Electronic Payment Systems

ELECTRONIC PAYMENT
SYSTEMS

Irfan Ansari
WWW:

http://www.IrfanAnsari.com

Email:

Irfan@Irfan...
CONTENTS
ABSTRACT............................................................................................................
Electronic payment systems

TABLE OF FIGURES
Figure 1 Traditional payment system ............................................
Electronic payment systems

ABSTRACT
The development of e-commerce has formed new financial needs that in many cases canno...
Electronic payment systems

INTRODUCTION
As payment is an integral part of mercantile process, electronic payment system i...
Electronic payment systems

TRADITIONAL PAYMENT SYSTEMS
To get into the depth of electronic payment process, it is better ...
Electronic payment systems

PROBLEMS WITH THE TRADITIONAL PAYMENT SYSTEMS
There are also many problems with the traditiona...
Electronic payment systems

ELECTRONIC PAYMENT SYSTEM
Electronic payment systems have been in operations since 1960s and h...
Electronic payment systems

Figure 2Electronic payment system

TYPES OF E-PAYMENT SYSTEM
The payment mechanisms that a ban...
Electronic payment systems

CREDIT CARD
It seeks to extend the functionality of existing credit cards for use as online sh...
Electronic payment systems
Basic process of Online Credit Card Payment System is very simple. If consumers want to
purchas...
Electronic payment systems
CREDIT CARD PROCESSING:

Figure 4 Credit Card Processing

Like other Payments systems, there ar...
Electronic payment systems
ADVANTAGES
1. Increased Sales - credit card orders are generally larger in nature than cash & c...
Electronic payment systems
QUICK STEPS TO ENSURE AGAINST CNP FRAUD
•
•

Obtain an authorization.
Verify the card's legitim...
Electronic payment systems

SMART CARDS BASED ELECTRONIC PAYMENT SYSTEM
“Smart cards‟ are receiving renewed attention as a...
Electronic payment systems
•

Mall parking

ADVANTAGES
1.
2.
3.
4.
5.

Atomic, debt-free transactions
Feasible for very sm...
Electronic payment systems

DEBIT CARDS
Debit cards are also occasionally referred to as 'bank cards' A small plastic card...
Electronic payment systems
you arrive at your destination. These cards have largely replaced travellerscheques, offering
s...
Electronic payment systems
ADVANTAGES
Debit card does not match with credit card’s qualities much more hence it has some o...
Electronic payment systems

ELECTRONIC CHEQUE
Electronic cheques address the electronic needs of millions of businesses, w...
Electronic payment systems
ADVANTAGES
Electronic cheque system has many advantages:
1. It does not require consumers to re...
Electronic payment systems
PROCESS OF ELECTRONIC CHEQUING SYSTEM
The process of electronic chequing system can be describe...
Electronic payment systems

Figure 4 Clearing Cheque Payment Electronically

21
Electronic payment systems

PEER-TO-PEER PAYMENTS
Newest and fastest-growing payment schemes. They enable the transfer of ...
Electronic payment systems
are all PayPal competitors. Same kind of initiative have taken place in Pakistan by different
i...
Electronic payment systems

CRITICAL SUCCESS FACTORS OF E-COMMERCE PAYMENT
SYSTEM
Success of e-commerce businesses, includ...
Electronic payment systems
Integrity:
transaction data are transmitted and received unchanged and as intended.
Non-repudia...
Electronic payment systems

BENEFITS OF ELECTRONIC PAYMENT SYSTEM
Electronic payment is very convenient for the consumer. ...
Electronic payment systems

DISADVANTAGES OF ELECTRONIC PAYMENT SYSTEMS
Most of the online banking sites as also the onlin...
Electronic payment systems

PRESENT STATUS OF ELECTRONIC PAYMENT SYSTEM IN
PAKISTAN
At present several utility service pro...
Electronic payment systems

CONCLUSION
Technology has inarguably made our lives easier. It has cut across distance, space ...
Electronic Payment Systems by IrfanAnsari.com
Upcoming SlideShare
Loading in...5
×

Electronic Payment Systems by IrfanAnsari.com

1,182

Published on

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
1,182
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
55
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Electronic Payment Systems by IrfanAnsari.com

  1. 1. Electronic Payment Systems ELECTRONIC PAYMENT SYSTEMS Irfan Ansari WWW: http://www.IrfanAnsari.com Email: Irfan@IrfanAnsari.com LinkedIn: http://pk.linkedin.com/in/IrfanAnsari Twitter: http://www.twitter.com/_IrfanAnsari Google Plus: http://plus.google.com/+IrfanAnsari
  2. 2. CONTENTS ABSTRACT...................................................................................................................................................... 1 INTRODUCTION ............................................................................................................................................. 3 TRADITIONAL PAYMENT SYSTEMS ................................................................................................................ 4 PROBLEMS WITH THE TRADITIONAL PAYMENT SYSTEMS ............................................................................ 5 ELECTRONIC PAYMENT SYSTEM ................................................................................................................... 6 TYPES OF E-PAYMENT SYSTEM ..................................................................................................................... 7 CREDIT CARD ................................................................................................................................................. 8 CREDIT CARD PROCESSING: .................................................................................................................... 10 ADVANTAGES .......................................................................................................................................... 11 DISADVANTAGES..................................................................................................................................... 11 RISK IN USING CREDIT CARDS ................................................................................................................. 11 QUICK STEPS TO ENSURE AGAINST CNP FRAUD ..................................................................................... 12 SMART CARDS BASED ELECTRONIC PAYMENT SYSTEM ............................................................................. 13 APPLICATION OF SMART CARDS ............................................................................................................. 13 ADVANTAGES .......................................................................................................................................... 14 DISADVANTAGES..................................................................................................................................... 14 DEBIT CARDS ............................................................................................................................................... 15 ADVANTAGES .......................................................................................................................................... 17 DISADVANTAGES..................................................................................................................................... 17 ELECTRONIC CHEQUE.................................................................................................................................. 18 ADVANTAGES .......................................................................................................................................... 19 DISADVANTAGES..................................................................................................................................... 19 PROCESS OF ELECTRONIC CHEQUING SYSTEM ....................................................................................... 20 PEER-TO-PEER PAYMENTS .......................................................................................................................... 22 USAGE OF ELECTRONIC PAYMENT SYSTEMS .............................................................................................. 23 CRITICAL SUCCESS FACTORS OF E-COMMERCE PAYMENT SYSTEM ........................................................... 24 BENEFITS OF ELECTRONIC PAYMENT SYSTEM ............................................................................................ 26 DISADVANTAGES OF ELECTRONIC PAYMENT SYSTEMS.............................................................................. 27 PRESENT STATUS OF ELECTRONIC PAYMENT SYSTEM IN PAKISTAN .......................................................... 28 CONCLUSION............................................................................................................................................... 29
  3. 3. Electronic payment systems TABLE OF FIGURES Figure 1 Traditional payment system ........................................................................................................... 4 Figure 2 Electronic payment system ............................................................................................................ 7 Figure 3 Credit Card Payment Form.............................................................................................................. 9 Figure 4 Credit Card Processing .................................................................................................................. 10 Figure 5 Statistics Table .............................................................................................................................. 23 Figure 6 Factors discouraging consumer for online payments. .................................................................. 24 1
  4. 4. Electronic payment systems ABSTRACT The development of e-commerce has formed new financial needs that in many cases cannot be effectively fulfilled by the traditional payment Systems. Recognizing this, virtually all interested parties are exploring various types of electronic payment system and issues surrounding Electronic payment system and digital currency. Broadly electronic payment systems can be classified into four categories: Online Credit Card Payment System, Online Electronic Cash System, Electronic Cheque System and Smart Cards based Electronic Payment System. Each payment system has its advantages and disadvantages for the customers and merchants. These payment systems have numbers of requirements: e.g. security, acceptability, convenience, cost, anonymity, control, and traceability. Therefore, instead of focusing on the technological specifications of various electronic payment systems, the researcher have Distinguished electronic payment systems based on what is being transmitted over the network; and analyze the difference of each electronic payment system by evaluating their requirements, characteristics and assess the applicability of each system. 2
  5. 5. Electronic payment systems INTRODUCTION As payment is an integral part of mercantile process, electronic payment system is an integral part of e-commerce. The emergence of e-commerce has created new financial needs that in many cases cannot be effectively fulfilled by traditional payment systems. For instance, new types of purchasing relationships-such as auction between individuals online-have resulted in the need for peer-to-peer payment methods that allows individuals to e-mail payments to the other individual. Recognizing this, virtually all interested parties (i.e. academicians, government, business community and financial service providers) are exploring various types of electronic payment system and issues surrounding electronic payment system and digital currency. Some proposed electronic payment systems are simply electronic version of existing payment systems such as cheques and credit cards, while, others are based on the digital currency technology and have the potential for definitive impact on today’s financial and monetary system. While popular developers of electronic payment system predict fundamental changes in the financial sector because of the innovations in electronic payment system. Therefore, electronic payment systems and in particular, methods of payment being developed to support electronic commerce cannot be studied in an isolation. A failure to take place these developments into the proper context is likely to result in undue focus on the various experimental initiatives to develop electronic forms of payment without a proper reflection on the broader implications for the existing payment system. 3
  6. 6. Electronic payment systems TRADITIONAL PAYMENT SYSTEMS To get into the depth of electronic payment process, it is better to understand the processing of conventional or traditional payment system. A conventional process of payment and settlement involves a buyer-to-seller transfer of cash or payment information (i.e., cheque and credit cards). The actual settlement of payment takes place in the financial processing network. A cash payment requires a buyer’s withdrawals form his/her bank account, a transfer of cash to the seller, and the seller’s deposit of payment to his/her account. Non-cash payment mechanisms are settled by adjusting i.e. Crediting and debiting the appropriate accounts between banks based on payment information conveyed via cheque or credit cards. Figure 1 Traditional payment system 4
  7. 7. Electronic payment systems PROBLEMS WITH THE TRADITIONAL PAYMENT SYSTEMS There are also many problems with the traditional payment systems that are leading to its fade out. Some of them are enumerated below: 1. Lack of Convenience: Traditional payment systems require the consumer to either send paper cheques by snailmail or require him/her to physically come over and sign papers before performing a transaction. This may lead to annoying circumstances sometimes. 2. Lack of Security: This is because the consumer has to send all confidential data on a paper, which is not encrypted, that too by post where it may be read by anyone. 3. Lack of Coverage: When we talk in terms of current businesses, they span many countries or states. These business houses need faster transactions everywhere. This is not possible without the bank having branch near all of the company’s offices. This statement is self-explanatory. 4. Lack of Eligibility: Not all potential buyers may have a bank account. 5. Lack of support for micro-transactions: Many transactions done on the Internet are of very low cost though they involve data flow between two entities in two countries. The same if done on paper may not be feasible at all. 5
  8. 8. Electronic payment systems ELECTRONIC PAYMENT SYSTEM Electronic payment systems have been in operations since 1960s and have been expanding rapidly as well as growing in complexity. After the development of conventional payment system, EFT (Electronic Fund Transfer) based payment system came into existence. It was first electronic based payment system, which does not depend on a central processing intermediary. An electronic fund transfer is a financial application of EDI (Electronic Data Interchange), which sends credit card numbers or electronic cheques via secured private networks between banks and major corporations. To use EFT to clear payments and settle accounts, an online payment service will need to add capabilities to process orders, accounts and receipts. But a landmark came in this direction with the development of digital currency. The nature of digital currency or electronic money mirrors that of paper money as a means of payment. As such, digital currency payment systems have the same advantages as paper currency payment, namely anonymity and convenience. As in other electronic payment systems (i.e. EFT based and intermediary based) here too security during the transaction and storage is a concern, although from the different perspective, for digital currency systems double spending, counterfeiting, and storage become critical issues whereas eavesdropping and the issue of liability (when charges are made without authorizations) is important for the notational funds transfer. Figure 2 shows digital currency based payment system. 6
  9. 9. Electronic payment systems Figure 2Electronic payment system TYPES OF E-PAYMENT SYSTEM The payment mechanisms that a bank provides to a company have changed drastically. The Company can now directly deposit money into its employee’s bank account. These transfers are done through Automated Transfer Houses. With the growing complexities in the ecommerce transactions, different electronic payment systems have appeared in the last few years. At least dozens of electronic payment systems proposed or already in practice are found worldwide. The grouping can be made on the basis of what information is being transferred online. Thus, electronic payment system can be broadly divided into following general types: • • • CREDIT CARD SMART CARD DEBIT CARDS • • ELECTRONIC CHEQUES PEER-TO-PEER PAYMENTS 7
  10. 10. Electronic payment systems CREDIT CARD It seeks to extend the functionality of existing credit cards for use as online shopping payment tools. This payment system has been widely accepted by consumers and merchants throughout the world, and by far the most popular methods of payments especially in the retail markets. This form of payment system has several advantages, which were never available through the traditional modes of payment. Some of the most important are: Privacy Integrity Compatibility Good transaction efficiency Acceptability Convenience Mobility Low financial risk Anonymity Added to all these, to avoid the complexity associated with the digital cash or electroniccheques, consumers and vendors are also looking at credit card payments on the internet as one of possible time-tested alternative. But, this payment system has raised several problems before the consumers and merchants. Online credit card payment seeks to address several limitations of online credit card payments for merchant including lack of authentication, repudiation of charges and credit card frauds. It also seeks to address consumer fears about using credit card such as having to reveal credit information at multiple sites and repeatedly having to communicate sensitive information over the Internet. 8
  11. 11. Electronic payment systems Basic process of Online Credit Card Payment System is very simple. If consumers want to purchase a product or service, they simply send their credit card details to the service provider involved and the credit card organization will handle this payment like any other. This can be understood very easily with the format (Figure 3) of Credit Card Payment Form. Figure 3 Credit Card Payment Form 9
  12. 12. Electronic payment systems CREDIT CARD PROCESSING: Figure 4 Credit Card Processing Like other Payments systems, there are advantages and disadvantages to accepting credit cards. We have included both so you can make an informed decision on if your business should sign up for merchant services. Regardless of the cost you incur, you will see that the benefits outweigh the negatives. 10
  13. 13. Electronic payment systems ADVANTAGES 1. Increased Sales - credit card orders are generally larger in nature than cash & check orders. 2. Faster Checkout - speed up your checkout line as it is much quicker to accept a credit card payment. 3. Cheaper than Cash - due to the larger order amounts, it can be cheaper to accept credit cards then cash. 4. More Security - You have more security problems when dealing with cash. You must deal with large amounts of money in the drawer and the possibility of employees giving out the wrong change amount. 5. More Choices - by giving your customers as many payment options as possible, you have a smaller chance of losing the sale. DISADVANTAGES 1. Cost - like every other cost a business incurs, there is one when you accept credit cards. You can simply look at it as a cost of doing business. 2. Fraud - Internet / Keyed in merchants are more prone to receiving fraud, but it is one thing that you must deal with when accepting credit cards. 3. Chargebacks - since you are dealing with credit cards, you must abide by the rules of Visa & MasterCard. Therefore, consumers are more protected when paying with a credit card and can often at times win against a merchant when they dispute a charge. RISK IN USING CREDIT CARDS • Customer uses a stolen card or account number to fraudulently purchase goods or service online • Family members use bankcard to order goods/ services online, but have not been authorized to do so. • Customer falsely claims that he or she did not receive a shipment • Hackers find the ways into an e-commerce merchant’s payment processing system and then issue credits to hacker card account numbers. 11
  14. 14. Electronic payment systems QUICK STEPS TO ENSURE AGAINST CNP FRAUD • • Obtain an authorization. Verify the card's legitimacy • Ask the customer for the card expiration date, and include it in your authorization request. An invalid or missing expiration date might indicate that the customer does not have the actual card in hand. • Use fraud prevention tools such as Visa's Address Verification Service (AVS), Card Verification Value 2 (CVV2), and Verified by Visa. 12
  15. 15. Electronic payment systems SMART CARDS BASED ELECTRONIC PAYMENT SYSTEM “Smart cards‟ are receiving renewed attention as a mode of online payment. They are essentially credit card sized plastic cards with the memory chips and in some cases, with microprocessors embedded in them so as to serve as storage devices for much greater information than credit cards with inbuilt transaction processing capability. This card also contains some kinds of an encrypted key that is compared to a secret key contained on the user’s processor. Some smart cards have provision to allow users to enter a personal identification number (PIN) code. Smart cards have been in use for well over the two decades now and have been widespread mostly in Europe and Asian Countries. Owing to their considerable flexibility, they have been used for a wide range of functions like highway toll payment, as prepaid telephone cards and as stored value debit cards. However, with the recent emergence of e-commerce, these devices are increasingly being viewed as a particularly appropriate method to execute online payment system with considerably greater level of security than credit cards. Figure-5: Smart Card APPLICATION OF SMART CARDS Some application of smart cards are: • • • • • • 13 Authentication, ID Medical records E-cash Store loyalty programs Personal profiles Government – Licenses
  16. 16. Electronic payment systems • Mall parking ADVANTAGES 1. 2. 3. 4. 5. Atomic, debt-free transactions Feasible for very small transactions (information commerce) (Potentially) anonymous Security of physical storage (Potentially) currency-neutral DISADVANTAGES 1. Low maximum transaction limit (not suitable for B2B or most B2C) 2. High Infrastructure costs (not suitable for C2C) 3. Not (yet) widely used 14
  17. 17. Electronic payment systems DEBIT CARDS Debit cards are also occasionally referred to as 'bank cards' A small plastic card, resembling a credit card in appearance, a Debit Card is used to make cash withdrawals from a bank account, or to pay for goods and services. Your Debit Card may be linked to one or more bank accounts, into which you must deposit funds before you can use your card. A 'prepaid' Debit Card is not linked to a bank account, but is 'loaded' with funds by over-the-counter payment or electronic transfer before use, and can be 'recharged' when necessary. To pay for goods in stores, you 'swipe' your debit card through a terminal. To withdraw cash from your account, you insert it into an ATM. You can quote the card number (generally with a password or Personal Identification Number) to make purchases over the Internet or telephone. Many merchants offer 'cash out' or 'cash back' facilities, so that when you swipe your card to pay for your purchases, you can approve a payment for more than the cost of the goods and the merchant will hand you cash change. Many users regularly request cash when making purchases, because doing so can cut out fees that may be charged for EFTPOS withdrawals. Debit cards come in a wide variety of 'flavours', with different features and options and different fee structures. Some are designed specifically for electronic (Internet use), and no physical card is issued. There are also special Debit Cards for travel, like Visa Passport, that let you 'load' the card before an overseas trip and withdraw your funds in foreign currency when 15
  18. 18. Electronic payment systems you arrive at your destination. These cards have largely replaced travellerscheques, offering superior convenience and security. Card owners are usually issued with a Personal Identification Number used to verify their identity and authority to use the card. This PIN (generally a four digit number) should be kept secret, and typed into a terminal or ATM or entered on to an Internet form to verify your identity when using the card. Some Debit Card purchases can be confirmed with a signature. Both methods provide good security, though it is important for card owners to keep their card somewhere safe and inaccessible to others, and to report any loss at once. Debit cards are a convenient substitute for credit cards, particularly for those who struggle to remember to pay bills or who find it easy to let spending get out of control. Debit cards are also a convenient way to provide a fixed spending allowance to a partner, employee, or offspring, giving them convenient access to funds when needed without the risk of incurring unmanageable debt. 16
  19. 19. Electronic payment systems ADVANTAGES Debit card does not match with credit card’s qualities much more hence it has some of advantages that you can’t get in a credit card. These are: Like credit cards, debit cards are accepted by merchants because of its easiness, safety and quick money transaction utility which makes it more comfortable for business than a paying check. In a debit card you have to pay only one time fee with no extra interests or surcharges like late fee, APR, etc. which is a common element in every credit card. You can utilize it as an alternative for credit card at zero costs in comparison of a credit card. Similar to credit cards, a debit card can be used at anywhere, anytime for any buying until you have enough payment in your bank account. You can use it to make online purchasing where you can’t pay through cash or paying check or if you don’t have a credit card. You can use your debit card to obtain cash from an ATM without paying any extra charge for which you have to pay a higher fee if you obtain cash from your credit cards. Anyone who has bank account can obtain a debit card even if he/ she does not maintain a good credit report thus it is a good alternate for people with bad credit report or FICO score. Furthermore it never brings you credit card bankruptcy until you don’t want to pay overdraft fee. DISADVANTAGES As debit card does not offer credit facility to its user, some banks introduced a new feature ‘overdraft’ (not exactly but similar to credit limit) so you can withdraw more amount than you have in your account. Certainly they charge for it too, sometimes it may be very high. Some banks have amended their terms & conditions clauses by adding a term of maintaining a minimum balance in your bank account. If you don’t follow the rule bank will charge fee for non-sufficient funds or over-limit fee. In some countries debit card does not offer much security than credit card because of its direct connection to the holder’s bank account. If someone steals it to get cash, you will have to suffer financial loss but in credit cards you can stop payment due to it takes enough time to take an action. Besides it credit card companies offer fraudulent alert utility (with a time limit up to 60 days) to credit card users so they can stop any suspicious activity on time in order to minimize credit card fraud, this facility does not come with debit cards. Some debit cards don’t offer safety and security because of loopholes in concerned countries’ laws even a debit card is easier for hackers than a credit card. Though debit card has more advantages than disadvantages and offers good services like credit cards with less security, it is a good way to use plastic money. You can use it to make your purchasing with proper safety precautions so avoid any debit card disadvantages. 17
  20. 20. Electronic payment systems ELECTRONIC CHEQUE Electronic cheques address the electronic needs of millions of businesses, which today exchange traditional paper cheques with the other vendors, consumers and government. The echeque method was deliberately created to work in much the same way as conventional paper cheque. An account holder will issue an electronic document that contains the name of the financial institution, the payer’s account number, the name of payee and amount of cheque. Most of the information is in uncoded form. Like a paper cheques e-cheques also bear the digital equivalent of signature: a computed number that authenticates the cheque from the owner of the account. Digital chequing payment system seeks to extend the functionality of existing chequing accounts for use as online shopping payment tools. 18
  21. 21. Electronic payment systems ADVANTAGES Electronic cheque system has many advantages: 1. It does not require consumers to reveal account information to other individuals when setting an auction 2. It does not require consumers to continually send sensitive financial information over the web 3. It is less expensive than credit cards 4. It is much faster than paper based traditional cheque. DISADVANTAGES 1. Relatively high fixed costs 2. Limited use only in virtual world and the fact that they can protect the users‟ anonymity. Therefore, It is not very suitable for the retail transactions by consumers, although useful for B2B operations because the latter transactions do not require anonymity, and the amount of transactions is generally large enough to cover fixed processing cost. 19
  22. 22. Electronic payment systems PROCESS OF ELECTRONIC CHEQUING SYSTEM The process of electronic chequing system can be described using (figure 4) the following steps. STEP 1: A purchaser fills a purchase order form, attaches a payment advice (electronic cheque), signs it with his private key (using his signature hardware), attaches his public key certificate, encrypts it using his private key and sends it to the vendor. STEP 2: The vendor decrypts the information using his private key, checks the purchaser’s certificates, signature and cheque, attaches his deposit slip, and endorses the deposit attaching his public key certificates. This is encrypted and sent to his bank. STEP 3: The vendor’s bank checks the signatures and certificates and sends the cheque for clearance. The banks and clearing houses normally have a private secure data network. STEP 4: When the cheque is cleared, the amount is credited to the vendor’s Account and a credit advice are sent to him. STEP 5: The purchaser gets a consolidated debit advice periodically. 20
  23. 23. Electronic payment systems Figure 4 Clearing Cheque Payment Electronically 21
  24. 24. Electronic payment systems PEER-TO-PEER PAYMENTS Newest and fastest-growing payment schemes. They enable the transfer of funds between two individual’s fora variety of purposes like repaying money borrowed from a friend, sending money to students at college, paying for an item purchased at an online auction, or sending a gift to a family member. One of the first companies to offer this service was PayPal (paypal.com). PayPal claimed, in late 2001, to have 8 million customer accounts, handling 25 percent of all eBay transactions and funneling $5 billion in payments through its servers annually. One of the first companies to offer this service was PayPal (paypal.com). PayPal claimed, in late 2001, to have 8 million customer accounts, handling 25 percent of all eBay transactions and funneling $5 billion in payments through its servers annually. Although PayPal had not made a profit by fall 2001, this kind of business activity has drawn the attention of a number of other companies who are trying to get in on the action. Citibank C2IT (aol.com). One's Bank eMoneyMail, Yahoo! PayDirect, and WebCertifi-cate (webcenificaie.com) 22
  25. 25. Electronic payment systems are all PayPal competitors. Same kind of initiative have taken place in Pakistan by different institutions e.g easy paisa, UBL Omi using its primary infrastructure as Mobile number/account. USAGE OF ELECTRONIC PAYMENT SYSTEMS It is observed that different countries prefer the different forms of electronic payment system. The market has been from the start dominated by traditional financial intermediaries offering conventional electronic payment services augmented with minor innovations to adapt to the Internet. In 2003, 94.1 percent of all worldwide e-commerce transactions were conducted using credit cards (Pago, 2003). Even today, Credits cards are dominant form of online payment all over the world. This is especially true about the developed and fastest developing countries. This fact can be supported by the Research conducted by Jupiter Media Matrix (2000). The research revealed that credits cards are the most dominant methods of online payment in US. In the year 2000, credit cards accounted 95 % of online payments and accounted $47 billion of credit cards transactions in the US. This figure rosé to $25 trillion in the year 2004 (Federal Reserve Payment Study, 2004). However, according to Jupiter Media Matrix Research Survey, some consumers would prefer to other payment system, such as e-cash, debit cards and e-chequing. Only 50 % of consumers outside the US use credit cards for online purchase (Landon and Traver, 2002). According to the “Banking on the Internet Report”, Australia has a strong platform for e-payment growth, with 37.7 per cent of the population willing to engage in online payment. In Europe (especially in UK) and other countries of developed world like Canada, New Zealand, and in some of the Asian Developing Countries like China. Thailand, Japan and Singapore, smart cards based electronic payment system is popular. Most of the developing countries like Pakistan rely much more on electronic funds transfer and smart cards based electronic payment system. Figure 5 Statistics Table 23
  26. 26. Electronic payment systems CRITICAL SUCCESS FACTORS OF E-COMMERCE PAYMENT SYSTEM Success of e-commerce businesses, including both the largest of corporations and small retailers, rely on electronic payment system. Therefore, understanding the various critical success factors of e-commerce payment system is important. There are various factors, which should be considered by an e-commerce, firm before introducing and implementing ecommerce payment system. From the business perspective, new payment products are notoriously difficult to introduce as the barriers to entry (Lee, 1989; Yin, 1994), acceptance, and ubiquity are high (Abrazhevich, 2002). Figure 6 Factors discouraging consumer for online payments. Table 4 shows some factors, which are obstacles in the online payment systems. A good payment system should also consider these factors. Added to this, new payment products must be low margin to compete, high volume to build critical mass and be profitable, receive favorable press treatment, be well branded to gain customer confidence, achieve rapid uptake, and be differentiated from check and credit card so that consumers and merchants find reason to prefer and use them. Studies also revealed that simplicity (Schwartz, 2001; Truman et. al, 2003), trust (Herzberg, 2003; Juang, 2006), security and mutuality (Peha and Khamitow, 2004; Baddeley, 2004; Oh et al, 2006) of stakeholder benefits are all of importance to the adoption of e-commerce payment system. Thus the factors which are critical for the success of e-commerce payment systems are multifaceted. These include integrity, non-repudiation, authentication, authorization, confidentiality and reliability, which are discussed below: 24
  27. 27. Electronic payment systems Integrity: transaction data are transmitted and received unchanged and as intended. Non-repudiation: transactions have the quality of non-deniable proof or receipts. Authentication: identities and attributes of parties engaged in commerce are established at some tolerable level of risk. Authorization: individuals are established and recognized as entitled to receive, Send or view transactions. Confidentiality: transactions can be protected from view except by those who are authorized. Reliability: probability of failure in the transaction-send, receive, acknowledge-is low. Functionally, money technologies also need to achieve these operating characteristics: privacy, scalability, ease of use, personalize-able, seamlessness, interoperability, write oneapply anywhere and cost effective. 25
  28. 28. Electronic payment systems BENEFITS OF ELECTRONIC PAYMENT SYSTEM Electronic payment is very convenient for the consumer. In most cases, you only need to enter your account information -- such as your credit card number and shipping address -- once. The information is then stored in a database on the retailer's web server. When you come back to the Web site, you just log in with your username and password. Completing a transaction is as simple as clicking your mouse: All you have to do is confirm your purchase and you're done. Electronic payment lowers costs for businesses. The more payments they can process electronically, the less they spend on paper and postage. Offering electronic payment can also help businesses improve customer retention. A customer is more likely to return to the same ecommerce site where his or her information has already been entered and stored. 26
  29. 29. Electronic payment systems DISADVANTAGES OF ELECTRONIC PAYMENT SYSTEMS Most of the online banking sites as also the online financial transaction sites require you to open an online account with them. You need to register to the institution in order to be authorized to perform money transactions with them. This involves a username and a password, which implies the need of password protection. You also need to maintain an account per organization, which can make it bothersome for some of you. For secure online transactions, the site that hosts your account should follow strict security policies. If the passwords are susceptible to being hacked, it can mean a serious financial loss for you. Banks or financial institutes, which maintain your personal information, cannot afford to expose it to hackers. There is a potential risk of your personal and account details being stolen. One of the most severe disadvantages of electronic payment systems is that of identity theft. The available security measures can prevent the sensitive information from being exposed. But it is important to use virus protection or firewalls for your computer. It is important to carry out money transactions over a secure server. There is a great risk involves in the theft or the losing of the smart cards. In case the cards fall in unsafe hands, there is a danger of the expenditure of your entire bank balance. There are measures to inform the concerned authorities about the loss of the card. But, the time between losing the card and informing the authorities is critical. Unauthorized users may carry out transactions in your name during this period of time. Mostly, electronic cash is based on cryptographic systems. The transactions are encoded by means of numeric keys while the transaction details travel across the net. Though electronic payments are resistant to forgery, the keys are vulnerable to attack. This was not to discourage you from taking to electronic payments. It was rather to make you aware of the disadvantages of electronic payment systems. While we are moving towards a paperless environment, we are inviting issues related to electronic security. 27
  30. 30. Electronic payment systems PRESENT STATUS OF ELECTRONIC PAYMENT SYSTEM IN PAKISTAN At present several utility service providers along with many banks have started using electronic payment system in Pakistan. But the system has still not reached the mass majority of people in the country. There has been ongoing processes and guidelines for the banks and financial institutes to create their own ICT Policy for the security of the online transactions. The banking industry in Pakistan is mostly privatized and banks like HBL, HMB, Standard Chartered and MCB etc are using ATMs and POS for payment of utility bills electronically. It is seen that Ready Cash card, ATMs and POS are the mostly used options for the electronic payment. One of the problems for this is that these services are mostly available in big cities and towns. The people living in remote villages still have no idea that such a service is available. Also the card holder has to be a client of service providing bank to use the ATMs. Other options available also include Electronic Banking which is done by some banks through which the utility bill can be paid over Internet. But this service is yet to be started by other banks. Another huge sector which is under development and growing massively the concept of branchless banking, such as Telenor EasyPaisa, MobiCash or UBL Omni, which involves banking payment transfers through banks and depositors backed up by a cellular network. The utility service providers have also taken several steps so that they can work along with the banks to provide the service of electronic payment. KESC, SSGC, WAPDA, PTCL etc have all made several contracts with different banks to pay their bills electronically using ATMs or via online portals of these banks. Still several procedures are still being carried forward by these organizations to introduce new options of electronic payment. Other government and nongovernment organizations are also making changes in their infrastructure to make them capable of handling electronic payments. 28
  31. 31. Electronic payment systems CONCLUSION Technology has inarguably made our lives easier. It has cut across distance, space and even time. One of the technological innovations in banking, finance and commerce is the Electronic Payments. Electronic Payments (e-payments) refers to the technological breakthrough that enables us to perform financial transactions electronically, thus avoiding long lines and other hassles. Electronic Payments provides greater freedom to individuals in paying their taxes, licenses, fees, fines and purchases at unconventional locations and at whichever time of the day, 365 days of the year. On the basis of present study, first remark is that despite the existence of variety of e-commerce payment systems, credit cards are the most dominant payment system. This is consequences of advantageous characteristics, most importantly the long established networks and very wide users’ base. Second, alternative e-commerce payment systems are some countries are debit cards. In fact, like many other studies, present study also reveals that the smart card based e-commerce payment system is best and it is expected that in the future smart cards will eventually replace the other electronic payment systems. Third, given the limited users bases, e-cash is not a feasible payment option. Thus, there are number of factors which affect the usage of e-commerce payment systems. Among all these user base is most important. Added to this, success of e-commerce payment systems also depends on consumer preferences, ease of use, cost, industry agreement, authorization, security, authentication, non-refutability, accessibility and reliability and anonymity and public policy. 29

×