Payment Systems

Payment Revolution 1970: Electronic Funds Transfer between banking industries 1980: Electronic Data Interchange (EDI) for e- commerce between companies 1990: WWW (the Internet) provides an easy- to-use technology for information publishing and dissemination

Payment Cards payment card electronic card that contains information that can be used for payment purposes - Credit cards - Charge cards - Debit cards

Payment Cards (cont’d)

Credit Card

Credit Card: + - AdvantagesDisadvantages Secure with the use of encryption. Third party authenticates users. Credit card numbers need not be passed over the network in some systems. Basic financial system in place already. Card company's indemnify customers in the case of fraud. Existing system is accepted by users. Over the counter and Internet transactions possible. Portable. Costs too high, especially for low value transactions. No anonymity. Does not allow micro-merchants. Involves several connections over the net in-order to complete a payment. No standardized process. Traceability through third party.

Electronic Cheque

Electronic Cheque (cont’d)

Electronic Cheque: + - AdvantagesDisadvantages Clearing process already in place. Secure with the use of encryption. Third party authenticates users. Basic system in place already. Risk is limited to the value of the cheque and if cashed without proper ID, bank indemnifies the customer. Existing system is used and trusted by consumers. Migration form paper cheques to electronic cheques is not huge. High costs of involving third parties to an already cost process.Involves several connections over the net in-order to complete payment.Slow method, no immediate transfer of funds Payment is still made via traditional payment methods Costs are too high for low value transactionsNo anonymity. Internet use only Not portable No immediate confirmation No guarantee of payment upon receiving a cheque.

in form of smart cards behaves like cash, offering immediate transfer of value requires no signature, PIN, or transaction authorization Electronic Cash

Electronic Cash: + - AdvantagesDisadvantages Eliminates the third party Secure with the use of encryption Allows micro-merchant payments Allows anonymity Mirrors cash so easy acceptance Fast Low cost perfect for low value transactions Once received it has value immediately Software solution no extra hardware required Uses proprietary currencies thus depend on issuing companies to honour their internet cash Consumers are slow to trust such a system Tied to specific machines (wallet on hard drive) For internet use only Not portable

Smart Card

Smart Card (cont’d)

Smart Card: + - AdvantagesDisadvantages Flexibility in adding applications giving extra value to consumers. Secure with the use of passwords/pins. Over the counter and Internet transactions possible. Low costs. Ideal for low value transactions.Risk is limited to the value of the cash sent on the network.Mobile source of money.Can be used for online and offline transactions.Immediate transfer of funds. Hardware specifications pose a problem. Does not allow micro- merchants.Uses proprietary currencies thus depend on issuing companies to honor their internet cash.Anonymity.