Electronic payment

Characteristics of payment
system
Various characteristics of payment systems include:
Anonymity: It refers to whether the payment model
is anonymous or not. It is concerned with whether a
third party can trace back who was involved in
payment transaction.
Security: This is concerned with whether the
payment method is secured, in particular whether it is
easy to perpetrate different kinds of fraud such as
forged payment.
Overhead cost: This refers to overhead cost of
processing a payment.
Continued……
Transferability: This refers to whether a payment can
be carried out without the involvement of a third party
such as bank.
Divisibility: This refers to whether a payment can be
divided into arbitrary small payments whose sum is
equal to original payment.
Acceptability: This refers to whether the payment
method is supported globally, i.e. not by a closed
group only.
 Introduction
E payments are payments that are
made electronically over the
internet . Earlier almost all the
business transactions were done
through cash payments but now IT
revolution has led to the
development of new forms of
payment
Electronic payment system
payment(EFT , e-cash ,e check , e-wallet,micropayment)

Virtual
customer
businessman
product or service
1.Electronic payment system is a financial exchange
that takes place online between buyers and sellers
2.There are different methods to pay electronically like
credit cards , electronic cash etc.
 Traditional payment scheme
• Payment(credit card ,cash , check)

customer businessman

• Produce or service

In earlier days ,conventional cash were most popular because

they were the only payment type available
However with time banks cane into existence and the society
underwent a financial revolution.
But all these modes of the conventional payment and
settlement process act as a bottleneck in the fast moving
electronic commerce environment
Problems in traditional payment system
Lack of convenience
Lack of security
Lack of coverage
Lack of eligibility
Lack of support for micro transactions
Characteristics of E- Payment
System
 Security
 Since payments involve actual money, payment systems will be a prime
target for criminals. Since Internet services are provided today on
networks that are relatively open, the infrastructure supporting
electronic commerce must be usable and resistant to attack in an
environment where eavesdropping and modification of messages is
easy.
 Reliability
 As more commerce is conducted over the Internet, the smooth running
of the economy will come to depend on the availability of the payment
infrastructure, making it a target of attack for vandals. Whether the
result of an attack by vandals or simply poor design, an interruption in
the availability of the infrastructure would be catastrophic. For this
reason, the infrastructure must be highly available and should avoid
presenting a single point of failure.
Continued..
 Scalability
 As commercial use of the Internet grows, the demands placed on
payment servers will grow too. The payment infrastructure as a whole
must be able to handle the addition of users and merchants without
suffering a noticeable loss of performance. The existence of central
servers through which all transactions must be processed will limit the
scale of the system. The payment infrastructure must support multiple
servers, distributed across the network.
 Anonymity
 For some transactions, the identity of the parties to the transaction
should be protected; it should not be possible to monitor an
individual's spending patterns, nor determine one's source of income.
An individual is traceable in traditional payment systems such as
checks and credit cards. Where anonymity is important, the cost of
tracking a transaction should outweigh the value of the information
that can be obtained by doing so.
Continued…
 Acceptability
 The usefulness of a payment mechanisms is dependent upon what one
can buy with it. Thus, a payment instrument must be accepted widely.
Where payment mechanisms are supported by multiple servers, users
of one server must be able to transact business with users of other
servers.
 Customer base
 The acceptability of a payment mechanism is affected by the size of the
customer base, i.e. the number of users able to make payments using
the mechanism. Merchants want to sell products, and without a large
enough base of customers using a payment mechanism, it is often not
worth the extra effort for a merchant to accept the mechanism.
Continued…….
 Flexibility
 Alternative forms of payment are needed, depending on the guarantees
needed by the parties to a transaction, the timing of the payment itself,
requirements for auditability, performance requirements, and the
amount of the payment. The payment infrastructure should support
several payment methods including instruments analogous to credit
cards, personal checks, cashier's checks, and even anonymous
electronic cash. These instruments should be integrated into a
common framework.
 Convertibility
 Users of the Internet will select financial instruments that best suit
their needs for a given transaction. It is likely that several forms of
payment will emerge, providing different tradeoffs with respect to the
characteristics just described. In such an environment it is important
that funds represented by one mechanism be easily convertible into
funds represented by others.
Continued…
 Efficiency
 Royalties for access to information may generate frequent payments for small
amounts. Applications must be able to make these "micropayments" without
noticeable performance degradation. The cost per transaction of using the
infrastructure must be small enough that it is insignificant even for transaction
amounts on the order of pennies.
 Ease of integration
 Applications must be modified to use the payment infrastructure in order to
make a payment service available to users. Ideally, a common API should be
used so that the integration is not specific to one kind of payment instrument.
Support for payment should be integrated into request-response protocols on
which applications are built so that a basic level of service is available to higher
level applications without significant modification.
 Ease of use
 Users should not be constantly interrupted to provide payment information
and most payments should occur automatically. However, users should be able
to limit their losses. Payments beyond a certain threshold should require
approval. Users should be able to monitor their spending without going out of
their way to do so.
CLASSIFICATION
OF PAYMENT
SYSTEM
iNTRODUCTION
The term “electronic payment systems” covers to a
variety of payment mechanisms. Furthermore, this is
domain is in a constant state of change with new
schemes emerging and existing schemes being
modified, often substantially. The principal
classification of EPSs is based on the form of money
representation and the principle of money transfer.
classification is proposed by Piloura (1998), based on a
survey on electronic payment systems on open computer
networks which is as follows:
Token-based systems: these systems use tokens, objects
that are generally agreed to carry value themselves. The
value carried by the tokens is conventional, a matter of
consensus. These systems are based on “prepayment “, i.e.
drawing on one’s bank account in advance to get possession
of payment instruments, token money, to be used in later
transactions. We have two subcategories of token-based
systems:
Electronic cash: it attempts to replace paper cash as the
principal payment vehicle in online payments.
Electronic purse systems: they are based on smart cards,
also called stored value cards, which use integrated circuit
chips to store electronic money.
Notational systems: in these systems the transaction is
directly or indirectly tied to value stored elsewhere. The
three subcategories that we can distinguish here are:
Electronic payment orders (debit/credit) transferred over
the nets: the transaction is directly tied to value stored
elsewhere (usually in a bank account). These systems are
also called “pay now” systems because they transfer deposit
money “immediately” after the initiation of a payment
order. Examples: debit cards, checks and credit transfers.
Credit card billing over the nets: the transaction is
indirectly tied to value in that when you use it you
undertake to become liable for the amount of the
transaction. These systems are also called “pay later”
systems and they are based on consumer credit and/or
delayed debiting of the payer’s current account. They can
be implemented in two ways: encrypted credit cards or
third-party authorization numbers.
Third-party authorization numbers: one solution
to security and verification problems during
financial transactions is the introduction of a third
party to collect and approve payments from one
client to another.
Smart card-based notational systems: these
systems use smart card technology to store
customer-specific information in an attempt to
offer higher levels of protection than software-only
notational systems.
TYPES OF E-
PAYMENT SYSTEM
 PAYMENT CARDS
CREDIT CARDS
DEBIT CARDS
CHARGE CARDS
SMART CARDS
 CREDIT CARDS
Two of credit cards on the market.
Credit cards issued by credit companies(e.g. Master
card, visa) and major banks (SBI, HDFC etc.).
Credit cards issed by the departmental stores(e.g.
Boygner) , oil companies(e.g. Shell).
 DEBIT CARDS
Plastic card with a unique number.
Requires a bank account.
No interest charges related to this card.
 CHARGE CARDS
Are similar to credit cards except they have no
revolving credit line so they have make payments every
month.
 SMART CARDS
It similar to credit card and debit card in appearance bt it
has a small microprocessor chip embedded in it.
 ELECTRONIC CASH
In case of e-cash, both customer and merchant have to
sign up with the bank or company issuing e-cash.
Enables transactions between customers without the
need of banks.
 E-WALLETS
 E-wallet is a card with microchip.
Replaces cash & coins for small ticket purchases like
road/bridges tolls, pay phones.
It is convenient & safe way to carry less cash.
Example Microsoft Wallet.
How to access e-wallets
USER
POST JOB IN
REGISTRATIO
WORKROOM
N

PUT MONEY
SEE
INTO E-
PROPOSAL WALLET

ACCEPT APPROVE
PAYMENT
JOB REQUEST

RELAESE FUNDS
TO PROJECT
FROM WALLET
PEER-2-PEER PAYMENTS
 Online financial transfer
through e-mail address.
 Reduces risk of fraud &
overdrawn a/c.
 Example PayPal services.
 E-PAYPAL SYSTEM
It enables the merchants or individuals to withdraw cash
from their PayPal accounts.
Allows customers to send their transaction money
quickly & safe to anyone.
To use it one should must get registered themselves .
E-CASH
Online payments via debit cards, credit cards or smart
card are the examples of e-money transactions.
E Cash is transferred directly from customer’s desktop
to the merchant’s site.
HOW TYPICAL E-CASH SYSTEM
WORKS?
E-CHEQUE
E-Cheque is the result of co-operation between several
banks, government entities, technology companies
and e-commerce organizations.
These can be used for small and large organizations
E-CHEQUE WORKING
ELECTRONIC FUND TRANSFER
It is one of the oldest methods to transfer money.
It is the groundwork of groundless and cheque-less
culture, it is used to transfer money without any paper
money changing hands.
Benefits of EFT
Simplified accounting
Improved efficiency
Reduced administrative costs
Improved security
ENTITIES
PAYER AND PAYEE
PAYER-A Payer is a person who makes the payment.
PAYEE- A Payee is a person who receives payment.
 FINANCIAL INSTITUTE AS ISSUER
OR ACQUIRER
The financial institution participates in payment
protocols in two roles- as an issuer and as an
acquirer. The issuer holds payer s’ account and
acquirer holds payee s’ account and assets. The
payee deposits the payment received during a
transaction with the acquirer.
Trustee or Arbiter
Other parties that may be present in a payment
protocol include a Trustee who is an entity that is
independent from all parties . Trustee is asked to
adjudicate any disputes between payer and payee.
 PAYMENT GATEWAY
Payment Gateways are the entities that act as a
medium for transaction processing between the
entities ( e.g. mastercard visa) and Certification
authorities (CA) . They issue public key
certificates to entities.
PHASES IN E-PAYMENT
REGISTRATION
The payee must register themselves with the site
of online service providers.
By filling a form and creating user ID.
A Payee can access subscribed billing information
and payments, simply by login his ID.
Invoicing
In this phase, payee obtains an invoice for payment
from the payor .
 BENEFITS OF ELECTRONIC PAYMENT SYSTEM

BENEFIT TO BUYERS BENEFITS TO SELLERS

 BENEFITS TO BUYER
1. Convenience of Electronic payment methods provide a wide range of payment options and enhanced
●

financial management tools through which individuals can pay for numerous
different types of transactions ranging from parking payments to travel tickets pr
global acceptance payments in foreign currency.

2. Universal ●
With electronic payment methods payments can be made over
the phone, on the internet, and through the post and accepted
acceptance everywhere.

3. Greater Electronic payment system is safe and secure as it follows strict encrypted secure
●

system for making payments keeping buyer’s identity and details completely

security confidential and reduced liability for stolen or misused cards.

4. Consumer The electronic payment system provides additional
●

insurance by facilitating disputes resolution in the

protection case of unsatisfactory receipt of goods and services .

E-payment system allow consumers to transfer funds, purchase

●

4. Accessibility to stocks, and offer a variety of other services without having to

handle physical cash. Using credit card it is very easy to make
immediate credit payments.

6. Better control Electronic payment also provides the ability to control payment
●

for goods and services over time by allowing buyers to pay at will
over payments whenever they want or have sufficient funds to make payments.
 BENEFITS TO SELLERS
1. Speed and ●
EPS ensure faster processing of transaction from verification and
authorization to clearing and settlement . It reduces the visibility of
security information.

EPS provides companies freedom from more costly labour, materials

2. Reduces cost
●

and accounting services hat are require in paper based processing.

It leads to better management of cash flow, inventory

3. Efficiency
●

and financial planning due to swift bank payment.

When used properly the electronic aspects of purchasing and

●

4. Better control prepaid cards can increase internal controls over high volumes .
IPSEC
Internet Protocol Security (IPSec) is a framework of
open standards for ensuring private, secure
communications over Internet Protocol (IP) networks,
through the use of cryptographic security services.
IPSec is a suite of cryptography-based protection
services and security protocols. Because it requires no
changes to programs or protocols, you can easily
deploy IPSec for existing networks. 
Continued…
The driving force for the acceptance and deployment
of secure IP is the need for business and government
users to connect their private WAN/ LAN
infrastructure to the Internet for providing access to
Internet services and use of the Internet as a
component of the WAN transport system. As we all
know, users need to isolate their networks and at the
same time send and receive traffic over the Internet.
The authentication and privacy mechanisms of secure
IP provide the basis for a security strategy for us.
Application of IPSEC
 Secure branch office connectivity over the Internet
 –Secure remote access over the Internet
 –Establishing extranet and intranet connectivity with partners
 –Enhancing electronic commerce security
 However, users have some security concerns that cut across protocol
layers. For example, an enterprise can run a secure, private TCP/IP
network by disallowing links to un trusted sites, encrypting packets
that leave the premises, and authenticating packets that enter the
premises. By implementing security at the IP level, an organization can
ensure secure networking not only for applications that have security
mechanisms but also for the many security-ignorant applications.