See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/220709083

E-Commerce Payment Systems - An Overview.

Conference Paper · January 2003

Source: DBLP

CITATIONS READS

0 7,232

3 authors, including:

Carlos Serrao Joaquim Marques

ISCTE-Instituto Universitário de Lisboa Polytechnic Institute of Castelo Branco
91 PUBLICATIONS   311 CITATIONS    11 PUBLICATIONS   19 CITATIONS   

SEE PROFILE SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Data Science for Non-Programmers View project

AppSentinel – Cloud-based Anti Malware Technology for Android App Stores View project

All content following this page was uploaded by Carlos Serrao on 24 July 2017.

The user has requested enhancement of the downloaded file.

 E-COMMERCE PAYMENT SYSTEMS
An Overview

Carlos Serrao
ISCTE/Adetti,DCTI, Ed. ISCTE – Av. Das Forças Armadas,Lisbon, Portugal
Email: carlos.serrao@iscte.pt

Pedro Fonseca, Joaquim Marques

Adetti,Ed. ISCTE – Av. Das Forças Armadas,Lisbon, Portugal
Email: carlos.serrao@iscte.pt, marques@ipcb.pt

Keywords: Electronic Payment Systems, Electronic Commerce, Credit cards, Electronic Cash

Abstract: Electronic Commerce is playing a growing importance on modern Economy since it provides a commodity
way for consumers to acquire goods and services through electronic means – Internet and the WWW are the
most important. However, this new way of trade raises important problems on the way payments are being
made, and trust is one of the most important one. This paper starts by presenting some of the complexities
related to Electronic Commerce payments in this New Economy, both on a consumer and seller perspective.
Next, differences between the traditional and electronic payment systems are identified and how they both
deal with the identified complexities. Electronic payment systems (EPS) are then identified referring the
advantages presented to Electronic Commerce. Finally, a comparative EPS table is presented identifying
strong and week points on each of the EPS and conclusions are drawn from this.

relationship, that is now direct, interactive, active

and omnipresent [2].
Introduction The capabilities offered by interconnecting
computers in several network layers goes behind
the market – allows the information and knowledge
The Future of market is global and electronic,
share and transfer improving the decision process
representing a profound change in the way
and eliminating repeated efforts, and also improves
businesses are conducted. This change, highly
remote teamwork and connect workers: in resume,
accepted has already started reaching huge impacts
rethinking all company organization and
both in the United States and Europe [1].
restructuring business processes [3]. It is this
This growth depends on the number of
enlarged context that will have a deeper impact in
companies, administration organizations and
the companies and other organizations structure that
private users that adhere but it is an expansion
will lead to this ‘New Economy’.
phenomenon that drives to a larger usage.
This ‘New Economy’ is based essentially in
The vision that prevails defends that Economy
electronic transactions, and most of the players in
will be organized around vast electronic business
such transactions never actually meet physically.
information systems, composed by supplier
This is a requirement of all types of electronic
networks, distributors and costumers that will use
commerce both Business to Consumer and Business
electronic means as base platforms to collaborate
to Business, and payments, which are a crucial part
and compete in the market.
of transactions, must also be electronic. Trust is an
The creation of this new way of organization,
important factor in electronic transactions and
called New Economy, lays in the possibility of
especially in financial ones, and electronic payment
companies and organizations to reinvent
schemes must transmit trust to the transaction
themselves, profiting from its knowledge and
players. Electronic payment is an integral part of
internal potentialities to, based in the possibilities
electronic commerce, and is a financial exchange
offered by technology, reposition them in the value
that takes place online between buyers and sellers.
chain, redefine their business processes, increase
The content of such exchanges is usually in some
the productivity and adopt a globalization strategy.
form of digital financial instrument supported by
The connection between the different business
some bank or intermediary.
process players exists since the creation of the
The desire to reduce costs is one of the biggest
market. However, the relevant changing factor
reasons for the increasing interest in electronic
introduced by computer technology resides in the
payment systems, since normal cash and checks are
characteristics of the new type of economical
normally very expensive to process driving banks
and other financial institutions to seek for cheaper
alternatives. Because many consumers hesitate to
give out personal information, anonymity is another
big reason that contributes to the interest on this
payment form [3].
This paper focuses on the various electronic
payment schemes and its complexities currently
implemented used for Electronic Commerce
analysing some factors that can contribute to a wide
and best acceptance.
The importance of trust in e-commerce
Trust is a factor that has always played an
essential role in all types of business. As a
fundamental precursor to commerce, trust is
embodied in all market structures and processes.
Electronic commerce, however, has dramatically
changed both those structures and processes, and
Trust itself is also being transformed.
Trust impact is transforming the emerging new
marketplace, the companies are redefining them for
the new market, and Trust is being transformed in
electronic commerce. Trust strategies are defining
new business models.
The emergence of electronic commerce has
launched both enterprises and society into a new era
of business and the effects of such are being felt all
across the spectrum. Disintermediation and
restructuring is affecting companies, competitors
are reevaluating relationships and consumers are
becoming more empowered in the marketplace.
These changes shook the frameworks upon
which business has traditionally understood itself
and conducted market activity. Buyer and seller
relationships are being radically redefined,
including the way payments are performed and
processed. New rules of trade are evolving and new
business models thriving.
Visible changes are at work in the electronic
market, and the underlying implicit rules under
which business is conducted are also being
discarded and created new ones. One of the most
important and implicit in the market is Trust, which
is embodied in all market structures and processes.
As market structures and processes evolve rapidly
in electronic commerce, the underlying legacy
Trust mechanisms become ineffective. The absence
of a consensus on how Trust is established in
electronic commerce is one of the most significant
inhibitors to its further deployment and
implementation [4].
Commercial frameworks have always included
both implicit and explicit elements which establis h
an acceptable environment in which business
transactions can take place at an acceptable level of
risk. The advent of the Internet and electronic
commerce, changed the pace and scale of
commercial evolution so radically that existing
processes for building new Trust models for new
markets have been unable to keep pace and in many
cases are inappropriate for new ecommerce markets
[5].
Trust appears therefore as an important factor
for electronic relations, and must be present also in
payments systems . Both of the actors present in the
electronic transaction must establish a trust relation
before the actual transaction takes place.
Complexities of e-payments
Electronic payments aren’t as straight forward
as they seem. They involve issues that need to be
addressed: these issues are technical, juridical and
ethical. The crucial issue in electronic commerce
revolves around how consumers will pay businesses
online for various products and services.
Electronic commerce requires that payment
methods a) are widely used by consumers and
accepted by merchants, b) be real time transactions
and c) provide support for micro-payments [5].
Widespread acceptance is quite important in
this new global market. Physical boundaries are
continuously disappearing and consequently also
currencies differences tend to vanish from
electronic transactions. Customers must adopt and
use simple payment methods that allow them to buy
everything from every shop in the world. Also
companies, willing to establish electronic relations
with other companies allover the world must be
prepared to accept all types of electronic financial
payment mechanisms [6]. These must be real time
transactions with a reduced transaction costs with
support to anonymity and micro-payments. Micro-
payments are another aspect that makes electronic
payments a difficult issue [5]. Most of the
transactions have an associated cost that most of the
times are bigger then the payment itself. This is due
to financial institutions that normally charge some
percentage value over the transaction (VISA
normally charges 3% of the total value of the
transaction).
Electronic transactions presuppose that they are
processed electronically and therefore almost
immediately or even in real time. This will imply
that merchants, companies and financial institutions
must own the necessary technological infrastructure
prepared for online transactions. Also, with such a
large volume of transactions being processed
electronically important security risks raises.
Security is an important factor in electronic
payments and represents the most enabler aspect of
trust. Security normally involves:
• Information Confidentiality: refers to the
assurance of the client (the person who buys a
product or service electronically through the
 Internet) that his payment information will payment products before they are
only be accessed by its intended recipient perfected create an environment that
(normally the e-commerce virtual shop). makes both businesses and consumers
Confidential information should not be wary;
intercepted or deviated by third parties, hence • There is significant market competition
the need to establish secure channels of and controversy concerning what entities
communication and/or methods of sensitive can control the point of customer entry for
information encryption; these products;
• Data Integrity: refers to the non-alteration of • Current laws are often ill-suited to, or
the transaction data information. It is desirable, incompatible with the way that electronic
on an electronic transaction, that the data payment instruments and systems work.
exchanged between various legitimate parties
is not affected or altered by someone strange to The following table tries to resume some of
that operation; most principal aspects/functionalities collected
• Client/Merchant Authentication: refers to the from various sources that electronic payments need
assurance that the client and merchant involved t o address in order to be seamlessly integrated in
in an electronic transaction are in fact who they the electronic commerce applications.
say they are;
• Non-repudiation: the merchant and/or the
consumer don’t must revoke the Acceptance In order to be successful the
transaction after that was done; payment infra-structure must
• Interoperability: refers to the independence be largely accepted.
of the software and/or hardware platform Anonymity Customers’ identity must be
running under the payment system. A very protected.
desirable characteristic on every payment Conversion Digital money should be
system is that it should be addressed and convertible to other types of
developed in a way as to regard its financial founds.
universal use, whether one specific party is Efficiency Transactions costs must be
using Windows, Linux, or a Palm Pilot for near zero.
instance. Flexibility Different types of payments
There are significant and traditional reasons for should be supported.
the slow evolution of electronic payment Integration To support the actual
instruments and systems in a world that is eager to applications, proper
adopt any new technological product that comes interfaces should be created
along [6]. Among this reasons are: for its integration.
• The current money and payments Reliability Should always be available
infrastructure is well-established, reliable, to avoid potential points of
and businesses and consumers understand failure.
it and feel comfortable with it; Scalability Should permit the new
• New products and systems usually require costumers and merchants
the creation or adoption of standards so entrance without affecting
that every machine and network is the infrastructure.
speaking the same language; Security Support the financial
• Businesses and consumers are slow to transactions security over
change their financial habits without open networks.
compelling reasons; Usability Payment should be as easy
• The value proposition for businesses and as in the real world.
consumers to shift to new electronic value Broader People not eligible for credit
systems is not yet clear and may not come market cards could use these
into focus sharply until there is a systems giving a widespread
supporting infrastructure and a critical acceptance
mass of users; Trust Consumers and merchants
• The online movement of money may not must have a high degree of
yet be as reliable, convenient, safe and confidence on the system
easy as it needs to be; trusting that payment are
• Unfamiliarity with new payment conducted in proper way.
instruments and systems, concerns over
the potential loss of funds in accounts, Table 1 - Electronic Payment System Requirements
increasing apprehensiveness about the loss
of privacy, and the temptation to offer new
 Analyzing table 1 we can sub-divide that in weight granting a more widely acceptance .
three key sets of variables that are shaping
electronic transactions and electronic commerce.
These can be summarized under the headings of Traditional Payment Systems
convenience, confidence, and complexity:
Convenience refers to the capital, labor, time,
Traditional payment systems aren’t adequate for
and other real resources needed to conduct a
online payments. They are based in two
transaction. Obviously, consumers and businesses
fundamental bases: a) both the buyer and the seller
wish to optimize the resources expended in
will have to be in contact at least one time and b)
conducting a transaction.
during the payment process there will be sufficient
Confidence refers to the trust that parties have
time to detect and correct eventual frauds or other
in the elements of a transaction that generate risk to
problems that might occur [5, 6].
them. Financial, operational, security, and legal
A traditional payment system uses a set of
risks are relevant here as in many other contexts.
functionalities and methods where we can include
Particular attention is currently being paid to the
cash, checks, credit cards and debit cards. All of
complex of “trust variables” relating to the
these traditional payment systems have several
authentication of transactions and parties, as well as
shortcomings, which traduce their inapplicability to
to issues of privacy and social factors in e-
online transactions:
commerce [12][13].
• Checks and cash cannot be exchanged in real
Complexity is a shorthand reference to the ease
with which the key features of a transaction can be time;
standardized and automated and, ultimately, • Credit and debit card info exchanged over
understood by the parties to the transaction. As we the phone or by email involves high
have now learned, however, it is not the good or • security risks;
services, that necessarily has to be standardized in • Credit/debit cards do not support individual
order to participate in electronic commerce. Rather to individual payment transactions;
it is the sales transaction and key related services • Some individuals do not have access to
that need to be standardized. credit cards or checking accounts because of
There appear to be important tradeoffs among credit history;
the convenience, confidence, and complexity • The overhead of all but cash do not support
variables that shape choices about electronic as well low value transactions (micro-payments.
as other transactions. Greater convenience in Resuming traditional payment systems suffer
transacting through open data communication from several drawbacks, which make them almost
networks, for example, may increase security and inadequate for electronic commerce usage. These
privacy risks and reduce user confidence. Greater drawbacks can be grouped in the following list
complexity, in turn, may reduce the convenience of where we can identify the most notorious
transacting electronically through data networks associated problems :
causing more inconveniencies and inefficiencies. • Lack of convenience: in traditional payment
One fundamental point, however, is that ongoing systems there must be at least a physical
changes in technology are improving the terms of contact between the buyer and the seller. Also,
these tradeoffs, sometimes in several dimensions at traditional payment systems present serious
the same time equilibrating the key variables problems in international transactions;
Cash Credit Card Travelers Prepaid Cards
Checks
Exchangeability Yes No Yes No
Acceptability Yes Yes - -
Small Transaction Cost Low High High -
Large Transaction Cost Low Low Low Low
Non-refutable No Yes No No
Transferable Yes No No No
Anonymity Yes No No Yes
Secure against unauthorized use No No No -
Retrievable Yes Yes Yes Yes
Tamper Resistant Yes No Yes No

Monetary value Yes No Yes Yes

Table 2 - Comparative characteristics table of some of the most common traditional payment systems
 • Lack of security: there is no automatic payment
verification (checking if the payment is
performed successfully or not), except when it
is performed in cash;
• Lack of covering: credit cards only work in an
individual manner, and don’t support payments
between companies. This is a serious limitation
for Business to Business transactions;
• Lack of eligibility: not all the potential buyers
have the necessary eligibility to obtain credit
from banks, limiting their access to credit
cards;
• Lack of micro-payments support: most of the
payments performed on the Internet are so
small that the transaction costs are normally
higher than payment value.
Traditional payment systems must be able to
overcome most of these drawbacks in order to
increase and enhance the electronic means of
payment among buyers and sellers [7]. These
systems should meet needs from users and
merchants and must demonstrate potential of
acceptance on a mass market scale.
Common Electronic Payment Systems
Payment in e-commerce is an important part
being one of the key pieces that enables online
Types of Payment Systems used on the Internet
Type Sub-types
Credit Transfer
Electronic Checks
Access Products
Debit card payments
Differences are mainly about the
approach to secure credit card
Credit cards
payments (SET,
payments
3D-SET, ) and are not regarded as
subtypes of the payment type.
Work somehow like traditional access
Virtual wallets/ products B2C and P2P, but remain a
account chained payment instrument dependent
on traditional payment instruments
Single purpose schemes
E-money
Smart card based
(multipurpose
schemes)
Prepaid value Software based
products
Prepaid dedicated accounts
E-loyalty points or incentive point Bonus.net, IncentivCash, I-Points, MyPoints,
Money surrogates
schemes that involve three parties
Building on existing billing relationship BT Array, Chargeitdigital, Infin
Micro-billing
or requiring a new one
transactions. Payments in the virtual world have
several solutions, which go from the simpler and
less secure methods to more complex and more
secure methods. Also the applicability of such
methods is different according to type of financial
transaction, the volume, the scope and the
corresponding transaction costs [6].
As already presented in this paper, to have
effective electronic commerce this must support
and develop a small set of payment methods that
are widely used by consumers and widely accepted
by merchants and buyers [8].
Electronic payments first emerged with the
development of wire transfers. During the 1960s
and early 1970s, private networking technology has
enabled the development of alternative electronic
founds transfer systems that have shortened the
time of payment instructions transfer between
banks. Consumer electronic payment systems are
growing rapidly, however opportunities are scarcely
tapped.
E-payment systems at Internet can be structured
based on a typology related with “payment
instruments” [9]. We can represent this typology
according a structure divided in types and sub-types
Examples of payment systems are also show
according that division.
Examples
Solo e-payment
BillPoint, Echeck
CyberCash, Switch, Virtual Cash, Visa debit,
MBNet, safeDebit
SET, 3D-SET, CyberCOMM, I-Pay, Virtual
Credit Cards
CyberCash, Nochex, PayHound, Safedoor,
Smart Creds, c2it, QuickCash, PayPal,
ECount.com, iMC Card
WebCard, SmartTrip
Chipknip, GeldKarte, MiniPay,
Mondex, Quick, PayCard, Porta Moedas
Multibanco, Proton, SmartAxis, VisaCash
Clickpay, CopyLock, eCash
WebC@rd, MicroMoney, OmniPay card,
Paysafecard, Roots, Virtual cash plus, Smart
Creds, SplashPlastic, InternetCash,
Breezecard, ePaid, iGen MasterCard,
VisaBuxx, EZCMoney
Payback, e-gold, DigiGold
Micropayments, Kiosque, Qpass, X-Press-

Still no payment instrument in it's own
right, but a new device to carry out a
whole range of e-payment methods (eg
Mobile
using operator's phone bill, prepaid
account/ prepaid card, direct debits
and/or credit card payments).
Pay, ChargePhone, Chargeit Dial, QPass
EasyBuy, GiSMo, iCash, Mobilbank,
Omnipay Onphone, Pagomobile, Paybox,
Telia Payit, Visamóvil, Cingular DirectBill,
PayPal, PayDirect

Table 3 - Types of Payment Systems used on the Internet [9]

Observing the table is possible to see a Based on what information is being transferred
widespread multitude of e-payment examples for online they can be divided on three main sub-
each sub-type. That is indicator of an immature groups;
market indicating an infancy waiting for solutions The first sub-group maintains all sensitive
and acceptance according user expectations. information (such as bank account and credit card
Some of this Electronic Payment Systems are numbers) for its clients, which include both buyers
presented in this section classified according to the and sellers. When a transaction occurs, order
type of payment. Micro-payments, usable in small information is transmitted along with information
financial transactions; Customer payments, usable about payment confirmation and clearing, all of
in most of today’s web payments in business to which do not include sensitive information. In
consumer relations; and Business payments, effect, no real financial transaction is done online.
appropriated for most of the Business to Business The second sub-group is an extension of the
electronic relations. Although Business to Business conventional notational fund transfer. In credit card
E-Commerce still represents a greater slice of total or check transactions, sensitive information is being
volume of electronic transactions, most of the exchanged. For example, you give your credit card
payments involve small amounts of money and are to a merchant, who sends the card number through
concentrated in the Business to Consumer E- phone line and receives confirmation. Banks
Commerce. Also some of these systems are meanwhile receive the same information and adjust
designed oriented to some specific type of buyer and merchant's accounts accordingly. The
electronic relations is very difficult to classify them information being transmitted online in this case is
according. encrypted for security. This type is becoming the
Obviously we can classify payment in various mainstay of online payment methods because
ways being the account and token based consumers are familiar with this system and current
mechanisms [14] the most basic classification. players have vested interest in extending that
Based on the relationship between the system to the Internet.
intervenients on a transaction we can classify the The third sub-group includes variations of
payment systems into two main groups: digital cash, electronic money and coins. What
- macro-payments (for Business to Business distinguishes these systems from the other two is
relationship- B2B- and Business to Consumer-B2C) not simply the anonymity they afford, but the fact
-micro-payments (Business to Consumer and that what is being transferred is "value" or "money"
Consumer to Consumer relationship – C2C). itself.
SET e-Cash e-checks FVIPS Micro-
payments
Information confidentiality High Medium High High Low
Data High High High Medium
Integrity
Client/merchant High High High Medium
Authentication
Interoperability Medium Low Medium Low Low
Cryptography technology Digital Public Key Digital Public key
Certificates Certificates
Dependence from real time
interactions or Third Party Yes Low No No No
(T.P.) interactions Exist T.P.
Merchant implementation
complexity Low Medium Low Low Low
Complexity to end user Low Low Low Low Low
User acceptability Medium Very low Medium Low Very low

Table 4– Characteristics of payments type

 In other ways we can develop an alternative wireless and smart devices, giving a global
classification arriving to mechanisms based on framework to surpass drawbacks previously
tokens or based on accounts. mentioned, as also psychological security concerns
Observing the basic principles of security and different culture habits on payment systems .
(confidentiality, integrity, authentication,
interoperability and non repudiation) and
functionalities that some basic players’ needs on a References
transaction we can construct a table for various
types of payments (the most important) where that
[1] Eng, T., “Certificate Authorities: The keys
information is resumed (table 4). We can observe
to E-Commerce?”, PlanetIT, http://www.
that some advantages and disadvantages are evident
planetit.com, 2000
accordingly the type of payment. Security
obviously is important but sometimes the payment
[2] Keen, P., Ballance, C., Chan, S., Schrume,
system is oriented to a precise type of transaction
S., “Electronic Commerce Relationships: Trust By
(e.g. micro-payments) and security concerns are
Design”, Prentice Hall PTR, 2000
less important than others. The perceived security is
them variable accordingly situation (type of
[3] Garfinkel, S., Spafford, G., “Web Security
payment we made) and can be accepted by players
,Privacy & Commerce” 2nd Ed , O'Reilly &
even when some of its basic principles are not
Associates, Inc., 2002
completely observed. Obviously other factors
contribute in a large scale to a wide acceptance of a
[4] Gerck, E., “Towards a Real World Model of
payment system and players on a transaction must
Trust: Reliance on Received Information”, Meta
know that. Obviously the perfect desirable solution
Certificate Group, http://www.mcg.org.br, 1998
is having a more complete service as regards
security, thereby enhancing trust inherently to e-
[5] Spring, M., “Electronic Payment Systems”,
commerce and maintaining balance with other
Department Information Science and
characteristics of payment systems. Different types
Telecommunications, University of Pittsburgh,
of secure payment systems enabled with up-to-date
http://www.sis.pitt.edu/~spring
technology available for all players on a transaction
can also contribute to enhance trust on payment
[6] Messerschmitt, D., “Electronic Payments”,
systems.
University of California at Berkeley, Introduction
to Networked Applications and Computing, 1998

Conclusion [7] Weiner, S., “Electronic Payments in the U.S.

There is a multitude of electronic payment
systems proposed or already in practice. However
what we see at the real world, independently of the
type of the system and the acceptance they have,
there is a global indifference not only by the users
but also by the merchants. Maybe the principal
reason is the initial idea that payment over the
Internet is insecure. But these news systems have
enough security to be a success in the electronic
world.
As we see traditional payment systems have
some drawbacks relatively to a wide acceptance on
Internet. Indeed, the enough security that now
these new payment systems offer the primary
beneficiary of opportunity created by Internet
payment is (and as been) traditional credit and debit
cards. At this moment the merchants and players
don’t demonstrate a real interest on these new
methods. If in the future some of these payment
systems and the methods associated with could be
integrated (ex: smart card with debit/credit, digital
money, coins,…) they could create new payment
related opportunities. Is important to that happen
that a new entire access infrastructure appears,
bridging traditional point of service to Internet,
Economy: An Overview” , Economic Review, 1999
[8] Kalakota, R., Whinston, A., “Electronic
Commerce: A Managers Guide”, Addison-Wesley,
1996
[9] Bohle, K., Kruger, M., “Comparative EU -
US perspective on Internet Payments”, Electronic
Payments Systems Observatory, August 2001
[10] Crume, J., “What's Cryptography and SET
under the hood?”, IBM Corp. http://www-
3.ibm.com/ software/webservers/commerce/paymet/
part2.html (16/01/2002)
[11] Manasse, M., “The MilliCent Protocols for
Electronic Comme rce”, Compaq Computer Corp.,
http://www.millicent.com/works/details/papers/mce
ntny.htm, (16/01/2002)
[12] Meech John F. ; Marsh S. “Social Factors
in E-commerce Personalization”; Proceedings of
the CHI 2000Workshop - Designing Interactive
Systems for 1-to-1 E-commerce; http://www.
zurich.ibm.com/ ~mrs/chi2000/contributions/meech.
html
 [13] Egger F.N. “Towards a Model of Trust for
E-Commerce System Design”; Proceedings of the
CHI 2000Workshop - Designing Interactive
Systems for 1-to-1 E-commerce; http://www.
zurich.ibm.com/ ~mrs/chi2000/contributions/meech.
htmlhttp://www.zurich.ibm.com/~mrs/chi2000/cont
ributions/egger.html
[14] Abrazhevich, D. (2001) “Classification
And Characteristics Of Electronic Payment
Systems ”, Electronic Commerce and Web
Technologies 2001, Proceedings, LNCS 2115, K.
Bauknecht, S.K. Madria, G. Pernul (eds.), Springer

View publication stats