E-Commerce: Banking and Online Payments

With increasing demand for virtual opportunities due to the COVID-19 pandemic, e-commerce has emerged as an important economic development opportunity. As resource providers for their business communities, economic development professionals can help provide information on the different e-commerce players and platforms. Banks and online transactional platforms are essential to e-commerce, and understanding what services are available is the first step to successfully expanding online opportunities in your community. 

E-commerce takes the center stage
To support rising demands for e-commerce, many banks not only provide traditional services via the internet but have also expanded into newly developed e-commerce services. These include internet portals, or ‘supersites’, which connect sellers and consumers, verifying identities to protect e-commerce participants from fraud by using encryption technology and offering electronic billing to enhance cash management and remittance processing. Moreover, banks assist small businesses by offering electronic procurement services such as negotiating volume discounts for vendors.

 Since many banks offer different services for e-commerce, here are some tips to find the best processing bank for your needs. 

How to select a processing bank
First, it’s important to select a processor with proven e-commerce capabilities. A suitable processor should be able to manage information security, including data encryption. Fraud prevention solutions such as Address Verification Service (AVS), Card Security Codes (CVV2, CVC 2, and CID) and fraud scoring capabilities are also important. Additionally, consider transaction identification using the Electronic Commerce Indicator (ECI). Second, processors that support Payment Card Industry (PCI) Data Security Standards (DSS) can reduce risk exposure. Third, it is important to understand all contract provisions holding funds and chargeback liability when you decide your processing bank. This includes holding deposits when a merchant exceeds the pre-approved processing volume, liability for fraudulent transactions, liability for losses resulting from compromised account data, and chargebacks.

Alternative online payment platforms
Alternative options for online transactions include online money transfer services which provide easy transfer. This can be an especially effective solution for small business owners who are just beginning to expand into e-commerce. Venmo is often used by individuals who consider themselves as social spenders. In other words, rather than a simple money transaction, Venmo is considered a social platform where users can share their transaction on their feed. Another platform, Square, not only provides electronic invoices but also magstripe readers which allows business owners to swipe credit cards. Additional information on similar payment platforms can be found here.

Considering risk: is internet base money transfer safe?
As e-commerce has created a new market for small and medium enterprises, concern regarding the risk of using internet base money transactions has grown. According to research by John Wenninger on ‘The Emerging Role of Banks in E-Commerce ’, banks are making an effort to set up risk management systems, taking into consideration how much value is at risk, the relative values of financial instruments, and other market conditions. However, with e-commerce, quantifying risks is more difficult—particularly if legal as well as regulatory action is required to resolve any problems that might arise. Small businesses will need to do research on any platform before making a selection, and employ legal assistance where necessary to protect their interests.

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