E-Commerce Payment Systems

INTRODUCTION
Over the last few centuries, human beings have experienced two major revolutions – the industrial and electronic revolution.  The former transformed our society from being agriculture based to industrial based, whereas the latter transformed our society from being mechanical based to electronic based.  As we enter 21^st century, we are seeing the beginning of a new revolution namely, the network revolution.  It interconnects different parts of the world, enabling the seamless flow of information.  The internet is the engine of this revolution and electronic commerce (or e-commerce) is its fuel.

E-commerce describes the buying, selling and exchanging of products, services, and information through computer networks primarily the internet.  The impact of e-commerce on procurement, shopping, business collaboration and customer services, as well as on delivery of various services is dramatic that almost every organization is affected.  E-commerce is changing al business functional areas and their important tasks, ranging from advertising to paying bill.  Payments are an integral part of doing business, whether in the traditional way or online.

Unfortunately, in most cases traditional payment systems are not effective for electronic commerce.  Therefore, electronic payments systems, (like e-cheques, e-credit cards, e-cash, smart cards and Electronic fund transfer) are used.  The focus of the present article is an electronic payments system and the revealed security concerns.
 

LIMITATIONS OF TRADITIONAL PAYMENT INSTRUMENTS

Non-electronic payment methods (such as, using cash, writing a cheques, sending a money order, or giving your credit card number over the telephone) have several limitations in e-commerce environment.  First, cash cannot be used for transactions because there is no face-face-contact.  Second, if payment is sent by mail, it takes time for it to be received.  Even if a credit card number is provided by phone or fax, it takes time for it to be received.  Even if a credit card number is provided by phone or fax, it takes some time to process it.  Nor is it convenient to have to switch from the computer to the phone to complete a transaction. Also not everyone accepts credit cards or cheques, and some buyers do not have credit cards or bank accounts with adequate facility.

ELECTRONIC PAYMENT SYSTEMS

As in the tradition marketplace, so too cyberspace, diversity payment methods allow customers to choose how to wish to pay.  The following instruments are accepted means of payment- electronic cheques, electronic credit can electronic cash, smart can person-to-person payments, electronic funds transfer, e-wallets. Here   we will look at each of these payment mechanisms very briefly. 

 

Electronic Cheques

Electronic cheques are similar to regular paper cheques, and they are used mostly in business-to-business e-commerce.  Here is in brief how they work.

• The customer establishes an account with a bank with cheques facility.
• The customer contacts a seller, buys a product or a service and e-mails encrypted electronic cheques.
• The merchant deposits the cheques in his/her account; money is debited from the buyer's account and credited to the seller's account.
• Like regular cheques e-cheques carry a signature that can be verified.  Properly signed and endorsed e-cheques are exchanges between financial institutions though clearing houses.

Electronic Credit Cards

Electronic credit cards make it possible to charge online payments to one's credit card account.  It is very easy and simple for a buyer to e-mail her/his credit card number to the seller.  The major risk here is that 'hackers' will be able to read the credit card number.  Sender authentication is also difficult.  Therefore, for security reasons, only cards with encrypted information should be used. The data associated with such cards are scrambled so that only those recipients with a key to the coding can retrieve the data.  Credit card details, however, can be encrypted by using the SSI protocol in the buyer's computer which is available in standard browsers. 

Electronic Cash

Cash is the most prevalent consumer payment instrument.  Traditional brick-and mortar merchants prefer cash since they do not have to pay commissions to credit card companies, and they can put the money to use as soon as it is received.  Also, some buyers pay cash because they do not have cheques or credit cards, or because they want to preserve their anonymity.  It is logical that e-commerce sellers and some buyers may prefer electronic cash (e-cash).

Electronic Cash in a PC

The use of this approach involves a six step process:

• The customer opens an account with a bank and receives special software for his/her PC.
• The customer buyer   "electronic money" from the bank by using the software.  The customer's bank account is debit accordingly.
• The bank sends a secured electronic money note to this customer.
• The money is stored on the buyer's PC and can be spent in any electronic store that accepts e-cash.
• The software is also used to transfer the e-cash from the buyer's computer to the seller's computer.
• The seller can deposit the e-cash in a bank, crediting his/her regular or electronic account, or the seller can use the e-cash to make a purchase elsewhere.

Electronic payment Cards with e-cash

Electronic payment cards have been in use for several decades.  The best known is credit cards, which use magnetic strips that contain limited information, such as, the card's ID number.  A more advanced form of payment card (known as stored value money card) is the one that you use to pay, for photocopies in your library, for transportation, or for telephone calls.  It allows a fixed amount of prepaid money to be stored in quantities that can be decreased and sometimes increased.  Each time you use the card, the amount is reduced.  Also, cards with stored-value money can be purchased for internet use.  You may enter a third party Web site and you provide an ID number and a password, much as you do when you use a prepaid phone card.  The money can be used only in participating outlets.

Smart Cards

Smart cards offer an alternative system for procession micro payments, because the smart card's microchip contains electronic cash as well as other information. A smart card is a plastic card size of a credit card that stores digital information.  True smart cards contain microprocessor and can store a considerable amount of information (more than 100 times that of a stored value card) and can conduct processing.  The Mondex smart card contains e-cash and can be used to transfer funds to merchants in physical storefronts and to merchants on the Internet.  The card requires the use of a special card reading and writing device whenever the card needs to be "recharged" with cash or whenever the card needs to transfer cash to either an online or off-line merchant.

Advanced smart cards have the ability to transfer funds, pay bills, buy from vending machines or pay for services such as those offered on television or PCs.  Money values, however can be loaded at ATMs, kiosks from PC. Smart cards can also be used to transfer benefits from companies to their employees, as when retires get their pension payments, and from governments that pay citizens different entitlements. The money is transferred electronically to a smart card at an ATM, Kisok or PC.

Person to Person payment

Person – to- Person is one of the newest and fastest growing payment schemes.  It enables the transfer or fund between two individuals for a variety of purposes like repaying money borrowed from a friend, sending money to students at college, paying for an item purchases at an online auction, or sending a gift to a family member.  One of the first companies to offer this service was Paypal Now, you specify the e-mail address of the person to receive the money, along with the money amount that you want to send.  An e-mail is sent to the payee's e-mail address.  The e-mail will contain a link back to the service's website. When the recipient will be asked to set up an account to which the money that was sent will be credited.  The recipient can then credit the money from this account to either his/her credit card bank account.  

Electronic Fund Transfer

Electronic fund transfer is the electronic transfer of money to and from financial institutions using telecommunication networks. EFT is now widely used –with funds, debits and credits and charges and payments electronically routed via clearing house among banks and between banks and customers.  Examples of EFT include; inter bank transactions around the globe; payments of university tuition fees using an ATM; direct deposit of salaries an employees' accounts and payment of mortgages, utility bills, and car payments trough monthly bank account deductions. 

Electronic Wallets

Most of the time when your makes a purchase on the web, you are required to fill out a form with your name, shipping address, billing address, credit information, and so on.  Doing this a few times is fine, but having to do it every time you shop on the web is an annoyance.  Some merchants solve the problem by having you fill out a form once, and then saving the information stored on their servers for later use.

Purchasing Cards

In some countries, such as the U,K. United states, and Hong Kong, companies are paying other companies by means of purchasing cards.  Unlike credit cards, where credit cards is provided for 30 to 60 days for free before payment is guide to the merchant.  Payments made with purchasing cards are used for unplanned business-to-business purchases, and corporations generally limit the amount per purchase.  Purchasing cards, of course, can be used on the internet much like regular credit cards.