Payment Systems for E-

Commerce
 Payment System for E-Commerce
• E-commerce sites use electronic payment, where electronic
payment refers to paperless monetary transactions.
• Electronic payment has revolutionized the business
processing by reducing the paperwork, transaction costs,
and labor cost.
• Being user friendly and less time-consuming than manual
processing, it helps business organization to expand its
market reach/expansion.
• Listed below are some of the modes of electronic payments:
1.The card holder − Customer
2.The merchant − seller of product who can accept credit
card payments.
3.The card issuer bank − card holder's bank
4.The acquirer bank − the merchant's bank
5.The card brand − for example , visa or MasterCard.
Credit Card Payment Process
 Debit Card Payment Process
• Debit card, like credit card, is a small plastic card with a
unique number mapped with the bank account number.

• It is required to have a bank account before getting a debit

card from the bank.

• The major difference between a debit card and a credit

card is that in case of payment through debit card, the
amount gets deducted from the card's bank account
immediately and there should be sufficient balance in the
bank account for the transaction to get completed; whereas
in case of a credit card transaction, there is no such
compulsion.
 Debit Card Payment Process
• Debit cards free the customer to carry cash and cheques.
Even merchants accept a debit card readily.

• Having a restriction on the amount that can be withdrawn in

a day using a debit card helps the customer to keep a check
on his/her spending..
 Smart Card
• Smart card is again similar to a credit card or a debit card in
appearance, but it has a small microprocessor chip
embedded in it.

• It has the capacity to store a customer’s work-related

and/or personal information. Smart cards are also used to
store money and the amount gets deducted after every
transaction.
• Smart cards can only be accessed using a PIN that every
customer is assigned with.

• Smart cards are secure, as they store information in

encrypted format and are less expensive/provides faster
processing. Visa Cash cards are examples of smart cards.
 E- Cash
• e-Cash is purely software based, anonymous, untraceable,
online token payment system, available on Unix, Windows
as well as Macintosh platform.

• When the tokens purchased by customers, the e-Cash

software stores the digital money on the customer’s
personal computer which is under signed by the bank.

• The users can easily spend digital money at any shop

accepting e-Cash without giving credit card details to the
shopkeeper.
 Electronic Fund Transfer
• It is a very popular electronic payment method to transfer
money from one bank account to another bank account.

• Accounts can be in the same bank or different banks.

• Fund transfer can be done using ATM (Automated Teller

Machine) or using a computer. Nowadays, internet-based
EFT is getting popular.

• In this case, a customer uses the website provided by the

bank, logs in to the bank's website and registers another
bank account.
• He/she then places a request to transfer certain amount to
that account.
 Electronic Fund Transfer
• Customer's bank transfers the amount to other account if it
is in the same bank, otherwise the transfer request is
forwarded to an ACH (Automated Clearing House) to
transfer the amount to other account and the amount is
deducted from the customer's account.

• Once the amount is transferred to other account, the

customer is notified of the fund transfer by the bank.
 Secure Electronic Transaction (SET)
• Secure electronic transaction is a system of online
payments for ensuring the security of financial transactions
on the internet.

• The SET specification is an open, technical standard for

commerce, developed by VISA and master card.

• It facilitates secure payment card transactions over the

internet.

• Digital certificate create a trust change throughout the

transactions, verifying cardholders and merchant validity.
 Bank Transfer
• Though not popular nowadays but still bank transfer is
considered as an essential payment method for e-
Commerce.
• It is considered as ‘if all else fails’ kind of payment method.
• Some of the e-Commerce stores are also keen on using
bank transfer payment options.
• Customers enrolled in internet banking can do bank
transfers for their online purchases. Bank transfer is the
most secure method as the transactions need to be
approved and authenticated by the customers.
• It is a simple way of paying for online purchases and does
not require the customer to have a card for payment
purposes
 E-Wallets
• E-wallet is one of the upcoming trends which gives a new
shopping experience altogether.
• The use of e-wallets is becoming popular at an alarming
rate.
• E-Wallets require a sign up from merchants as well as
customers. After creating an e-wallet account and linking it
to the bank account they can withdraw or deposit funds.
• The whole procedure with an e-wallet is easy and fast.
Considered as an advanced and instant digital payment
method, e-wallets can be integrated with mobile wallets
using advanced functionalities like NFC.
• Prepaid e-wallet accounts store customer information and
multiple credit/ debit cards and bank accounts.
• It needs one-time registration and eliminates the need for
re-entering information every time while making payments.
 Cash
• Cash is often used for physical goods and cash-on-delivery
transactions. It does come with several risks, such as no
guarantee of an actual sale during delivery, and theft.

• Though nowadays, cash on delivery does not necessarily

mean customers pay with cash (they can use cards, mobile
payments as payment terminals are often available with
delivery agents), missing out on this is a strict NO.
 Mobile Payments
• Payment acceptance was no exception for mobile
penetration.

• This digital payment solution offers a quick solution for

customers. To set up a mobile payment method, the
customer just has to download software and link it to the
credit card.

• As e-Commerce is becoming mobile mainstreamed,

customers are finding it more convenient to use mobile
payment options.
 Cyber Cash
• Cyber cash is a web based service that automatically
processes and verifies customer’s credit card information
then debiting the customer’s account and crediting the
merchant’s account electronically.

• Cyber cash servers act as a gateway between the merchant

on the internet and bank’s secure financial network.

• For the purpose of security in electronic payments system

this system use the digital signatures.
 Net Bill
• Net bill is a micro payment system. Net bill payment system
uses internet for purchasing goods and services and makes
secure and economical payments for them.

• The net bill server maintains account for both consumers

and merchants, which allows customers to pay merchants
for goods to be delivered.

• The goods are delivered in digital form. There is a money

tool software which verifies receipts of goods.

• So, net bill system of electronic payment enables the

communication between money tool, the merchant server
and net bill server.
 First Virtual Holdings
• First virtual is one of the first internet payment system that
offered a third party verification method to make payment
over the internet.

• The first virtual payment system is unique in the sense that

it does not use encryption.

• A fundamental philosophy of the payment-system is that

certain information should not travel over the internet
because it is open network.

• These information's basically related with credit card

information.
 First Virtual Holdings
• Instead of using credit card numbers, the transactions are
complete by using a first virtual PIN, which is issued by first
virtual company.

• These PIN numbers can be sent over the internet because it

works like Id and no merchant can charged the user’s
account without receiving a confirmation e-mail from him.
ELECTRONIC PAYMENT ISSUES
 Electronic Payment Issues
Lack of Usability
• Electronic payment system requires large amount of
information from end users or make transactions more
difficult by using complex elaborated websites interfaces.
• For example credit card payments through a website are not
easiest way to pay as this system requires large amount of
personal data and contact details in web form.
• Businesses undertake electronic commerce initiatives for a
wide variety of reasons.
 Electronic Payment Issues
Lack of Security
• Online payment systems for the internet are an easy target
for stealing money and personal information.
• Customers have to provide credit card and payment account
details and other personal information online.
• This data is sometimes transmitted in an un-secured way.
• Providing these details by mail or over the telephone also
entails security risks.
 Electronic Payment Issues
Issues with e-Cash
• The main problem of e-cash is that it is not universally
accepted because it is necessary that the commercial
establishment accept it as payment method.
• Another problem is that when we makes payment by using
e-cash, the client and the salesman have accounts in the
same bank which issue e-cash.
• The payment is not valid in other banks.
 Electronic Payment Issues
Lack of Trust
• Electronic payments have a long history of fraud, misuse and
low reliability as well as it is new system without established
positive reputation.
• Potential customers often mention this risk as the key reason
why they do not trust a payment services and therefore do
not make internet purchases.
 Electronic Payment Issues
Users Perception Regarding Acceptance of Electronic Payment
Systems
• User’s acceptance is a pivotal factor determining the success
or failure of any information system project.
• Many studies on information technology report that users
attitudes and human factors are important aspects affecting
the success of any information system.
• According to Dillion and Morris, users acceptance is “the
demonstrable willingness within a user group to employ
information technology for the tasks it is designed to
support”.
• Electronic payment systems are not an exception of it.
 Electronic Payment Issues
• It means these are not successful without acceptance of
users.
• Electronic payment system is an innovative way for online
payments.
• Issues are not accepting easily because of lack of security in
changing business-environment.
• Online payment system requires improvement of
information technology.
• The failure of electronic payment system is depend on the
factor that it neglects the needs of users and the market.
 Electronic Payment Issues
Lack of Awareness
• Making online payment is not an easy task. Even educated
people also face problems in making online payments.
• Therefore, they always prefer traditional way of shopping
instead of online shopping.
• Sometimes there is a technical problem in server customers
tried to do online payments but they fails to do.
• As a result they avoid it.
 Electronic Payment Issues
Online Payments are not Feasible in Rural Areas
• The population of rural areas is not very literate and they are
also not able to operate computers.
• As they are unaware about technological innovations, they
are not interested in online payments.
• So the online payment systems are not feasible for villagers.
 Electronic Payment Issues
Highly Expensive and Time Consuming
Electronic payment system are highly expensive because it
includes set up cost, machine cost, management cost etc. and
this mode of payment will take more time than the physical
mode of payment.
 Electronic Payment Issues
Highly Expensive and Time Consuming
Electronic payment system are highly expensive because it
includes set up cost, machine cost, management cost etc. and
this mode of payment will take more time than the physical
mode of payment.
Online Payment Services
 Online Payment Services
• With the initial widespread uptake of the Internet, there
were high expectations of its potential for commercial use
and especially for e-commerce.

• A number of issues around online payment systems were

often used as one of several key factors to explain slower
than predicted e-commerce growth.

• According to these arguments, the lack of appropriate online

payment mechanisms, consumer confidence in electronic
payments and/or issues with the perceived security of
payment mechanisms partly explained the weak uptake of
online shopping.
 Online Payment Services
• In other words, payment-related difficulties were seen as
one key explanation together with other factors such as
products not being appropriate, sellers being unknown,
delivery being uncertain, and consumers not being
interested.

• An increasing range of products including various types of

digital content is becoming available online, new platforms
such as mobile devices are increasingly used for purchasing
and whole new applications and markets are developing.
 Online Payment Services
However a number of questions still arise.

• Have online payment systems adjusted to challenges such as

the trade-offs between costs versus convenience, ease of
use and transaction security, and contributed to the growth
of e-commerce?

• How are they adapting to the new forms of e-commerce?

• Consumer concern about safety of using payment cards was

identified as key barrier to online purchases.
Issues for Development and Deployment of Online Payments
• The main role of a payment system is to provide a way of
transferring value between different parties in the economy.

• It determines partly economic transaction costs. Its design

will be optimal if organized to allow quick and effective value
transfers while imposing a minimum of additional costs and
risks.

• High costs of the payment process may seriously affect

economic activity in that transactions are rendered too
expensive and, as a consequence, reduced. Conversely,
lower costs through efficient payment systems could have a
positive impact on economic growth.
 Online Payment Costs
• The use of any payment system involves direct and indirect
costs.

Direct costs are the fees charged by financial payment service

providers.

Indirect costs include those related to the complexity of

transaction processes, speed of transactions, risk and
uncertainty, and opportunity costs for the buyers and sellers
involved.
• The modalities of the payment system also affect the cost
structure as they determine the financial loss to both parties
in case either one of them defaults on the terms of the
contract.
 Online Payment Challenges
• Online payment services involve a complex set of practical
and analytical challenges.

• These include the technological capabilities of service

providers, commercial relationships, issues of regulation and
law (buyer and seller protection), security considerations
including identification issues, such as authentication and
verification, and co-ordination among a variety of parties
with different and sometimes competing interests.
 Online Payment Systems
The use of online payments varies widely across countries.

• The Nordic countries (e.g. Sweden, Finland) are notable

users of online payments.
• In Australia and New Zealand there has been an important
trend towards adopting online payments.
• In contrast, there are markets where online payments have
struggled to capture market share.
for example in Japan online payments are still low despite
important e-commerce growth. Also in Germany offline
payment methods such as cash on delivery have been
frequently used for online purchase.
 Online Payment Systems
European Union. Across the European Union, the most
commonly accepted online payment instruments are credit
cards, direct debit cards and e-banking.

Finland. In Finland credit and debit cards and online banking

payments are important for financial transactions on the
Internet.

Germany. Online debit and online transfer were most

frequently used for Internet purchases by respondents of a
recent online survey. Credit cards were also important but less
frequently used.
 Online Payment Systems
Australia. According to the Australian Bureau of Statistics in
2002, 23% of all adults used the Internet to pay bills or transfer
funds. There has been a continuing positive trend in online
payments usage, with a tenfold increase from 1999 to 2002 in
Australian users of the Internet for payments, and this trend
has continued.

Korea. Online banking is commonly used in Korea and has

grown very rapidly. If familiarity with online banking is used as a
proxy for possible uses of online payments for e-commerce,
then this suggests that online payments are likely to grow.
 Online Payment Systems
Pakistan.
The following are the most widely adopted payment methods
in Pakistan:
Bank Transfer, Wire Transfer, PayOrder/Demand Draft
EasyPaisa JazzCash Upaisa
Payoneer GoLootLO PayPak
MoneyGram Western Union
HBL-Konnect FonePay Virtual Card