E-Commerce

e-payment
 E-payment
 An e-payment or Electronic Payment system allows customers to pay for the services via electronic
methods.

 They are also known as online payment systems. Normally e-payment is done via debit, credit cards,
direct bank deposits, and e-checks, other alternative e-payment methods like e-wallets, bitcoin,
cryptocurrencies, bank transfers are also gaining popularity

 The electronic payment system has grown increasingly over the last decades due to the growing spread
of internet-based banking and shopping.
As the world advances more with technology development, we can see the rise of electronic payment
systems and payment processing devices..

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 How E-payment works?
Entities involved in an online payment system
1. The merchant
2. The customer / the cardholder
3. The issuing bank
4. The acquirer
5. Payment Processor
6. Payment Gateway

Working of e-payment involves following:

7. Payment Initiation
8. Payment Authentication
9. Payment Settlement

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 Payment Processing
 Payment Initiation: Customer finalizes the product/service and chooses the payment method to initiate the
transaction. Depending on the payment method, the customer enters the required information like card number,
CVV, personal details, expiration date, PIN, etc. The chosen payment method either redirects the customer to an
external payment page or a bank’s payment page to continue the payment process.

 Payment Authentication: The information submitted by the customer along with other details like payment
information, customer’s account information is authenticated by the operator. The operator can be a  payment
gateway or any other solution involved. If everything gets authenticated positively, the operator reports a successful
transaction. On the contrary, if there is any problem with any of the authentication checks, the transaction fails. After
the successful transaction, the customer gets a payment confirmation.

 Payment Settlement:  After the successful authentication process, payment from the customer’s bank gets
transferred into the merchant’s account by the online payment service provider.
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 Types of e-payment
 Internet Banking
 Card Payment
 Smart Card
 Stored Value card
 Direct Debit
 E-cash
 E-Cheque
 Alternate Payment method
 E-wallet
 Mobile Wallet
 QR Payment
 Contact less Payment
 UPI
 Biometric, etc.

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 Types of e-payment
 Internet Banking :  In this case, the payment is done by digitally transferring the funds over the
internet from one bank account to another.Some popular modes of net banking are, NEFT,
RTGS, IMPS.

 Card Payment:  Card payments are done via cards e.g. credit cards, debit cards, smart cards,
stored valued cards, etc. In this mode, an electronic payment accepting device initiates the online
payment transfer via card
Credit/ Debit card – An e payment method where the card is required for making payments
through an electronic device.

 Smart Card:  Also known as a chip card, a smart card, a card with a microprocessor chip is
needed to transfer payments.

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 Types of e-payment
 Stored Value card: These types of cards have some amount of money stored beforehand and
are needed to make funds transfer. These are prepaid cards like gift cards, etc.

 Direct Debit: Direct debit transfers funds from a customer’s account with the help of a third party

 E-cash: It is a form where the money is stored in the customer’s device which is used for making
transfers.

 E-Cheque: This is a digital version of a paper check used to transfer funds within accounts.

 Alternate Payment method:As technology is evolving, e-payment methods kept evolving with it
(are still evolving..) These innovative alternate e-payment methods became widely popular very
quickly thanks to their convenience.

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 Types of e-payment
E-wallet – Very popular among customers, an E-wallet is a form of prepaid account,
where customer’s account information like credit/ debit card information is stored allowing
quick, seamless, and smooth flow of the transaction.

Mobile wallet – An evolved form of e-wallet, mobile wallet is extensively used by lots of
customers.
It is a virtual wallet, in the form of an app that sits on a mobile device. Mobile wallet stores
card information on a mobile device.The user-friendly nature of mobile wallets makes
them easier to use. It offers a seamless payment experience making customers less
dependent on cash.

QR payments – QR code-enabled payments have become immensely popular. QR code

stands for ‘Quick Response’ code, a code that contains a pixel pattern of barcodes or
squares arranged in a square grid. Each part of the code contains information. This
information can be merchant’s details, transaction details, etc. To make payments, one
has to scan the QR code with a mobile device.

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 Types of e-payment
Contactless payments – Contactless payments are becoming popular for quite some
time. These payments are done using RFID and NFC technology.
The customer needs to tap or hover the payment device or a card near the payment
terminal, earning it a name, ‘tap and go’.

UPI payments – NPCI (National Payment Corporation of India) has developed an instant
real-time payment system to facilitate interbank transactions.
This payment system is titled UPI(Unified Payment Interface). Payments via UPI can be
made via an app on a mobile device.

Biometric payments – Biometric payments are done via using/scanning various parts of
the body, e.g. fingerprint scanning, eye scanning, facial recognition, etc.
These payments are replacing the need to enter the PIN for making transactions making
these payments more accessible and easy to use.

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 Types of e-payment
 Payments are done via Wearable devices – Wearable devices are rapidly becoming popular
among customers. These devices are connected to the customer’s bank account and are
used to make online payments. An example of a wearable used for making an online
payment is a smartwatch.
 AI-based payments – As machine learning and Artificial Intelligence is creating a
revolution all around the world, AI-based solutions are becoming more popular.
 Payments based on AI such as speakers, chatbots, ML tools, deep learning tools, etc are
making it easier for businesses to maintain transparency.

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 EFT
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)

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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

– 1. 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)

– 2. Credit card-based payments systems

• Encrypted Credit Cards (e.g., World Wide Web form-based encryption)
• Third-party authorization numbers (e.g., First Virtual)

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 Digital Token-Based E-payment system

Electronic tokens are three types:

1. Cash or Real-time
• Transactions are settled with exchange of electronic currency.
• Ex: on-line currency exchange is electronic cash (e-cash).
2. Debit or Prepaid
• Users pay in advance for the privilege of getting information.
• Ex: prepaid payment mechanisms are stored in smart cards and electronic
purses that
store electronic money.
3. Credit or Postpaid
• The server authenticates the customers and verifies with the bank that
funds are adequate
before purchase.
• Ex: postpaid mechanisms are credit/debit cards and electronic checks.

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Properties of Electronic Cash:
• There are many ways that exist for implementing an e-cash system, all must
incorporate a
few common features.
• Specifically, e-cash must have the following four properties:
1. Monetary value
2. Interoperability
3. Retrievability
4. Security

Electronic Cash in Action

• 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). (Through public key and private key).
Purchasing E-cash from Currency Servers
The purchase of e-cash from an on-line currency server (or bank) involves two steps:
• Establishment of an account and
• Maintaining enough money in the account to bank the purchase

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 Digital Currency
Using the Digital Currency
• 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.
Transfer Digital cash
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Bank digital currency

Spent “Notes” server

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 Electronic Cheque
• It is another form of electronic tokens.
• where buyers must register with third-
party account server before they are able Transfer electronic
to write electronic cheques. Payer payee
cheque
• The account server acts as a billing
service.
Is s
Ca ue
Advantages sh
1. They work in the same way as
traditional checks.
2. These are suited for clearing
micropayments Accountin
3. They create float & availability of float g server
is an important for commerce
4. Financial risk is assumed by the
accounting server & may result in easier
acceptance

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 Smart Cards & Electronic Payment System
• 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.

Smart cards are basically two types:

– Relationship-Based Smart Credit Cards
– Electronic Purses, which replace money, are also known as debit cards and
electronic money.

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 Smart Cards & Electronic Payment System
• 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.

Smart cards are basically two types:

– Relationship-Based Smart Credit Cards
– Electronic Purses, which replace money, are also known as debit cards and
electronic money.

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 Smart Cards & Electronic Payment System
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:
1. 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.
2. 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.
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 Credit card Based Electronic Payment System

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 (nearly!).
– They are good for online transactions.
Disadvantages:
– Payment card service companies charge merchants per-transaction fees and
monthly processing fees.

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 Credit card Based Electronic Payment System

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 (nearly!).
– They are good for online transactions.
Disadvantages:
– Payment card service companies charge merchants per-transaction fees and
monthly processing fees.

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 Credit card Based Electronic Payment System
Payment Acceptance and Processing
• Open loop (such as VISA) and closed loop (such as American Express) systems will accept and process
payment cards.
• A merchant bank or acquiring bank is a bank that does business with merchants who want to accept
payment cards.
• Software packaged with your electronic commerce software can handle payment card processing
automatically.

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Concerns about electronic payment methods include:
– Privacy
– Security
– Independence
– Portability
– Convenience

Electronic Cash Issues

• Credit card transaction fees make small purchases unprofitable
• Must be anonymous, just like regular currency
• Must be independent and freely transferable regardless of nationality or storage
mechanism

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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
• Main issue: Secure payment scheme

Electronic payments Issues

• Secure transfer across internet
• High reliability: no single failure point
• Atomic transactions
• Anonymity of buyer
• Economic and computational efficiency: allow micropayments
• Flexibility: across different methods
• Scalability in number of servers and users
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 Designing Electronic Payment System
It includes several factors:
• Privacy. A user expects to trust in a secure system; just as a telephone is a safe
• Security. A secure system verifies the identity of two-party transactions through “user
authentication” & reserves flexibility to restrict information/services through access
control
• Intuitive interfaces. The payment interface must be as easy to use as a telephone.
• Database integration. With home banking, for ex, a customer wants to play with all his
accounts.
• Brokers. A “network banker”-someone to broker goods & services, settle conflicts, &
‘financial transactions electronically-must be in place
• Pricing. One fundamental issue is how to price payment system services. For e.g., from
cash to bank payments, from paper-based to e-cash. The problem is potential waste of
resources.
• Standards. Without standards, the welding of different payment users into different
networks & different systems is impossible.

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