Electronic Payment o Meaty of electri Peyrene @ Requitetnents for Siyitas ae + Advanteuer Of cherstomic serene o Disadvantages of ects « Different methods pe fs OYE vime wr and disadvatitapes Yow & “peter 7 Credit cards > = Debit ox , > Different 7 ACID Test > ICES Test © Risks involved in e-pay Electromec fund transfer > How EFT works 7 Common uses of EFT 7 Advantages of EFT > Disadvantages of EFT 30 INTRODUCTION ‘htemet has revolutionized the ways in which *e made. More and more transactions happen 1oo” Fone, 3.2 instead of paying through traditional modes of payments like ¢, cheques. Electronic modes of payment offer an easier ” ated alternati to carrying cash. But the drawback of electronic mo le of payment 4 the speed and convenience of electronic modes o payment at overspending, often leagg i 3.1 MEANING OF ELECTRONIC PAYMENT In e-commerce, everything from advertising to Paying except delivery of physical products can technically be done through electronic Means, El ie Payment refers to paperless monetary transaction. E-payment ig initiate Processed and received electronically. E-payment is commonly used mechanism in e-commerce. E-payment enables individuals, by governments and non-profit organizations to make cashless goods and services through cards, mobile phones or the internet, of e-payment are: paying for a product purchased using credit c or smart card; salary credits directly to employees’ accounts. Payment Uusinesses Payments fo, The examples ard, debit carq 5 ete, 3.2 DIGITAL PAYMENT REQUIREMENTS 7. The ability to accept electronic transactions, depends on the 1. The company must have a merchant account. 2, Payment gateways that Provide a comp: systems and computer systems of Web house systems, following Criteria: atible bridge between banking host providers or company in- The company must have a Web: gateway that is in turn communic; Companies must have a way of products can be delivered and site communicating with a payment ating with a banking computer system, gathering customer information so that customer service can be implemented. ADVANTAGES OF E-PAYMENT Following are the advantages of €-payment: ‘> Thereased Speed 3.3 “Eliminates the secur’ associated with handling cas \*" Competitive to make sales advantage to business; E-payment enables businesses to customers who choose to Pay electronically and g2!2 @ Competitive advantage Over those ly through traditional methods, aha Te_ Electronic Payment System 3.3 We saving: Through e-payment, money can be transferred between virtual accounts within few minutes; while in traditional payment ya Such as cheques, it may take several days. Environment friendly: E-payment eliminates the use of paper. 34 DISADVANTAGES OF E-PAYMENT Security Concerns: Inspite of stringent security measures, e-payments are still vulnerable to hacking. ‘Disputed transactions: In case the electronic money such as credit card is misused by someone else, it is very difficult to receive a refund. Increased business costs: E-payment systems come with an increased need to protect sensitive financial information stored in a business’s computer systems from unauthorized access. Businesses have to incur additional costs in procuring, installing and maintaining sophisticated payment-security technologies. The lack of anonymity. The information about all the transactions, including the amount, time and recipient are stored in the database of the payment system. The intelligence agency and tax authorities can have access to this information. .+ The necessity of internet access. E-payment cannot be performed if Internet connection fails. 3.5 METHODS OF ELECTRONIC PAYMENTS E-payment refers to paperless monetary transaction through electronic means. E-payments Modes [ Credit Cards [ Debit Cards ‘Smart Card | { Digital Cash | | E-Wallet Fig. 3.1 : E-payment Modes These modes of e-payment have been explained in detail In the following section. 3.5.1 Credit Cards Payment using credit card is one of most common mode of electronic payment. Credit card is small plastic card with a unique number linked with an account. It has also a magnetic strip embedded in it which is used to read credit card via card readers. When a customer purchases a product via credit card, credit card issuer bank pays on behalf of the customer and customer has a certain time period after which he/she can pay the credit card bill. Generally credit card dues are settled on monthly basis. The parties involved in the credit card payment are:3.4 <= The card holder - Customer \e-The merchant - seller of product w 2 The card issuer bank - card holder’s 2 The acquirer bank \2-The card brand - for example, Excommeng ho can accept credit card Payment, bank - the merchant's bank Visa or MasterCard. 3.5.1.1 Credit Card Payment Process Step Description 5] Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Bank issues and activates a credit card to customer on his/her request, information to merchant site or to Customer presents credit card i fe ts to purchase a product/service, merchant from whom he/she wan! Merchant server asks for approval from card brand company for credit authorization of customer’s credit card number and the amount of purchase. Card brand company authenticates the credit card and informs the merchant whether to proceed. Merchant informs the merchant whether the transaction has been completed. Merchant keeps the sales slip, Merchant submits the sales slip to acquirer banks. Acquirer bank requests the card brand company to clear the credit amount and gets the payment. 1 Now card brand company asks to clear amount from the issuer bank and amount gets transferred to card brand company. 3.5.1.2 Advantages of Credit Cards Following are advantages of credit cards: Incentives: Some credit card companies offer incentives such as loyalty points and cashbacks for paying through credit cards. In addition, some credit card companies offer insurance on large purchases. + Flexible credit: Most credit cards offer interest free short term credit in case the balance is cleared in full by the due date. +~-Purchase power and ease of purchase: Credit cards make it easier to buy things without carrying large amounts of cash, Moreover, credit cards can also be useful in times of emergency, + Building a credit line: Having a good credit history is often important, not only when applying for credit cards, but also when applying for things such as loans, rental applications, or even some jobs. Having a credit card and using it wisely (making payments on time and in full each month) helps in building a good credit history.ent System ue Paym! cash withdraws: Credit cards can he used tn within vas ATMS. record keeping: Credit cards allow accurate Teen Lepagity consolidating purchases into a single staternent hy thitenagi 4 V/ 513 Disadvantages of Credit Cards jjowing are the disadvantages of credit cards: Lh pisputed transactions: In case the credit card is misused by voneeme, else, it is very difficult to receive a refund. Using a credit card especially remotely, introduces an element of risk 4% the card details may fall into the wrong hands resulting in fraudulent purchaves on the card. Fraudulent or unauthorized charges may take sumths to dispute, investigate, and resolve. “The lack of anonymity: The information about all the transactions, including the amount, time and recipient are stored in the database of the payment system. The intelligence agency and tax authorities can have access to this information. Credit card charges: Credit card provider companies charge fee for issuing credit cards. They also levy penalty if payment is not made within due dates. u’ Budget overruns: The biggest disadvantage of credit cards is that they encourage people to spend money that they do not have. Most credit cards do not require the holder to pay off the balance each month. If the holder has % 1000, he/she may be able to spend up to 7 5000 on credit card. It may seem like ‘free money’ to the holder at that time. The card holder may become an impulsive buyer and tend to overspend because of the ease of using credit cards. Cards can encourage the purchasing of goods and services which the card holder cannot teally afford. ~ Lost or stolen cards: Lost or stolen cards may result in some unwanted expense and inconvenience. + High interest rates: Credit cards are a relatively expensive way of obtaining credit if these are not used carefully, especially because of the high interest rates and other costs. 35.2 Debit Cards Debit card, like credit card is a small plastic card with a unique number linked ee the bank account number. It is required to have a bank account before Setting a debit card from the bank. Debit card enables the cardholder to pay ¥oN 3.6 Eom, eg for his/her purchases directly through his/her account The major dify, between debit card and credit card is that in case of Payment throy 4) "Ne card, amount gets deducted from card’s bank ae arta an, should be sufficient balance in bank account for the transaction there is no such Compulsion rd completed; whereas in case of credit cal epi, ere 3.5.2.1 Advantages of Debit Cards Following are the advantages of using debit cards: \*Simple and convenient to use: Debit cards ne Very simple to, Since the payment is taken directly out of holder’s bank Accoun, ; where the money already exists, it can be done instantly. This ig ta faster than having to wait for a credit transaction to go through, : having to worry about having enough cash to cover the expense, \+ Cash withdrawals: Debit cards can be used to withdraw cash fo ATMs. ve Security: Debit cards are protected by a four digit pin number that ig set by the cardholder. This pin is needed to make almost any purchs.. with debit card. Pin authentication gives a great deal of Protection against theft. + Easy issuance: The only thing required to obtain a debit card is have a bank account. Anyone can open 4 bank account with a small minimum deposit. This makes debit cards much different than credit cards, because approval for a credit card largely depends on the cregit score and payment histories. None of these things are taken int account when getting a debit card. Strong budgeting tool: One of the biggest advantage is that the debit card holder cannot spend more than what the cardholder has in her’ his bank account. This helps in preventing accumulation of new debts. + Ease of purchase: Debit cards make it easier to buy things without carrying large amounts of cash. 3.5.2.2 Disadvantages of Debit Cards Following are the disadvantages of debit cards: +~ Credit score: Unlike credit cards, the cardholder of debit card cannot build up credit score. That means that cardholder’s good habits of track record go-unnoticed by credit lenders. * Card fee: Banks charge fee for using debit cards. * The lack of anonymity: The information about all the transactions 4ec Payment System ~ : ing the amount, time a includy an = and reciprent are stored im the database « payment system. The intel! the pa . a AX a pave access t0 this informat a smart Card yutt card 1s 2 prepaid card similar te yuirbss a small Microprocessor ch customer's persona wp er iaptton keys, credit card numbe poe cjormation. and and credit card These cards are avatlabh snings of come of the applicant o nked to any bank accoun’ ed to have a bank account. Sc mych is a as per usage. Mondex 22 and smart cards. The smart card holder has to cash of through transfer from his her ay accou! onto the card, the cardholder can use the c: jimut of loaded amount in the same way as the loaded amount is spent. the cardholder may In general, the chip of a smart card contains the shown in Figure 3.2 Mt cards c Daz stored into te card read only memory 2 the production s Stores temporary dara vail the power is 09 aos Provides dare snpuvourper fuccti RAM ROM. v v CPU Controls the operation of the smart cand ASmart Card Fig. 3.2 : Schematic View of a Smart Card 3.53.1 Advantages of Smart Cards Sman cards have the following advantages: * No credit check: Smart card does not offer any credit limit. Therefore, no credit check is required for getting a smart card.. t; As smart card does not offer holder cannot on oot go in debt. Cardholder can car to the card. only spend the amount nanan card, the holder of the card Me oe anne tead of the card provider. Once the s is ending limit ins : ee fod aunt i over the card holder can easily top-up joaded ai 7 additional amount. - Identification: Smart cards ca vei card holder as they can store picture and finger prin' a Flexibility: With smart cards, there is no need to carry sever: rds; dcan act as an Identity Card, a debit card, a stored value cash te nal information. Smart cards can be rd, and a repository of perso’ wee ; easily replaced, if lost. Moreover, cardholder is relieved of remembering several passwords. Data storage: Smart cards are a : important information. The information stored on the card can be PIN- protected and/or read/write protected. In addition to storing information, smart cards are capable of processing information. Moreover, information stored on smart cards can be encrypted. These cards are called smart cards because they allow to store and process information. Cash withdraws: Smart cards can be used to withdraw cash from banks. Acts as a type of bank account: Smart cards are an alternative to a traditional bank account and are a new way to manage money, Smart cards are not linked to any bank account. Smart card H any credit facility, the sed to prove the identity of the Dee of the cardholder, » safe place to storé sensitive or 3.5.3.2 Disadvantages of Smart Cards Smart cards have the following disadvantages: . Loss of sensitive data: If the smart card is stolen or is lost, the Sensitive information stored in it would also be lost. : \ + Easy to loose and steal: Small size of smart care io : Ze 01 i ; 7 ‘ds makes it easy te \* Hackers: Smart can be used as i rng Potential area by hackers and computer * Acceptance: Some smart cards are not widely accepted 3.5.3.3 Uses of Smart Cards Smart cards may be used for.the follow: * For toll payment: The us tax on the highways. Wi ing purposes: eo Smart cards can use it to Pay toll- mart cards which operate on radioJectronic Payment System 39 frequencies, drivers do not h: iting i ave to stop t is avoids waiting in queues at toll plazas p to pay tolls. This avoids 7 iversitic varetty v oe to ee Schools: Universities and schools can issue smart ards at Librari lents for ID purposes. The students may use these C ‘aries, canteen, and book stores of the college. « Authentication: A utication: Smart cards can be used as a means of authentication and verification, , alas industry: Prepaid phone cards and sim cards are another commonly used application of smart cards, Rares Another commonly used application of smart cards is for fast ticketing in public transport such as Metro in Delhi and parking. .+ Loyalty cards: Many retailers have started using smart cards as loyalty cards. Health insurance: Smart cards can be used in health insurance schemes. 3,54 Digital Cash or E-Cash Digital cash is another mode of e-payment. Digital cash is a system that allows @ person to pay for goods or services by transmitting a number from. one computer to another. Like the serial numbers on real currency notes, the “Gigital cash numbers are unique. Each one is issued by a bank and represents a specified sum of real money. Digital cash purchased from bank is stored in the user’s computer which can be spent while making electronic purchases over the internet. Digital cash can also be stored on electronically sensitive cards such as smartcards. Digital cash can be used in place of cash for online transactions| One of the key features of digital cash is that, like real cash, itis anonymous and reusable. No other e-payment mode has the characteristics of anonymity and reusability. That is, when a digital cash amount is sent from a buyer to a vendor, there is no way to obtain information about the buyer. This is one of the key differences between digital cash and credit card systems. Digital cash payments are difficult to be tracked by investigative agencies and tax authorities. ‘Another key difference is that a digital cash certificate can be reused. To obtain digital cash, the customer must have a bank account as digital cash certificates can be purchased only by transferring amount from bank account. 3.5.4.1 Advantages of Digital Cash Following are the advantages of digital cash: * Provides fully anonymous and untraceable digital cash. In digital cash, the can pay to the seller without revealing his/her identity. Digital cash3.10 E-commercy works just like real currency notes. Once e-cash is withdrawn fro an account, it can be spent or given away without leaving a transaction, trail. L*No double spending problems. When the bank issuing digital cagh receives the electronic cash and verifies the serial number, it deletey the number and takes it out of circulation forever. As such, the Serial number cannot be copied and used again. “SLNo additional secure hardware required. The security and use of the digital cash is not dependent on any physical location. It can be storey in computer hard disk or on smartcards and can be sent by e-mail o, Internet. * Merchants would prefer digital cash because it prevents denial by the customer or lack of funds in customer’s bank account. 3.5.4.2 Disadvantages of Digital Cash Following are the disadvantages of digital cash: .+ Communications overhead between merchant and the bank. To tackle the double spending problem, the payee has to verify the digital cash with the bank at the point of sale in each of the transactions. The verification of the legitimacy of digital cash requires extra bandwidth, It is a major drawback especially when the traffic is high. The real time verification also requires synchronization between bank servers. Huge database of coin records — the bank server needs to maintain an ever-growing database for all the used coins’ serial numbers, Digital cash cannot guarantee anonymity. If the digital cash issued by bank to A is received back by it from B, it can be easily inferred that A had paid digital cash to B. : Theoretically, digital cash avoids double spending. But electronic files can be duplicated. 4 3.5.4.3 Steps Involved in Digital Cash Payment The electronic cash transactions take place in three distinct and independent phases. These are : 1. Phase I : Obtaining electronic cash The steps involved in obtaining electronic cash are: (a) The consumer must have an account with Central Online bask. He requests his or her bank to transfer money to e-cash accoust to obtain electronic cash. The consumer uses e-cash software 0 the computer to generate random number against requested money7 yectronic Payment System ol 34 (hy) The consumer bank transfers money Son to e-cash account —— stomen"s accor (c) From ash account money j< consumer saves the electronic cash versiones © : 2, Phase JI: Purchasing with electronic cash This phase is executed whenever the consumer des purchase with electronic cash. It can take pi eaten consumer has obtained electronic cash from e+ make purchases more than once as long as he or 3 of electronic cash. The steps involved are: (a) The consumer selects the goods and transf to the merchant by means of generating random num encrypt e-cash are known as blinded coins. This method: double spending of this money. (b) The merchant delivers the goods to consumer. 3. Phase III: Redeeming cash by merchant This phase occurs whenever the merchant is ready to redeem electronic cash. The steps involved are: (a) The merchant transfers the electronic cash to the e-cas! Alternatively, the merchant may send the electronic cash to and the bank in tum redeems the money from e-cash account (b) E-cash account transfers money to the merchant's bank for crediting the merchant’s account. Customer Bank 2 Send the blinded coins to the bank (Merchant) | Generate the blinded coins ; Bee sera, . 4 Return the signed blinded coins 5 Unblind the coins 8 Check the validity of the coins and whether they have been spent and credit the account accordingly Ship goods or perform the service Fig. 3.3: Basic Operation of E-cash SystemOy 3.12 3.5.5 Electronic Wallet i unt where one can stock money. to be <— E-wallet is an online prep ace ic i! t contains stored : hen required. E-wallet is an electronic oa bi St be aes $a wher : c : that is password protected. rat os canfertabhy and ad a line tran: elton commerce and other online 1 3.5.5.1 Advantages of E-Wallet . Following are the eee of ee not have time to enter credit caps + Time saving: ee ne payments. For making oon semen through e-wallet, consumers can make PayMent withoy entering the card details. ' Security: All e-wallets offer password security to ensure that mney is secured from unauthorized access. i Incentives: Many e-wallet providers provide incentives in the fom discounts and cash backs for payments made through e-walles. * Convenient: E-wallets are convenient as they eliminate the nesd » carry physical wallets. .2Competitive advantage: E-wallet technology provides more convenient transaction processing method. Consumers prefer to deal with thas companies that facilitate this technology. The businesses that employ this technology, enjoy the competitive edge in the market. 3.5.5.2 Disadvantages of E-Wallet Following are the disadvantages of e-wallet: * International restrictions: E-wallet obtained in one country cannot: used in some other country. . Limited merchants: There are Many stores like Amazon that do mt offer e-wallets. e-wallets is highly depende i f i i with these devices = pittance aoe soon : y. @ oe ee losing money: e-wallets are not as safe as credit or debt password and ithe, ahd debit cards are Protected with 3D se ewedit or det card ae knowledge Of 3D password, no one cat if consumer’s smrciphone eae But in the case of e-wallt money with digital wallet Ost oF stolen, anybody can use wil ta valet ; password can be easily ae 7 Fewallet is password prorectad,» Payment System ae Ms 3 Where E-Wallets can be used? —n } rocery stores: Hig ; Cae aoe Hig Basket Conn, au online fond anid geen ore offers e-wallet facility for simple paynient gptiony 1 wallet on this site cam be filled up ranging from & 10 46 % 10,000 | uility Bills payment: Payment the electicay bill, nue ball, heat jickets, cab payments can be made with Paylin proytmuney and Mobikwik. These e-wallets can be filled and ve haved wang wet bak credit cards, debit cards or even cash payments at thew retail out i" | Fly prepaid: Money can be saved up with ly wallets to book Uclets ,_ Bewallet on mobile: Airtel money has tmunsformed mobile phone wt e-wallet. The money stored in Airtel Money wallet can be wed an several shopping sites such as ebay, Home Shop 18, Myntiin and Hook My Show. All that is needed to avail this facility 1s an Autel connection Buying online: Major e-commerce sites, such as Hipkart hive e-wallet facility where consumers can create an ¢-wallel and Gillitup to % 10,000 at a time. Recharging mobile phones and DTH connections: A mobile recharge can be done automatically at munkcy.in, an © wallet service, on Mn auto disconnect missed call to their number. A consumer can also opt for scheduled recharge option in which a filled ¢-wallel can a number or DTH connection on fixed dates of the month. recharge 36 ELECTRONIC MONEY (E-MONEY) Payment is an integral part of mercantile process is very crucial. Electronic mone, and prompt payment (or account settlement) yy is an electronic medium for making payments. Flectronic money or e-money is a generic name for the exchange of money through the Internet. Electronic money (also known as clectronic cash, electronic currency, digital currency, digital money, or Internet money) refers tomoney which is exchanged only electronically. Typically, this involves use amples ofcomputer networks, the Internet, and digital stores value s of electronic money are: credit cards, debit cards, smart cards, el jectronic funds transfers (EFT), automated clearing house (ACH) systems, and direct deposits, Also, itis a collective term for financial cryptography and technologies enabling it. 3.6.1 Advantages of Electronic Money \d tangible cash is becoming less Most money in today’s world is electronic, an frequent With the introduction of InterneVOn-Jine banking, debit cards, On-3.14 line bill payments of the past Some of the benefits of em ¥ » \ vv vv > > The benefits of e-moncy (0 business in > > v f commery, F internet bursinesss Pare! numney 12 HECOMTNL A thing and Inter 1c 7 Inde consumers Ht" oney 10 coms Faster, more efficient transactions 1 user plans pocket money | record Loyalty and frequen} Less need to carry [ Automatic personal financial Possible financial anonymily Possible security from thefl Access to electronic-commeree More personalised banking service’ clude : keeping wand inatrumenty, Instant transactions . : Substantial cost savings because of the reduction in the physical handling of currency. Easier collection of marketing inform Promotion of free banking Traditionally, the two most important constraints on business were time and distance. E-money systems effectively crase both. They will almost certainly help to globalise trade. E-money can also help business in impro' customer is more likely to return to same ¢ her information has already been entered and stored. ation on customers ving customer retention, A commerce site where his/ 3.6.2. Disadvantages of Electronic Money Although there are many benefits of electronic money, there are also many significant disadvantages. These include fraud, failure of technology, possible tracking of individuals and loss of human interaction. The other disadvantages of electronic money are: > > > > For the operator, the cost of installing the technological infrastructure may be substantial. Competing e-money systems will have to b i i : compatibl ited with current methods of payment. derma: The risk of losi i intimi ates ing cards and their charged value could intimidate some Because security is a major concern, full convertibility, receipted transactions and high level it e-money systems. igh levels of security may all become features ofjut WAU Vide WE iqidoer a fy Mey f / atl (We Ped anid, liek Wt ieee wiih ws elit TRE (i ie tee ) 1 (HE Piney uve! ee yt (intl ie Veit de jay Hines / , \ / Aap (UIA OVE He Gut aedd elie riwanetly arithidvoed Fie yi ‘ AU Ue / 4 qe Ot allie Hie Wii Wi tinek tie Huey / wae 0 pining UNI TYG TW aiuaviey 16 Hatin des b46dhek bat AA f janemeliiane THeiiTied we Hiiniey te hewd wn Hae up HA nMhine HOHE MHL Ley, He jemhe te Whee Matitider HE Mie electri aniline tt Ae Anny Hine MEY Lita sinnne © ine de ‘ paelh ANH E iiey muni junk lien Heel faqs (Cree nate HHHHE THEY Ve Millie Titi on eC ee are Wh BECO HE MTL Deee rine a thaniiae tid bd Peete flere 60 Hioeteated Ley dedi Win cdjenatites neler (en pte tn A yet Anyi e Haey Mie nid pe real the enh [hee one & are Woe an ila ebenaline echenien Ainenipinnes Zheinen ae sloctranie analoy af eval Y Huth heen ype el eriney, be Wentihied 6 inne AO RO paniiey Hay Harther be Claweitied tite (we tate aie Online e money » Olfline & meney Onde . i eZ ¥ A iment ANONYMOUS ° ‘ A / a / © onan “ Hig. 3A: ‘Types of K-money On-line requires the user to Interact with a bank (via modem or hetwork) to conduct a transaction with a third party, Offline means that the user can conduct a transaction without having directly to tnvolve a barJO ha Based on above classification, e-money can be further classified in four types : ‘ . 7 Identified online e-money systems : In i aoe is ie ; bit card are used in sucl ns. This identified. Crediton ae nding by requiring merchants to contac, system prevents double spe: coe the bank's computer with every sale. The rand can cachet a database of all the spent pieces of ee : endate to the merchant if a given piece of e-money si i Hee a : the bank computer says that the e-money has alrea 7 Pent, the merchant refuses the sale. This is very similar to the way merchants currently verify credit cards at the point of / 2. Identified offline e-money systems : It is unique to purchasing by cheques. It can accumulate the complete path the e-money made through the economy. The identified e-money grows each time it is spent. The particulars of each transaction are appended to the piece of e-money and travel with it as it moves from Person to person, merchant to vendor. When the e-money is finally deposited, the bank checks its database to see if the piece of e-money was double spent, If the e-money was copied and spent more than once, it will eventually appear twice in the “spent” database. The bank uses the transaction trails to identify the double spender. 3. Anonymous online e-money system : It is unique to cash Payments where identity of the buyer is anonymons and a purchase is made against e-cash. This also Prevents double spending as bank does not make money available until the deposited cheque clears through bank. 4. Anonymous offline e-mone Pender nor can j e-money took through the economy, it reconstruct the path thepeeronic Payment System 3.17 +h identified e-me with identi loney, both offli ee ‘ ine and online, th a es hh es Tea Lele 7 © they bought it, when they bought it and 464 Analysing Cash, Cheques and Credit Card pegardless of the form of money, ’ considered in money transfer. Th ‘Wo distinct sets of properties should be ese are : Test For Mon ey ACID ee Ic) | * Atomicity i ¥ Interoperability * Consistenc ' : i * Conservation | * Isolation i * Economy 3.6.4.1 The Acid Test The ACID test addresses following four properties of money transfer: J Atomicity Atomicity test states that: > A transaction must occur completely or not at all. > For example, A transfer of $100 must result in the amount being credited from account and debited to another. If one action fails, the whole transaction should be aborted. 2 Consistency Consistency test,states that: > All parties involved must agree to the exchange > For example, before X buys a product from Y, X must agree to buy it for $A and Y must agree to sell it for $A. In other words, the customer must agree to purchase the goods for a specific price and the merchant must agree to sell it at that price; otherwise, there is no basis for exchange. 3. Isolation Isolation test states that: > Each transaction is independent of any other transaction. > Each transaction is treated as a stand-alone episode.318 4. Durability : Durability test states that : ossible to reco xchange. t happy with the product so the 1 be p ver to the last consistent state > It must always be or reverse the state of an © > For example, customer is no’ merchant should refund him. 3.6.4.2. The ICES Test The ICES test addresses following fou transfer: <4. Interoperability Interoperability means the different systems. 2. Conservation Conservation test states : > How well money holds its value over time (temporal consistency) > How easy it is to store and access (temporal durability) 3. Economy Economy test states that: 1 important properties of money ability to move back and forth between > Processing a transaction should be inexpensive and affordable > Relative to size of transaction For example, paying a $ 1 charge to process $ 10,000 transaction is acceptable. However, it is not acceptable if the transaction being processed is of $ 2. “4. Scalability (ow! j \ Scalability test refers to the ability of . users at the same time. ity of the system to handle multiple Comparing Different Systems ACID TEST ICES ie Covi) bee | Dae | ieee | Go ote ity | tency | tion | bitty | abitty | Cash x a x yi x = Cheque | Y Y. N Y . . Credit | Y se N Y : : ; Card : - x Table 3.1 2 Ce ‘Omparison of Different SystemsElectronic Payment System 3.19 As shown in the Table 3.1, cash has except Conservation. Cash also fulfil the problem with cash ig transporta is the most all the ACID and ICES rete the properties of the Uity and storage of large ae \ ge of large ~ “nonymous form of Payment. While using payment, it is not Necess: hi ary for the buyer to reve: Cheques do not fulfil the isolati Yer to reveal hi the fact that the drawer of test properties: CUD test, but Is. Cash a mode of is is due to ia ‘ays stop the payment of the - Although it takes two- three days for getting the cheque cleared, but the cheques may be considered transfer. Moreover, cheques do not fulfil ervati of the ICES test, memset atomic for money and economy properties fea ie May appear atomic to the seller, but in fact they are not. Though the seller is guaranteed payment, but the credit-card issuer may incur a loss in case the credit card is Stolen or it is used fraudulent! 7 ly. Moreover, the question of storage and retrieval of value is not applicable to credit-based systems. Credit card transactions are less anonymous than cash, although some forms of digital transactions can hide the identity of the buyer from the seller and vice-versa. 3.7 RISKS INVOLVED IN E-PAYMENT Security is an essential part of any transaction that takes place over the internet. Customer will lose faith in e-payment if its security is compromised. While making online payment, customers have to provide credit card and payment account details and other personal information online. Internet is an easy target for stealing money and personal information. The various risks involved in e-payments are: + Fraud: In e-payment, all the information such as credit card, number, passwords, etc. are transmitted over the Internet. Internet is a public network, and is susceptible to attacks from outside sources. An e- payment system offering 100% security is impossible — or at least, unaffordable. Electronic payment systems are prone to fraud. The common type of e-payment frauds are: > Identity theft: Identity theft can be defined as the misuse of personal data or documents in order to impersonate none ndividual to commit illicit activities, e.g. to abuse the victim’s banking facilities or other assets. The payment is done usually after keying in a password and sometimes answering security questions. There is no way of verifying the true identity of the maker of the transaction. As long as the password and security questions are correct, the system assumes the legitimacy of3.20 > E-commerc falls into the possession of fraudste, perso! is information | ‘ s the the y va eee this information and divert funds to : then they cal i it. nue ames Jent e-mails and internet sites ;, Phishing: Attackers use fraudu a lure consumers into revealing perso ’ This type of attack is called phishing. isused. by fraudsters can be misus' 7 Skimming: Another popular form of attacks is the unnoticeg duplication of electronic data from a payment card. Fraudsters = easily create duplicate ca accounts. ; Denial of Service: A customer falsely claims that the or she dig not service a shipment. | and/or financial information, The information receiveg rds and withdraw money from the Disputed transactions: In case the credit card is misused by someone else, it is very difficult to receive a refund. Using a credit card, especially remotely, introduces an element of risk as the card details may fall into the wrong hands resulting in fraudulent purchases on the card. Fraudulent or unauthorized charges may take months to dispute, investigate, and resolve. E-payments process cannot be reversed even in cases the person making the payment has entered the incorrect account number inadvertently. ~~ The lack of anonymity: The information about all the transactions, errors. This ig esp including the amount, time and recipient are stored in the database of the payment system. This is both the benefit and risk of using €-payment. Ail e-payment modes xcept e-cash provide an audit trail and the transaction can be traced from its inception. The intelligence agency and tax authorities ca E-payments can be easily conc oP: in have access to this information. ecially comm 7 on when pay ‘ at basis to many recipients, Payment is done on a regul * Buyer’s habits; The bi People to spend m oney iggest risk of e4sromic Payment System 7 ple pecause of the ease of using credit cards. Cards can encourage the p urchasing of goods and services which the card holder cannot really afford. 7 Technology failures: E-payment system is completely based on technology. Any failure in technology such as internet connectivity failures, power failures, low battery, etc. would lead to non-functioning of e-payment system. ELECTRONIC FUND TRANSFER tronic fund transfer is a very popular electronic method of transferring from one bank account to another bank account. Accounts can be bank or different bank. 38 Elec money jn same 38.1 How EFT Works? For transferring funds electronically from one bank account to another bank account, customer Uses website provided by the bank. Customer log-ins to the bank’s website and registers another bank account. He/she then places a request to transfer certain amount to that account. Customer’s bank transfers amount to other account if it is in same bank, otherwise transfer request is forwarded to ACH (Automated Clearing House) to transfer amount to other account and amount is deducted from customer’s account. Once amount is transferred to other account, customer is notified of the fund transfer by the bank. 38.2 Common Uses of EFT EFT is commonly used for: + Transferring Government Subsidies: Government of India, transfers subsidies on LPG directly to the consumers’ accounts through EFT. Similarly, pensions, salaries, tax refunds, etc. are directly credited to the accounts through EFT. Online Payment of Bills: Consumers can pay their utility bills such as electricity bills, phone bills, etc. through EFT. Taxes: Payment of income tax, GST, etc. can be made through EFT by transferring money from payee’s account to the account of the government. Debit/Credit Cards: Using credit/debit card, money is transferred electronically from buyer’s account to the seller’s account. Direct Debit: Under this method, money is automatically transferred on fixed dates of the month as per the instructions of the account- holder, This mode of payment is generally used to pay instalments of heavy purchases like vehicles. —oN E. 322 commer 3.8.3 Advantages of E¥T EFT offers the following advantages: ' + Time saving: El'T saves time by allowing making Payment office, home or any place. Through EFT, Payments wi} 4 automatically. This helps in saving the time of the payee and him/her peace of mind. - Convenience: The biggest advantage of EFT is its convenience, The users can pay phone and electricity bills, conveniently, In some case, companies such as insurance companies may waive the Mstallmeng Processing fee if the payment is made through EFT. 24x7 services: Funds can be transferred from one account to another at any time and trom anywhere. Eco-friendly process: EFT is an eco-friendly process as it does not consume volumes of paper like conventional transacting modes and hence helps protect the environment. ‘Om, Cur Biving Easy access: To perform EFT, all that is needed is a basic computer system connected to the Internet, Faster transacting: EFT is a faster way of transferring funds, Funds are transferred from one account to another in real-time and within moments. 3.8.4 Disadvantages of EFT Following are the disadvantages of EFT: * Internet connection: Internet connectivity is a pre-r EFT transactions. Internet connectivity may not b or remote areas. Many people may not have intern to which they may not be able to transfer funds * Computer knowledge: EFT transactions can be Pe who are Computer-literate, This is a major disa + Security concerns: One of the biggest disadva funds through EFT is the question of security, Technical obstacles including issues related to security and teliability of network and internet are major concerns in EFT. There is always fear of Safety ang security to the personal information due to the increased Spywares ang malwares being rampant on the internet, ‘equisite to perform available in rural et connectivity due electronically, erformed by persons vantage of EFT, intages of transferring