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

 Online Payment Methods

Various ways are available to pay online these methods of payment are still new even when seen as a technology. Each has its own benefits and shortcomings:

1.  Electronic Tokens

An electronic token is a digital analog of various forms of payment backed by a bank or financial institution. There are two types of tokens:

(a)   Real Time Tokens (Pre-paid tokens)

These are exchanged between buyer and seller, their users pre-pay for tokens that serve as currency. Transactions are settled with the exchange of these tokens. Examples of these are DigiCash, Debit Cards etc.

(b)   Post Paid Tokens

These are used with fund transfer instructions between the buyer and seller. Examples - Electronic cheques. Credit card data etc.

2.  Electronic or Digital Cash

This combines computerized convenience with security and privacy that improve upon paper cash. Cash is still the dominant form of payment as: The consumer still mistrusts the banks. The non­cash transactions are inefficiently cleared. In addition, due to negative real interests rates on bank deposits. Some qualities of cash are:

• Cash is a legal tender i.e. payee is obligatory to take it.
• It is negotiable i.e. can be given or traded to someone else.
• It is a bearer instrument i.e. possession is proof of ownership.
• It can be held & used by anyone, even those without a bank certificate.
• It places no risk on part of acceptor.

The following are the limitations of Debit and Credit Cards

• They are identification cards owned by the issuer & restricted to one user i.e. cannot be given away. .
• They are not legal tender
• Their usage requires an account relationship and authorization system.

Properties of Digital Cash Properties of Digital Cash are:

• Must have a monetary value

It must be backed by cash (currency), bank authorized credit or a bank certified cashier’s check.

• Must be interoperable or exchangeable as payment for other digital cash, paper cash, goods or services, lines of credit, bank notes or obligations, electronic benefit transfers and the like.
• Must be storable and retrievable:

Cash could be stored on a remote computer’s memory, in smart cards, or on other easily transported standard or special purpose devices. Remote storage or retrieval would allow users to exchange digital cash from home or office or while traveling.

• Should not be easy to copy or tamper with while it is being exchanged. This is achieved by using the following technologies, these are nothing but new and very efficient versions of the old art of cryptography.

Digital cash is based on cryptographic systems called “Digital Signatures” similar to the signatures used by banks on paper cheques to authenticate a customer.

Purchase of digital cash from an online currency server (or bank) involves 2 steps:

i.  Establishment of an account: in this step we are given a unique digital number, which also becomes our digital signature. As it is a number known only to the customer and the bank, forgery, which may be done in paper cheques becomes very difficult.

ii.Maintenance of sufficient money in the account is required to back any purchase.

1.  Electronic Cheques

The electronic cheques are modeled on paper checks, except that they are initiated electronically. They use digital signatures for signing and endorsing and require the use of digital certificates to authenticate the payer, the payer’s bank and bank account. They are delivered either by direct transmission using telephone lines or by public networks such as the Internet.

Benefits of electronic Cheques:

Some benefits of electronic cheques are:

• Well suited for clearing micro payments. Conventional cryptography of e-cheques makes them easier to process than systems based on public key cryptography (like digital cash).
• They can serve corporate markets. Firms can use them in more cost-effective manner.
• They create float and the availability of float is an important requirement of Commerce.

1. Credit Card

A credit card is an instrument of payment, which enables the cardholder to obtain either goods or services from merchants where arrangements have been made to reimburse the merchant. The outstanding amount is payable by the cardholder to the bank over a specified period which carries a fixed amount of interest also.

It is a source of revolving credit. A number of parties are involved in credit card transaction and there is a contract between the card issuer and the card holder whereby the card holder is allowed to make use of the card at specified retail outlets (membership establishment) to pay for the goods and services. There is also another separate agreement between the card organization and the member establishments. When a credit holder makes purchases from specified retail outlets, the retail outlets make out bills to the account of the card holder and obtain payment from the card organization which in turn makes a monthly bill to the bank which issued the card. The bank makes payments to the debit of customer’s account subsequently. The whole process takes about 30 to 40 days and during this period the card holder enjoys credit.

2. Debit Card

A debit card is a payment card used to obtain cash, goods and services automatically debiting the payments to the cardholder’s bank account immediately. It is essentially a pay-now product unlike a credit card, which is a pay-later product. A smart card or a stored value card on the other hand is a pay before product. In a debit card when the holder makes a purchase, the merchant establishment swipes the card on an electronic data capture machine which then debits the bank account of the cardholder. This means that the merchant establishment gets the credit immediately. In credit card, the holder is charged much after the purchase. A client needs to have bank account if he wants a debit card. In the debit card the limit of the cardholder will be amount of funds he had in his account. The debit cards are of two types i.e. personal identification number (PIN) being issued by MasterCard in association with Citi Bank and signature based being issued by Visa International in association with HDFC Bank.

The main advantage of debit cards are:

a.there is no need to carry cash.

b.it is quick and less complicated than using a cheque.

c.it can also be used for withdrawls of cash.

d.its holders can have a record of the transactions in his bank statement which will enable him to plan and control the expenditure.

e.it can be issued to any individual without assessing credit worthiness.