as a credit card, debit card, or electronic check.
 
5) Customer Issuing Bank: A financial institution that provides a customer with a credit card or other payment instrument. Examples include Citibank and Suntrust. During a purchase, the customer issuing bank verifies that the payment information submitted to the merchant is valid and that the customer has the funds or credit limit to make the proposed purchase.
 
6) Internet Merchant Account: A special account with an acquiring bank that allows the merchant to accept credit cards over the Internet. The merchant typically pays a processing fee for each transaction processed, also known as the discount rate. A merchant applies for an Internet merchant account in a process similar to applying for a commercial loan. The fees charged by the acquiring bank will vary.
 
7) Merchant: Someone who owns a company that sells products or services.
 
8) Payment Gateway: A service that provides connectivity among merchants, customers, and financial networks to process authorizations and payments. The service is usually operated by a third-party provider.
 
9) Processor: A large data center that processes credit card transactions and settles funds to merchants. The processor is connected to a merchant's site on behalf of an acquiring bank via a payment gateway.
 
10) Settlement: The process by which transactions with authorization codes are 1o sent to the processor for payment to the merchant. Settlement is a sort of no electronic bookkeeping procedure that causes all funds from captured transactions to be routed to the merchant's acquiring bank for deposit.

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