Online Payment Mechanism - Business Models & Concepts, E-Commerce | E-Commerce - B Com PDF Download

Introduction

Online shopping, is one aspect of electronic commerce. Electronic commerce, or e-commerce, relates to a variety of business dealings conducted online. They include service providers selling services, and retail businesses selling items to customers. They also include auctioneers who create marketplaces where citizens can buy and sell goods, and business to business commerce. All of these transactions are done via the Internet. Retail business is the biggest part of electronic commerce. Instead of shopping in the traditional way, such as going to an actual retail outlet, using telephone shopping or mail order catalogues, online shopping allows companies and consumers to make their business transactions over networked computers. Online shopping could be defined as the buying and selling of goods over the Internet. Just about anything can be purchased over the internet. Examples of items consumers can buy are computers, cars, clothing, airline and event tickets, food, and pharmaceuticals. The most popular products purchased online were flowers, computer hardware and software, books, consumer electronics, music and videos, toys, and wines.

Online shopping is important because it offers buyers convenience that has never before been achievable. The technology that is now available allows customers to shop on the internet 24 hours a day and seven days a week, without having to leave their homes or offices. Shoppers are provided with an abundance of merchant sites where almost any goods on earth can be bought. Consumers can also compare prices from a variety of different retailers with greater ease, compared to them physically going to shop in a built shopping centre to check prices.

 Online payment mechanism

 Problems with the traditional payment systems

There are many problems with the traditional payment systems that are leading to its fade out. Some of them are enumerated below:

Lack of Convenience:

Traditional payment systems require the consumer to either send paper cheques by snail-mail or require him/her to physically come over and sign papers before performing a transaction. This may lead to annoying circumstances sometimes.

Lack of Security:

This is because the consumer has to send all confidential data on a paper, which is not encrypted, that too by post where it may be read by anyone.

Lack of Coverage:

When we talk in terms of current businesses, they span many countries or states. These business

houses need faster transactions everywhere. This is not possible without the bank having branch near all of the companies offices. This statement is self-explanatory.

Lack of Eligibility:

Not all potential buyers may have a bank account.

Lack of support for micro-transactions:

Many transactions done on the Internet are of very low cost though they involve data flow between two entities in two countries. The same if done on paper may not be feasible at all.

Online payments

For online shopping, almost everyone loves the convenience of online payments rather than the burdensome task of mailing funds for a purchase. As a business owner, you also can experience a huge decrease in the time it takes to get your funds into your hands.

The coordination of payment processing

In order for payment processing to work successfully, multiple entities have to be working in a coordinated or compatible system. Here are some of the entities involved:

• Customer gateway
• Bank clearinghouse
• Merchant

 Electronic Payment System (EPS)

Electronic payment systems are online payment systems. The goal of their development is to create analogs of checks and cash on the Internet.

Features of EPS

An EPS implements all or some of the following features:

1)   Protecting customers from merchant’s fraud by keeping credit card numbers unknown to merchants.

2)   Allowing people without credit cards to engage in online transactions.

3)   Protecting confidentiality of customers.

4)   In some cases providing anonymity of customers (“electronic cash”).

Problems in implementing EPS

The problems in implementing electronic payment systems, especially anonymous electronic money, are:

1)   Preventing double spending: copying the “money” and spending it several times. This is especially hard to do with anonymous money.

2)   Making sure that neither the customer nor the merchant can make an unauthorized transaction.

3)   Preserving customer's confidentiality without allowing customer’s fraud.

Electronic Payment is a financial exchange that takes place online between buyers and sellers.

The content of this exchange is usually some form of digital financial instrument (such as encrypted credit card numbers, electronic cheques or digital cash) that is backed by a bank or an intermediary, or by a legal tender.

Advantages of Electronic Payment System

The various factors that have lead the financial institutions to make use of electronic payments are:

1) Decreasing technology cost:

The technology used in the networks is decreasing day by day, which is evident from the fact that computers are now dirt-cheap and Internet is becoming free almost everywhere in the world.

2) Reduced operational and processing cost:

Due to reduced technology cost the processing cost of various commerce activities becomes very less. A very simple reason to prove this is the fact that in electronic transactions we save both paper and time.

3) Increasing online commerce:

The above two factors have lead many institutions to go online and many others are following them.

Security requirement of Electronic Payment System

Four essential security requirements for secure electronic payment are:

1) Authentication:

A way to verify the buyer’s identity before payments are made

2) Integrity:

Ensuring that information will not be accidentally or maliciously altered or destroyed, usually during transmission.

3) Encryption:

A process of making messages indecipherable except by those who have an authorized decryption key

4) Non-repudiation:

Merchants need protection against the customer’s unjustifiable denial of placed orders, and customers need protection against the merchants’ unjustifiable denial of past payment.