4. E-Commerce & Payment System


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4. E-Commerce & Payment System

  1. 1. Amity School of Business Jitendra Tomar 09650512300 jitendratomar@hotmail.comjitendratomar@rediffmail.com Orator
  2. 2. Amity School of Business• Part 4: E-CoMmErCe & pAyMeNt SyStEm
  3. 3. Amity School of Business• Real World Cash
  4. 4. Amity School of BusinessWhat is Real World Cash?• It is technology mediated exchange between parties (individuals or organizations) as well as the electronically based intra or inter organizational activities that facilitate such exchanges.• Money is know as • a medium of exchange to simplify transactions, • a standard of value to make it easier to decide on the worth of goods, and • a store of value to facilitate the concept of saving.• In e-commerce, electronic money must fulfil the first function.• Payment online (using credit cards and the like) is not very different from cash transactions made in the real world, except for speed of transfer, ease of handling, and safety of not having to carry cash. Real World Cash
  5. 5. Amity School of Business• Outside the Internet, cash continues to be the most widely used form of payment. It offers several features: • Convenience – easy to use, easy to carry, and easy to handle in small quantities. • Wide Acceptance – paper currency is the most widely used exchange through out the world. • Anonymity – no identification is needed to pay in cash. • No cost of use – for customers who use cash, there are no hidden costs, overhead, or processing fees. For the merchant, it means transporting cash to the bank for safekeeping on a daily basis. • No audit trail – lack of traceability means that users can do what they wanted with the cash. Places where trust in currency, banking system or the government is in question, cash is used to buy all kinds of products, including homes, automobiles, and other big-ticket items. Trust is the basis of electronic payment system. Real World Cash
  6. 6. Amity School of Business• Despite these features, the credit system is more attractive for conducting business in the real world.• Cash is easy to loose, difficult to trace, cumbersome to carry, and time consuming to count, organize, and manage. Real World Cash
  7. 7. Amity School of Business• Electronic Money
  8. 8. Amity School of BusinessGenerics of E-Money• It is an electronic medium for making payments and is the trend today. It includes • Credit cards • Debit cards • Smart cards • Electronic fund transfer • Automated Clearinghouse.• It is a notational money system that may be • Online or offline • Identified or anonymous Electronic Money
  9. 9. Amity School of BusinessGenerics of E-Money• It is an electronic medium for making payments and is the trend today. It includes • Credit cards • Debit cards • Smart cards • Electronic fund transfer • Automated Clearinghouse.• It is a notational money system that may be • Online or offline • Identified or anonymous Electronic Money
  10. 10. Amity School of BusinessGenerics of E-Money• There are four types of E-Money • Identified and online (+I +L) The buyer is clearly identified and the card is validated against the issuing banks computer before the payment is made. Credit/Debit cards with PIN nos, Online Banking  • Identified and Offline (+I –L) Credit/Debit Cards without a PIN no. The merchant asks for the ID to make sure & know the identity of the user, but no verification is made against the account. If false transaction is made, the merchant has to backtrack through the issuing bank and chase the purchaser for the payment. It is like the check payment, traveller’s check, MOs and the like. Electronic Money
  11. 11. Amity School of BusinessGenerics of E-Money• There are four types of E-Money • Anonymous and online (-I +L) Payments where identity of the user is anonymous and the transaction is made on the spot against a card. Payments using loyalty cards, metro card transaction.  • Anonymous and Offline (-I –L) Using loyalty card with a Merchant who does not have an online connection to the Visa/Master card Network. Electronic Money
  12. 12. Amity School of Business• Analyzing Cash, Cheque, and Cards
  13. 13. Amity School of BusinessRegardless of the form of money, two distinct sets of properties(ACID & ICES) should be considered in a money transfer.The ACID Test: A set of properties of a money transfer thatinclude Atomicity, Consistency, Isolation, Durability.• Atomicity - A transaction must occur completely or not at all. When a user transfer Rs. 10,000 from savings account to checking accounts, the full amount must be debited from the savings account and credited tot he checking account before the transfer is considered successful.• Consistency - All parties involved in the transaction must agree to the exchange. In a customer-retailer relationship involving a purchase, the customer must agree to purchase and the merchant must agree to sell the specific quantity of the product at a specific price. They should also fix the type of payment system, and total amount of payment, otherwise, there is no basis for exchange. Money Analysis
  14. 14. Amity School of Business• Isolation - Each transaction must be independent of any other transaction and be treated as a stand-alone episode.• Durability - It must always be possible to recover that last consistent state or reverse the facts of the exchange. This may also lead to reversing charges in the event when customers change their mind.The ICES Test - Set of properties of a money transfer that includesinteroperability, conservation, economy and scalability.• Interoperability - The Ability to move back and forth between different systems. With the global nature of business, the basic requirement in time is the interconnectivity of distinct platforms so as to enable transactions among all the discrete systems. Money Analysis
  15. 15. Amity School of Business• Conservation - How well money holds its value over time (Temporal consistency) and how easy money is to store and access (Temporal Curability).• Economy - Processing a transaction should be inexpensive and affordable. In online banking, wiring money from one bank to another usually generates a fee for using the transfer platform.• Scalability - This test refers to the ability of the system to handle multiple users at the same time. The number of users will increase with the time and expansion, and the varied users should not lead to any discrepancy. Money Analysis
  16. 16. Amity School of BusinessThe ACID and ICES tests, integrate the following properties thatare important to create the interest in electronic paymentsystem and enhance the use of it.• Acceptability - It should be widely accepted by and to merchants/users. Merchants must have the technical ability and processes to expedite sale without delay.• Ease of integration - The website interface must be effective and well integrated into the total network environment. It should even enhance the MIS capabilities of the organization.• Customer base - Enough users and enough traffic must be present to justify investing in the electronic payment mechanism.• Ease of use and access - Users don’t like to wait. Using a payment system should be as easy as pressing a button on the screen. Money Analysis
  17. 17. Amity School of Business• Secure Electronic Transaction (SET)
  18. 18. Amity School of BusinessSecure Electronic Transaction (SET) is a standard protocol for securing credit card transactions over insecure networks, specifically, the Internet. SET is not itself a payment system, but rather a set of security protocols and formats that enable users to employ the existing credit card payment infrastructure on an open network in a secure fashion.A protocol designed to ensure the security and integrity of online communications and purchases, Secure Electronic Transaction (SET) uses digital certificates, issued to merchants and other businesses and customers, to perform a series of security checks verifying that the identity of a customer or sender of information is valid. SET provides the basic framework within which many of the various components of securing digital transactions function. Digital certificates, digital signatures, and digital wallets all function according to the SET protocol. Secure Electronic Transaction
  19. 19. Amity School of BusinessThere are several components for the SET protocol.• The Cardholder Application, also referred to as a digital wallet, is held by an online consumer and packages a digital signature and credit card information that ensures his or her identity and safeguards his or her financial information through a complex encryption system.• The Merchant Server component is the verification product held by the merchant to process the online card payment.• The Payment Gateway component is held by an acquiring bank or other trusted third party that accepts and processes the merchants verification and the customers payment information and filters them to their appropriate financial institutions.• The Certificate Authority component, usually run by a financial institution, is the trusted agent that issues the digital certificates and is responsible for ensuring that all users of digital certificates are in fact secure and trustworthy customers.Once a security product Secureof these components has for any Electronic Transaction passed the SET Compliance Testing, it bears the SET Mark,
  20. 20. Amity School of BusinessOnce a security product for any of these components has passed the SET Compliance Testing, it bears the SET Mark, ensuring all users that it meets the SET standards.The History and EvolutionSET was developed by SETco, led by VISA and MasterCard (and involving other companies such as GTE, IBM, Microsoft, Netscape, RSA and VeriSign) starting in 1996. SET was based on X.509 certificates with several extensions. The first version was finalised in May 1997 and a pilot test was announced in July 1998.SET was intended to become the de facto standard of payment method on the Internet between the merchants, the buyers, and the credit-card companies. Despite heavy publicity, it failed to win market share. Secure Electronic Transaction
  21. 21. Amity School of BusinessReasons for this include:• Network effect - need to install client software (an e-wallet).• Cost and complexity for merchants to offer support and comparatively low cost and simplicity of the existing SSL based alternative.• Client-side certificate distribution logistics.By the 2000s, however, reports of credit-card fraud and abuse rekindled interest in the SET protocol, and companies and card suppliers began integrating SET into their transactions systems.One factor helping the resurgence of the SET standard in the early 2000s was the switch from client-side digital wallets to server-side wallets, allowing for far greater flexibility in their use and for data storage. Secure Electronic Transaction
  22. 22. Amity School of BusinessAnd as more and more consumers opted for online payment systems through use of debit cards and credit cards for their online purchases, the demand for tighter security only escalate. Therefore, the nervous customers required the strongest possible security protocol for their online payments.Key featuresTo meet the business requirements, SET was developed with the following important goals:• Confidentiality of information/Payment - Of the financial account of the customer and the confidentiality of the personal information of the customer.• Integrity of data - This means that data will not be corrupted during transmission or processing. Secure Electronic Transaction
  23. 23. Amity School of Business• Cardholder account/Merchant authentication - Authentication that a cardholder is, in fact, the person authorized to use the card. It also verifies that the merchant handling a sale can accept an authorized card via the acquiring bank.• Interoperability across network providers - This implies a more encompassing or comprehensive way of making electronic payments over the Internet 24 hours a day, seven days a week, without delay.Participants - A SET system includes the following participants:• Cardholder• Merchant• Issuer• Acquirer• Payment Gateway• Certification Authority Secure Electronic Transaction
  24. 24. Amity School of BusinessTransaction - The sequence of events required for a transaction are as follows:• The customer obtains a credit card account with a bank that supports electronic payment and SET.• The customer receives a X.509v3 digital certificate signed by the bank.• Merchants have their own certificates.• The customer places an order.• The merchant sends a copy of its certificate so that the customer can verify that its a valid store.• The order and payment are sent.• The merchant requests payment authorization.• The merchant confirms the order.• The merchant delivers the goods/service to the customer.• The merchant requests payment. Secure Electronic Transaction
  25. 25. Amity School of Business• B2B and E-Payment
  26. 26. Amity School of BusinessBusiness to Business online Payment System.One area which is drawing high attention in the dawn of business to business is the e-payment platform, which is bringing in the value and quality in the mannerism of how business is done over the electronic medium.The advantages which e-payment platform is bringing to business-to-business environment are:• B2B e-Payment system can save processing cost and improve overall efficiency.• It is to automate the whole process of seller presenting the invoice to paying the invoice by the other business.• Most significant advantages comes from savings in staff, postage and handling. B2B & E-Payment
  27. 27. Amity School of BusinessBusiness to Business online Payment System.This all is the part of EIPP (Electronic Invoice presentment and payment) system which leads to:• Most efficient invoicing (Just-in-time invoicing, on-demand output).• Quicker receipt of payments• Easier processing of receipts, and• Reduced handling of invoice and complaints. B2B & E-Payment
  28. 28. Amity School of Business• General Guide to E-Payment
  29. 29. Amity School of BusinessBusiness to Business online Payment System.With all the options, procedures, and technical support available, there are general rules and tips to consider before paying for goods or services on the Internet. • Use a secure Web browser In today’s security-threatened Internet, a browser must have the most up-to-date encryption capabilities. When submitting payment information, make sure the “lock” icon is visible on the browser’s status bar.• Read the Website’s privacy policy carefully Specifically, find out how the site will use or share any personal information which the user provides. B2B & E-Payment
  30. 30. Amity School of BusinessBusiness to Business online Payment System.With all the options, procedures, and technical support available, there are general rules and tips to consider before paying for goods or services on the Internet. • Figure out the merchant’s refund and return policies in advance of the final purchase. These are tough areas to figure out once user decide to return merchandise for refund. • Investigate the trustworthiness of the merchant before you initiate a purchase User should know by now that not every Web merchant is reliable or long-lasting. B2B & E-Payment
  31. 31. Amity School of BusinessBusiness to Business online Payment System.With all the options, procedures, and technical support available, there are general rules and tips to consider before paying for goods or services on the Internet. • Keep a record of all online transactions and check e-mail and other contacts regularly After the purchase is finalized, most merchants will e-mail the user a confirmation with specific information that acts like a receipt.• Review the credit card statements line by line to ensure authenticity. The user should be sure to notify the proper issuing bank of any unauthorized purchases or irregularities in his account. B2B & E-Payment
  32. 32. Amity School of Business• Issues and Implications
  33. 33. Amity School of BusinessIssues & Implications.With the Internet’s increasing traffic and congestion resulting from growing e-commerce, there are issues regarding electronic payment methods and methodologies of which users should be aware. The issues can be grouped as follows:• Consumer needsWhat features will make electronic payment cheaper and more secure for the consumer and the merchant?• Corporate processesHow will today’s increasing e-commerce business affect the way tomorrow’s corporation operates in the marketplace? Will small and medium size businesses be harmed or helped by the electronic payment system? Issues & Implications
  34. 34. Amity School of BusinessIssues & Implications.• Corporate strategy Will the electronic payment system end up in the hands of fewer financial institutions, or will it generate a number of smaller banks that cater specifically to clearing and processing digital business transactions?  • Regulation of competition How does the government ensure fail play among companies doing business on the Internet? What standardization can be expected? How can we be sure that financial service providers will behave in the public’s best interests? How will the government levy taxes on electronic funds flowing over open networks like the Internet, especially with the increasing sophistication of encryption?   Issues & Implications
  35. 35. Amity School of BusinessIssues & Implications.• Economics of social process Will the government pull out of the cash making business? If so, what are the consequences for business and society? It taxing goods and services over the Internet ends up being a big job to control, will the government find new ways to tax the working public? In principle, the present technology seems to do the job of securing electronic payment over the internet with a hope that it will widely expedite and provide better security, allowing the customer to user unfamiliar workstations without endangering the security of the transaction. Issues & Implications
  36. 36. Amity School of Business• Payment Medium
  37. 37. Amity School of BusinessTypes of Electronic Payment Media• Credit Cards• Debit Cards• Smart Cards• E-Wallet• EFT Payment Medium
  38. 38. Amity School of Business• End of Part 4 E-CoMmErCe & pAyMeNt SyStEm