Explain how an online credit card transaction works, identifying the parties involved and describing how SSL/TLS is involved. What are the limitations of online credit card payment systems?

The Internet has brought about tremendous change in the business world. Traditionally, the only way to make purchases was only to visit a local store or use of a phone call to make mail order purchase. Nevertheless, this has drastically over the years where people have turned to web-based buying and selling. In fact, many people tend to use the internet as a shopping tool to avoid hustles and bustle of crowds seeking such services (Laudon, Traver, & Laudon, 1994). Also, the payments methods have also changed significantly over the years where people have adopted the use of credit cards to complete their online transactions. In this paper, we will look at how an online credit card transaction works, identifying parties involved as well as limitations that are involved in such payment systems.

To start with, the five parties involved in a credit card transaction are the consumer, the merchant, the clearinghouse, the merchant bank (acquiring bank), and the consumer’s card issuing bank. The basic payment transaction process works like this: The consumer first makes an online payment by sending his or her credit card information via an online form at the merchant’s Web site. Once this information is received by the merchant, the merchant software contacts a clearinghouse (a financial intermediary that authenticates credit cards and verifies account balances). The clearinghouse contacts the card issuing bank to verify the account information. Once verified, the issuing bank credits the account of the merchant at the merchant’s bank (Laudon, Traver, & Laudon, 1994). The debit to the consumer account is transmitted to the consumer in a monthly statement. SSL is involved in sending the consumer’s credit card information safe at the merchant’s Web site. When the consumer checks out using the merchant’s shopping cart software, a secure tunnel through the Internet is created using SSL/TLS. Using encryption, SSL/TSL secures the session during which credit card information will be sent to the merchant and protects the information from interlopers on the Internet.

Despite the convenience and major advantages associated with the process, it is vital to point out that there are also several drawbacks that limit effective online transactions. For instance, the process could be very challenging especially for people who are new to online shopping. This may lead to such people abandoning a purchasing process that they initially started. Also, your business may not get enough value out of offering both an online payment service and accepting card payments (Laudon, Traver, & Laudon, 1994). The security concern is another major limitation that significantly affects the effectiveness of online credit card payment. It is essential to point out that issue of money laundering and cyber crimes have considerably increased in the recent years and hence need to enhance security in that front.  Also, because you have a credit limit, you may not have enough credit available to pay your business obligations if that is your only source of financing. In essence, finding the right balance of payment options is something that is unique for every business.

References

Laudon, K., Traver, C., & Laudon, J. (1994). Information technology and society. Belmont, Calif.: Wadsworth Pub. Co.

 
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