E-Commerce Payment System - Security and Payment | E-Commerce - B Com PDF Download

E-Payment System: Electronic payment systems are central to on-line business process as companies look for ways to serve customers faster and at lower cost. Emerging innovations in the payment for goods and services in electronic commerce promise to offer a wide range of new business opportunities.
Electronic payment systems and e-commerce are highly linked given that on-line consumers must pay for products and services. Clearly, payment is an integral part of the mercantile process and prompt payment is crucial. If the claims and debits of the various participants (consumers, companies and banks) are not balanced because of payment delay, then the entire business chain is disrupted. Hence an important aspect of e-commerce is prompt and secure payment, clearing, and settlement of credit or debit claims.
Electronic payment systems are becoming central to on-line business transactions nowadays as companies look for various methods to serve customers faster and more cost effectively. Electronic commerce brings a wide range of new worldwide business opportunities. There is no doubt that electronic payment systems are becoming more and more common and will play an important role in the business world. Electronic payment always involves a payer and a payee who exchange money for goods or services. At least one financial institution like a bank will act as the issuer (used by the payer) and the acquirer (used by the payee).

Types of Electronic Payment Systems: Electronic payment systems are proliferating in banking, retail, health care, on-line markets, and even government—in fact, anywhere money needs to change hands.

• Organizations are motivated by the need to deliver products and services more cost effectively and to provide a higher quality of service to customers.
• The emerging electronic payment technology labeled electronic funds transfer (EFT).
• EFT is defined as ―any transfer of funds initiated through an electronic terminal telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution.

EFT can be segmented into three broad categories:

• Banking and financial payments 
  • Large-scale or wholesale payments (e.g., bank-to-bank transfer)
  • Small-scale or retail payments (e.g., automated teller machines)
  • Home banking (e.g., bill payment)
• Retailing payments 
  • Credit Cards (e.g., VISA or MasterCard)
  • Private label credit/debit cards (e.g., J.C. Penney Card)
  • Charge Cards (e.g., American Express)
• On-line electronic commerce payments 
  • Token-based payment systems
    • Electronic cash (e.g., DigiCash)
    • Electronic checks (e.g., NetCheque)
    • Smart cards or debit cards (e.g., Mondex Electronic Currency Card)
  • Credit card-based payments systems
    • Encrypted Credit Cards (e.g., World Wide Web form-based encryption)
    • Third-party authorization numbers (e.g., First Virtual)

E-Cash:

• There are many ways that exist for implementing an e-cash system, all must incorporate a few common features.
• Electronic Cash is based on cryptographic systems called ―digital signatures‖.
• This method involves a pair of numeric keys: one for locking (encoding) and the other for unlocking (decoding). 

E-cash must have the following four properties.

• Monetary value
• Interoperability
• Retrievability
• Security

• Electronic cash is a general term that describes the attempts of several companies to create value storage and exchange system that operates online in much the same way that government-issued currency operates in the physical world.
• Concerns about electronic payment methods include:
  – Privacy
  – Security
  – Independence
  – Portability

Electronic Cash Storage: 

• Two methods
  – On-line
• Individual does not have possession personally of electronic cash
• Trusted third party, e.g. e-banking, bank holds customers‘ cash accounts
  – Off-line
• Customer holds cash on smart card or electronic wallet
• Fraud and double spending require tamper-proof encryption

The purchase of e-cash from an on-line currency server (or bank) involves two steps:

• Establishment of an account
• Maintaining enough money in the account to bank the purchase.
  • Once the tokens are purchased, the e-cash software on the customer‘s PC stores digital money undersigned by a bank.
  • The users can spend the digital money at any shop accepting e-cash, without having to open an account there or having to transmit credit card numbers.
  • As soon as the customer wants to make a payment, the software collects the necessary amount from the stored tokens

– Convenience

Electronic Checks:

• It is another form of electronic tokens.
• Buyers must register with third-party account server before they are able to write electronic checks.
• The account server acts as a billing service.

Advantages of Electronic Checks: 

1. They work in the same way as traditional checks.

2. These are suited for clearing micropayments.

3. They create float & availability of float is an important for commerce.

4. Financial risk is assumed by the accounting server & may result in easier acceptance.

Smart Cards & Electronic Payment Systems:

• Smart cards have been in existence since the early 1980s and hold promise for secure transactions using existing infrastructure.
• Smart cards are credit and debit cards and other card products enhanced with microprocessors capable of holding more information than the traditional magnetic stripe.
• The smart card technology is widely used in countries such as France, Germany, Japan, and Singapore to pay for public phone calls, transportation, and shopper loyalty programs.

Types of Smart Cards:

• Relationship-Based Smart Credit Cards
• Electronic Purses also known as debit cards

• Relationship-Based Smart Credit Cards: 
  • It is an enhancement of existing cards services &/ or the addition of new services that a financial institution delivers to its customers via a chip-based card or other device.
  • These services include access to multiple financial accounts, value-added marketing programs, or other information card holders may want to store on their card.
  • It includes access to multiple accounts, such as debit, credit, cash access, bill payment & multiple access options at multiple locations.
     
• Electronic Purses: To replace cash and place a financial instrument are racing to introduce electronic purses, wallet-sized smart cards embedded with programmable microchips that store sums of money for people to use instead of cash for everything.

The electronic purse works in the following manner:

• After purse is loaded with money at an ATM, it can be used to pay for candy in a vending machine with a card reader.
• It verifies card is authentic & it has enough money, the value is deducted from balance on the card & added to an e-cash & remaining balance is displayed by the vending machine.

Credit Card-Based Electronic Payment Systems:

Payment cards are all types of plastic cards that consumers use to make purchases:
– Credit cards

• Such as a Visa or a MasterCard, has a preset spending limit based on the user‘s credit limit.
  – Debit cards
• Removes the amount of the charge from the cardholder‘s account and transfers it to the seller‘s bank.
  – Charge cards
• Such as one from American Express, carries no preset spending limit.

Advantages:

– Payment cards provide fraud protection.
– They have worldwide acceptance.
– They are good for online transactions.

Disadvantages: Payment card service companies charge merchants per-transaction fees and monthly processing 
fees.

Risks in Electronic Payment systems:

• Customer's risks
  – Stolen credentials or password
  – Dishonest merchant
  – Disputes over transaction
  – Inappropriate use of transaction details
• Merchant‘s risk
  – Forged or copied instruments
  – Disputed charges
  – Insufficient funds in customer‘s account
  – Unauthorized redistribution of purchased items