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Chapter: 02 Literature review

2.1E- commerce: a study on the online payment system would not be complete without the
discussion of electronic commerce. So e-commerce refers is the buying and selling of goods and
services, or the transmitting of funds or data, over an electronic network, primarily the Internet.
These business transactions occur either business-to-business, business-to-consumer, consumerto-consumer or consumer-to-business. The terms e-commerce and e-business are often used
interchangeably. E-commerce is conducted using a variety of applications, such as email, fax,
online catalogs and shopping carts, Electronic Data Interchange (EDI), File Transfer Protocol,
and Web services.

2.2Online payment systems: many users make payments electronically rather than in person. So
online payment refers to money that is exchanged electronically. Typically, this involves use of
computer networks, the internet and digital stored value systems and an electronic payment
system is a way of paying for a goods or services electronically, instead of using cash or a check,
in person or by mail. Hundreds of electronic payment systems have been developed to provide
secure Internet transactions. Electronic payment systems are generally classified into four
categories: credit card and debit cards; electronic cash; micropayment systems; and session-level
protocols for secure communications. The categories are

2.2.1Credit and debit card: A credit card is a plastic card issued to the users to lent money for
purchase of goods and services. The customer type the card number, expiry date and billing
address on the order form and the vendor can verify the details and be confident of payment. A
Debit card is a banking card enhanced with Automated Teller Machine and point of sale features
so that it can be used at merchant locations. A Debit card is linked to an individuals bank
account, allowing funds to be withdrawn at ATM and point of sale without writing a cheque. A
Debit card holder pay directly through bank for his purchases. It replaces physical cash and
cheque. A debit card holders need to deposit advance in the bank and withdraw in the purchase
2.2.2Electronic cash: e-Cash is purely software based, anonymous, untraceable, online token
payment system, available on Unix, Windows as well as Macintosh platform. When the tokens
purchased by customers, the e-Cash software stores the digital money on the customers personal
computer which is under signed by the bank. The users can easily spend digital money at any
shop accepting e-Cash without giving credit card details to the shopkeeper.
2.2.3Micropayment system: A micropayment system is a financial transaction involving a very
small sum of money and usually one that occurs online. A number of micropayment systems
were proposed and developed in the mid-to-late 1990s, all of which were ultimately
unsuccessful. A second generation of micropayment systems emerged in the 2010s. For example
PayPal defines a micropayment as a transaction of less than 5.

2.2.4Session level protocol for secure communication: it is protocol for the Open Systems
Interconnection. Session level protocols provide services for coordinating communication
between local and remote applications, establishing, managing and terminating connections.

2.2.5Secure Electronic Transaction (SET): Secure electronic transaction is a system of online

payments for ensuring the security of financial transactions on the internet. The SET
specification is an open, technical standard for commerce, developed by VISA and master card.
It facilitates secure payment card transactions over the internet. Digital certificate create a trust
change throughout the transactions, verifying cardholders and merchant validity.
2.2.6 Mobile Phone Payments
Several initiatives have emerged for initiating e-payments from mobile phones by using short
messages (SMS) or phone calls. These have also been referred to as m-payments (Vassiliou,
2004). Vassiliou further indicates that most m-payments initiatives follow a simple model where
the customer (payer) first identifies him/herself to the merchant by providing his/her phone
number or by calling the merchant. The merchant forwards the payment and customer
information to the payment service provider (e.g. through the mobile network). The service
provider then presents the payment information to the payer for confirmation and upon
confirmation (e.g. with a PIN number) records the transaction. The communication between the
customer and the payment provider and/or merchant can take place through phone calls and/or
short messages.

The benefits of implementing online payment system

Online payment offers a lot of benefits to the organizations that implement it. The technology
could improve cash flow management and operating efficiencies, increase companys
participation in customers acquisition process, compares the business cycle of the company and
intensity the companys relationships with its business partners.(Ratnasingham 1998)
Online payment technology is also said to be able reduce cost, increase the number of customers
for the company, enhance the relationship between the customers and the company and improve
the company image. The bottom line is increase in revenue and consequently in the profitability
of the company.
Perhaps the most interesting benefits of the online payment is the ability to couple it with online
bill presentment or electric billing systems (e- billing). E- Billing systems automate both the
delivery and the payment sides of the billing cycle with the entire exchange taking place over the
internet ( Radecki and Wenninger,1999). E-billing eliminates the conversion of the computerized
information to and from paper and replace the physical delivery of the documents.

There are numerous benefits for organization that implement online billing delivery and
payment. Merchants can save printing and mailing cost. E- Billing also has the potential to
reduce the time it takes to deliver bills and receive payment, which means that organization can
receive the payment earlier and invest it somewhere. The organization could also retain their
current customers meanwhile, customers can obtain a wealth of information about their account.
It is also an added convenience to the customers and enable the customers to save postage or
check processing fees.
Survivability could also be a factor that thrust the companies into using online payment. For the
time being, not many companies, either the suppliers or the business clients of the companies use
online payment. However, things might change in the future and many companies might adopt
online payment. When this happens, the companies that deal with these companies have no other
choice but to use online payment. If not, they would lose the business and this spells disaster to
the companies. Therefore, the use of online payment systems by suppliers and business clients
would push the companies to use online payment.

Barriers and challenges of implementing online payment system

Online payments despites it numerous benefits comes with its own challenge even in the
developed world. We will look at the general challenges and later on focus on specific challenges
in developing economies. The identified challenges as revealed by previous research works are
Security, Infrastructure, Regulatory and Legal issues and Socio-Cultural challenge.

Lack of Security
Online payment systems for the internet are an easy target for stealing money and personal
information. Customers have to provide credit card and payment account details and other
personal information online. This data is sometimes transmitted in an un-secured way, (Kolkata
and Whinston, 1997). Providing these details by mail or over the telephone also entails security
risks (Guttman, 2003, Laudon and Traver, 2002).

Proper Infrastructure for electronic payments is a challenge now-a-days world. Electronic
payments communication infrastructure includes computer network such as the internet and
mobile network used for mobile phone. In addition, banking activities and operations need to be
automated. A network that links banks and other financial institutions for clearing and payment
confirmation is a pre-requisite for electronic payment systems (Taddesse & Kidan,2005). So
proper infrastructure is necessary for the successful implementation of electronic payments.

Regulatory and legal issue: National, regional or international set of laws, rules and other
regulations are important requirements for the successful implementation of e-payment schemes.
United Nations commission on international trade law (UNCITRAL) has formed a working
group on electric commerce to prepare uniform rules on digital signature and certification
authorities (smedinghoff et all). This should ease the problem on doing online business globally.
On the local front, laws have been passed to regulate e-commerce and online communications.
The computer crime bill (1997), is an act to provide for offences relating to the misuse of
computers. The most important law passed thus far concerning e-commerce is digital signature
act(1997). The act is a comprehensive act to regulate the licensing and duties of certification
authorities, plus the regulation of the use of the use digital signatures.
Socio-Cultural Challenges
Cultural and historical differences in attitudes and the use of different forms of money (e.g. use
of credit card in North America and use of debit cards in Europe) complicate the task of
developing an electronic payment system that is applicable at international level (Taddesse &
Kidan, 2005). According to Taddesse & Kidan (2005), difference in the degree of the required
security and efficiency among people of different cultures and level of development aggravates
the problem.
Consumers confidence and trust in the traditional payments system has made customers less
likely to adopt new technologies. New technologies will not dominate the market until customers
are confident that their privacy will be protected and adequate assurance of security is
guaranteed. (Taddesse & Kidan, 2005). New technologies also requires the test of time in order
to earn the confidence of the people, even if it is easier to use and cheaper than older methods.

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Issues and Challenges of Electronic Payment Systems