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Ecash/ Credit Cards


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eCash / Credit Cards


Sooner or later electronic cash, which is backed by a currency or other assets is going to be developed i.e. beanz. We need a standardised currency on the Net. Credit cards work but they were never really designed to be used in this way and they are expensive for the merchant. Small or micro transactions of only a few pence aren't viable with credit cards, but would enable a whole variety of pay-as-you-view payment options to be developed. An electronic currency of some form is inevitable.

How Credit Cards work on-line

The desired result is to transfer funds from the customers credit card account (held at an Issuing Bank) to the seller's bank account (held at an Acquiring Bank). The first problem is that the seller can't use any old bank account, it must be a Merchant Account - in fact a particular type of merchant account called an Internet Merchant Account

The typical sequence of events (slightly simplified) in an on-line credit-card transaction is as follows

1) The customer enters the credit details onto a secure on-line form, which is usually part of the shopping cart system provided by the Web-Store Service. The next stage is basic fraud avoidance such as checking the card number is valid and address verification.

2) The details are then forwarded from the transaction-processing system on the Web-store site to the Credit Card Association (e.g. Visa or MasterCard) via a Payment Processing Network.

3) The transaction is either Authorized or Declined, depending on the state of the customer's credit limit. If it is authorized, funds are reserved to cover the transaction.

4) The results are communicated to the merchant. After the goods ship, the merchant can issue a Capture Request which a request for Settlement, the final stage where the funds transfer takes place.

Problems with Credit Cards

Most problems with Credit Cards lie not with the Credit Card companies, or with the payment processing networks, but with the institutions that run the merchant accounts. It's all a question of risk. Merchant account providers could find themselves having to pay up if the merchant doesn't meet all the obligations to the cardholder.

Reputable banks and financial institutions limit the risk to themselves by being selective about who they give merchant accounts to. Other companies are less selective but they insure against the risks they run by charging much higher rates. There are companies who offer 100% acceptance and low charges. These companies are taking on the risk themselves - and consequently are making themselves risky to deal with. This is not necessarily a bad thing but it's important to realize that you get what you pay for.



This page was quoted from
Getting Started With Electronic Ecommerce,,
David Kilgour, 01/06/08