“Electronic Payment System” Academic Year 2015

Problems with Traditional payment system Lack of Convenience Traditional payment methods generally require that the consumer leave the online platform and use the telephone or send a check in order to make payment Lack of Coverage Faster transactions not possible because of the limitation of banks availability Lack of Eligibility Not all potential buyers may have a bank account Lack of Security Exchange of confidential data on paper is not secure

Electronic Payment System EPS- A way of paying for a goods or services electronically, instead of using cash or a check, in person or by mail. Features: Protecting costumers from merchant’s fraud by keeping credit card numbers unknown to merchants Allowing people even without cards to engage in online transactions Protecting confidentiality of customers

Some basic types of EPS Electronic Tokens Electronic Digital Cash Electronic Cheques

1. Electronic Tokens Digital analog of various forms of payment backed by a bank or financial institution Real Time Tokens (Pre Paid Tokens): These are exchanged between buyer and seller, their users pre-pay for token that serve as currency. E.g. Debit Cards Post Paid Tokens: These are used with fund transfer instructions between buyer and seller. E.g. Credit card data

Debit Cards Plastic payment card that provides the cardholder electronic access to their bank accounts. Depending on the store or merchant, the customer may swipe or insert their card into the terminal, or they may hand it to the merchant who will do so. The transaction is authorized and processed and the customer verifies the transaction either by entering a PIN or, occasionally, by signing a sales receipt.

Advantages of debit card No need of direct cash transaction Quick and less complicated than using other methods like cheque Even can be used for withdrawals of cash Holders can have a record of the transactions in his banks statement

Credit Cards Payment card issued to users as a system of payment. Allows the cardholder to pay for goods and services based on holder’s promise to pay for them.

Credit card payment process

2. Electronic or Digital Cash Refers to several systems which enable a buyer to pay electronically by transmitting a unique number (digital certificate) The purchase of digital cash from an online currency server (or bank) involves two steps: The establishment of an account and The maintenance of sufficient money in the account to back any purchases Also known as electronic money E.g. eCash

3. Electronic Cheque Resembles the function of paper cheques but offers greater security and more features Offers protective measures such as authentication and digital signatures and encryption to safeguard transactions

Benefits of electronic cheques Works same as traditional cheques thus simplifying customer education Mostly eliminates the need to take cheques to the bank and speeds up deposits Firms can use electronic cheques to complete payments over networks in a more cost- effective manner than present alternatives

Electronic Checks in Action Users must register with a third party account server which acts as a billing service. (Registration procedure can vary depending on the particular account server and may require a credit or bank account to back the cheques.) Once registered, a consumer can then contact a seller of goods and services Then using different medium the buyer sends the cheque to the seller for a certain amount of money When deposited, the cheque authorizes the transfer of account balances from the account against which the cheque was drawn to the account to which the cheque was deposited

Advantages of EPS Convenience to user Completion of a transaction without hassle Decreasing technology cost Reduction in the cost of internet usage Reduced operational and processing cost Reduction in paper and postage Customer more likely to return to same e-commerce site where his/her information is stored Increased Compliance Easier to track and monitor data Enhanced security EPS offers better security and safeguarding of cardholder data

Problems in Implementing EPS Preventing double spending Making sure that neither the customer nor the merchant can make an unauthorized transaction Preserving customer’s confidentiality without allowing customer’s fraud

Payment Gateway An e-commerce service that authorizes payment for e-businesses and online retailers Protect credit card details by encrypting sensitive information, such as credit card numbers Ensure that information is passed securely between the customer and the merchant and also between merchant and the payment processor Types: Hosted and Shared

Hosted Payment Gateway That direct your user away from your ecommerce website. While making payments, the customer is redirected to the real gateway page by clicking the gateway link. This leaves your website for some time before returning back. The benefit of these gateways is that you do not need a Merchant ID since no confidential details are needed from your website. Examples here include PayPal, WorldPay and Nochex.

Shared Payment Gateway While making the payments, a customer is directed to the payment page and not out of your website. Here, a Post form is used once one clicks on a payment link/button. The payment page is maintained securely by the payment gateway. After all details about credit card and other required fields are complete, the user fully gets back to the main website. The main benefit is that one does not get away from your website thus fast and easy to use. Example of a gateway is eWay.

How payment gateway works

Benefits of payment gateway Security Customer data always behind firewalls Encryption Usage of SSL encryption to prevent message tampering while information is being transmitted Back-up redundancy Gateways have back up system in place to ensure smooth processing during emergency Up to date technology

Internet/Online banking Electronic payment system that enables customers of a financial institution to conduct financial transactions on website operated by the institution Bank customers can transact banking tasks through online banking, including - Funds transfers between the customer's linked accounts Paying third parties, including bill payments Investment purchase or sale Loan applications and transactions, such as repayments of enrollments Credit card applications

Types of Internet Banking Informational Basic level of internet banking Provide information of bank’s products and services Communicative Allows some interaction between banks system and the customer Maybe limited to account inquiry, loan applications Static file uploads (name, address etc) Transactional Allows customers to execute transactions Can include accessing accounts, paying bills etc.