(3) Electronic Payment System in This Chapter, we will Learn: « Meaning of electronic payment, « Requirements for digital payment Advantages of electronic payment. Disadvantages of electronic payment. Different methods of electronic payments along with their advantages and disadvantages: Credit cards Debit cards Smart cards Digital cash E-Wallets Concept of e-money vvvvv Advantages of e-money Disadvantages of e-money Different kinds of e-money ACID Test ICES Test Risks involved in e-payment vvvvv Electronic fund transfer > How EFT works > Common uses of EFT > Advantages of EFT > Disadvantages of EFT 1 INTRODUCTION "emet has revolutionized the ways in which the payment for purchases can le. More and more transactions happen to be by electronic mode ‘Scanned with CamScannera2 ' OM Mer, * traditional modes. of payments Hike egy) ‘| fer an ensicl sker rr cheques. Electronic modes of payment offer an easter and duicker Alterna drawback of electronic mode of payment ing e f electronic modes of payment often lends 0 instead of paying through to carrying cash, But the the speed and convenience 0} overspending ELECTRONIC PAYMENT ommerce, everything from advertising to paying except dclivery of al products can technically be done through electronic mea ct payment refers to paperless monetary transaction. processed and received electroneally F-payment is commonly used pay, E-payment enables individuals, business, mechanism in ¢e-commet ines nd non-profit organizations to make cashless payments fy goods and services through cards, mobile phones or the internet. The examples of e-payment are: paying for a product purchased using credit card, debit carq or smart card; salary ¢fedits directly to employees’ accounts; etc, 3. MEANING OF Ine phy governmen 3.2. DIGITAL PAYMENT REQUIREMENTS The ability to accept electronic transactions depends on the following criteria; 1. The company must have a merchant account. 2. Payment gateways that provide a compatible bridge between banking systems and computer systems of Web host providers or company in- house systems. The company must have a Website communicating with a payment gateway that is in tun communicating with a banking computer system. 3. 4. Companies must have a way of gathering customer information so that products can be delivered and customer service can be implemented. 3.3, ADVANTAGES OF E-PAYMENT Following are the advantages of e-payment: * Increased speed and convenience: E-payment is very convenient as Compared to traditional payment methods of cash and cheques. E-payment can be made at any time of day or night from any part of the world Eliminates the security risk: : : ty risks: E-payment elimi ks associated with handling cash, Payment eliminates the security 1! Cc 7 cae advantage to business: E-payment enables businesses Sales to customers who choose to pay electronically and gait 4 competitive advantage traditional methane OVE those who accept payment only thous ‘Scanned with CamScannerje Payment System 3a gimme saving: Th girtwal accounts within ods such as chequ -payment, money can be t W minutes; while in ti it may take several days ayment climinates the use of paper. “PAYMENT. security concerns: Inspite of str es . stringent sect 1 y st alll vulnerable to hacking, rity measures, e-payment nsferred hetween Jitional payment pisputed transactions: In case the electronic mone such as credit dis misused by someone else, it is very difficult to eine orefund Increased business costs: E-payment systems come with an increased need t0 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-sccurity 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. = ~ 35 METHODS OF ELECTRONIC PAYMENTS tary transaction through electronic means. E-payment refers to paperless mone! jents Modes Credit Cards} Fig. 3.1 : E-payment Modes ‘These modes of e-payment have been explained in detail In the following section. mode of electronic 35.1 Credit Cards number linked with Payment using credit payment. Credit card is an account. It has also @ credit card via card readers. athatt of the qustomet e card, credit card issuet bank pays on an pa has a certain time period after ‘which he/she can POY ies involved iS. Generally credit card dues are settled on monthly bast in the credit card payment are: Scanned with CamScannerrr Pom, 34 - Customer a Jer of product who can ea pi Py ~ card holder's ban! nk ’s bal he merchant's Ic, Visa or MasterCard. + The card holder +» The merchant - S¢! The card issuer bank ik - for exampl + The acquirer ban « The card brand - Payment Process Description dit card to customer on his/her Fequest, 3.5.1.1 Credit Card k issues and activates a cre’ Step 1 | Ban : , : formation to merchant site or 1 tomer presents credit card in! OF to ei feciat fon whom he/she wants to purchase a product/service, step 3. | Merchant server asks for approval from card brand company for credit authorization of customer's credit card number and the amount of purchase. Step 4 | 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, Step 5 | Merchant submits the sales slip to acquirer banks. Step 6 | Acquirer bank requests the card brand company to clear the credit y amount and gets the payment. 4 Now card brand company asks to clear amount from the issuer bank Step 7 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 lyay pots and cashbacks for paying through credit cards. In addition, sone credit card companies offer insurance on large purchases. fs pe ‘credit Most credit cards offer interest free short term credit ‘ase the balance is cleared in full by the due date. Purch , r a a and ease of purchase: Credit cards make it easiet out carrying large amounts of cash. Moreover, credit les of emer; Buil Bency. au ma ae Having a good credit history is often importa. ; applying f i i things such as loans, Re - et pond Se 7 PPlications, or even some jobs. Havitls a credit card and using it wi ymen! ig it wisely i i in fl cach month) helps in building aBeree hi = ae istory. ‘Scanned with CamScannernie Payment System S H 38 » cast withdraws: Credit cards can be used to wi ATMs. withdraw cash through record keeping: Credit cards allow accurat Meolidating purchases into single statement, record-keeping by 3 pisadvantages of Credit Cards 3h . are the disadvantages of credit cards; pollowind . Disputed transactions: In case the credit is mis else, it is very difficult to receive a ater shoes 5 . Using a credit expecially remotely, introduces an element of rik ae cad deals may fall eee wrong hands resulting in fraudulent purchases on re card. Fraudulent or unauthorized charges may take is ths savestigate, and resolve. y take months to disput, 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. 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 @ 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 really afford. Lost or stolen cards: Lost or stolen ¢ enience. ards may result in some unwanted expense and inconv High interest rates: Credit cards are ® obtaining credit if these are not used carefully, the high interest rates and other costs: relatively expensive way of especially because of 3 $2 Debit Cards ao | biter, tke creditcard isa small plastic card with a unique mumber tikes Aetin’ bank account number. It is required to have a bank account ae ing a debit card from the bank. Debit card enables te cardho Scanned with CamScannerE-cammercy 46 account. The major differenes nee h his/her a ps directly trot ase of payment through debi, for his/her purchase Ys that 0 ‘ card and credit care jl : between debit card and 1 from card's bank a jount immediately and there ¢ in bank account for the transaction to yep of credit card there is n° such compulsion, card, amount gets deducted should be sufficient balan completed whereas im case bit Cards fusing debit cards: to use: Debit cards are very simple to use, en directly out of holder’s bank account, where the money already cxists, it can be done instantly. This is much faster than having to wait for a credit transaction to go through, or ‘9 worry about having enough cash to cover the expenses. used to withdraw cash from 3.5.2.1 Advantages of Del Following are the advantages © Simple and convenient Since the payment is tak having Cash withdrawals: Debit cards can be ATMs. Security: set by the cardholder. This pin is nec with debit card. Pin authentication gives against theft. Debit cards are protected by a four digit pin number that is ‘eded to make almost any purchase a great deal of protection Easy issuance: The only thing required to obtain a debit card is have a bank account. Anyone can open a 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 credit score and payment histories. None of these things are taken into 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: . at score; Unlike credit cards, the cardholder of debit card cannot a up credit score. That means that cardholder's good habits oF rack record go unnoticed by credit lenders, : oy fee: Banks charge fee for using debit cards + The ki i f lack of anonymity: The information about all the transactions, ‘Scanned with CamScannerome Parent System M7 including the amount, time and recipie the payment system. The intelligence 8 (0 this intormation, MU are stored in the database of age gency and tax authorities van have ac 3 Smart Card part card 18.0 prepaid card similar to credit card an jt it has @ small microprocessor chip embedded ore customer's persi i q s0 ee ™ Seah 4 information such a8 financial facts, private ryption key: numbers, account information, health ins formation, and so on.. Smart cards combine the advantages of by th debit rand credit card. These cards are available to anyone, regwidles ofc a tings or income of the applicant of the smart card. Moreaver, smart ae not linked to any bank account. For this reason, smart card holder is not andated to have a bank account. Smart card is also used to store money ynich is reduced as per usage. Mondex and Visa Cash cards are examples of smart cards. The smart card holder has to load money onto the card by paying ch or through transfer from his/her bank account. After loading the money to the card, the cardholder can use the card to spend money up to the it of loaded amount in the same way as using a credit or debit card. Once ¢ loaded amount is spent, the cardholder may reload money onto the card. nd debit card in appearance din it. It has the capacity general, the chip of a smart card contains the following components as hown in Figure 3.2 ‘Data stored into the card! . 5 i ring ng can realy memen HE ane cs Stores temporary data * until the power is on. -* 4°" Microchip with mechanical contacts card Controls the operation of the smart ASmart Card Fig. 3.2 : Se 53.1 Advantages of Smart Cards art cards have the following advantages: _. * No credit check: Smart card does not offer any credit limit. no credit check is required for getting a smart card. hematic View of a Smart Card Therefore, ‘Scanned with CamScanner"Ohh, 38 debt: As smart card dogs n, cannot go in " of, ; iat cardholder cannot oe debt. Cardhotgr : oe, fe amount Joaded onto the card. only spel the spending limit: In smart card, the holder of the , : ee He ending limit instead of the card provider, Once sets ea is over, the card holder can easily top-up the carq Wi loaded amot 5 itional amount. _ aaa rate: mart cards can be used to prove the identity ory, : ea me as they can store picture and finger prints of the cardholdg ca + Flexibility: With smart cards, there is no need e nae dy Cards rd can act as an Identity Card, a debit card, a Stored value cay, iad a repository of personal information. Smart cards can ty easly replaced if lost. Moreover, cardholder is relieved of remember several passwords. - + Data storage: Smart cards are a safe place to storé sensitive o important information. The information stored on the card can be PI 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. Sma cards are not linked to any bank account. + Smart card hold 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 store * ed in it would also be lost. asy to loose and steal: Small size of it easy 0 loose and steal, ot mart cards makes i¢c™ Hackers: S i viruses. Can be used as potential area by hackers and comput A : ceeptance: Some smart cards are not widely accepted. 3533 Uses of Smart Cards Si mart cards may be used for the following purposes: For tol : a i. ‘ti a t: The users of smart cards can use it to pay toll ‘shways. With smart cards which operate on radio ‘Scanned with CamScannerric Payment System yet 39 frequencies, drivers do not have to stop to 1 fring in ewes a ol plazas Pay tolls. This avoids universities and schools: Universiti 5 sities and school: i ; ; schools can iss cards to fa s tudents for ID purposes. The students ma ye ti cards at libraries, canteen, and book stores of the coll a : s lege. Authentication: Smart cards can be used as a means of authenticati and verification. 's of authentication Telephone industry: Prepaid phone cards and sim cards arc another commonly used application of smart cards. Ticketing: 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. 354 Digital Cash or E-Cash de of e-payment. Digital cash is a system that allows a 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 digital cash numbers are unique. Each one is issued by a bank and represents 2 specified sum of real money. Digital cash purchased from bank is stored inthe 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 ofanonymity and reusability. That is, when 9 digital cash amount is sent from 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 are difficult to be tracked b; Systems. Digital cash payments oked by investigative ‘'gencies and tax authorities. AN! ifference is that a digital cash Ctrlificate can be reused. TO obtai jomer must me nk account a digital cash certificates can Be 8 a Mount from bank account. Digital cash is another mo in digital cash, the cust purchased only by trans Cash i $4.1 Advantages of Digital digital cash: Follow; llowing are the advantages of nd untraceabl * Provides full us al ly anonymol Gi the can pay to the seller without revealing his/her In digital cash, Je digital cash. Digital cash identity. ‘Scanned with CamScannera.t0 ommerce works just like real currency notes. Once ¢-cash is withdrawn fry, an account, it ean be spent or given away without leaving a transaction, trail. + No double spending problems, When the bank issuing digital cag, receives the electronic cash and verifies the serial number, it delete, the number and takes it out of circulation forever. As such, the seria, number cannot be copied and used again. ecure hardware required. The security and use of th, al location. It can be storeg * No additional digital cash is not dependent on any phy: in computer hard disk or on smartcards and can be sent by e-mail of 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 cach 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. 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 bank: He requests his or her bank to transfer money to e-cash accout! to obtain electronic cash. The consumer uses e-cash software the computer to generate random number against requested mon: ‘Scanned with CamScanneron onsumer bank transfers money from the ‘custon The © 4 sh account. Met's neon to oo" ‘i from e-cash account money is transferred to co ¢ consumer saves the electronic cash on a hard drive o sumer, a smart purchasing with electronic cash 0 The vs - ; card, this phase is executed whenever the consumer desires to Kk pose with electronic cash. It can take place at any time ea ‘he conser has obtained electronic cash from e-mint. A sine = ake purchases more than once as long as he or she does not nu ai of electronic cash, The steps involved are: ; me (a) The consumer selects the goods and transfers the electronic cash to the merchant by means of generating random number which encrypt ¢-cash are known as blinded coins. This methods avoids double spending of this money. : (b) The merchant delivers the goods to consumer. }, Phase ITI: Redeeming cash by merchant This phase occurs whenever the merchant is ready to redeem the eletronic cash. The steps involved are: (a) The merchant transfers the electronic cash to the e-cash account. Alternatively, the merchant may send the electronic cash to its bank and the bank in tum redeems the money from e-cash account. merchant's bank for crediting, (0) E-cash account transfers money to the n the merchant's account. Customer Bank (Merchant) 2 Send the blinded coins ! bank ; 'Cosnte the blinded coins toute 3 Debit the account ‘Rerum the signed | and sign the bin blinded coins, coins eee the coins & Check the validity of the coins and whether they have been spent and credit the account accordingly ship goods cor perform the service tion of E-cash System Basic Opera lll ‘Scanned with CamScannerExco a me t electronic Walle Ele sline prepaid ‘account where one can stock money, to anon sce that COMME Oty tak E-wallet is an electronic device tat comer Stored equired. B ° when rea ord prvected. This stored amount can be used that is passwort Or online transactions comfortably and instantly, pewallet is e-commerce and of 4.5.5.1 Advantages of E-Wallet Following are the advantages of ¢-wallet: ; + Time saving: At times consumers do not have time to enter credit details at the time of making online payments. For making Oring payments through e-wallet, consumers can make payment Withog entering the card details. Security: All c-wallets offer password security to ensure that money is secured from unauthorized access. Incentives: Many e-wallet providers provide incentives in the forme discounts and cash backs for payments made through e-wallets, Convenient: E-wallets are convenient as they eliminate the need 1p carry physical wallets. Competitive advantage: E-wallet technology provides more conveniea transaction processing method. Consumers prefer to deal with those 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 be used in some other country. Limited merchants: There are many stores like Amazon that do 10 offer e-wallets. E-wallets are dey online via devic e-wallets is hight with these devic, Pendent on the devices: E-wallets can only be used s such as laptop, smartphone or tablet. The use of 'y dependent on these devices. If there is some problem : 8 Such as low-battery, e-wallets would be of n0 US anger of losing money: Sy e-wall cards because credit a a re not as safe as credit or . nd debit cards are protected with 3D set panes bi without the knowledge of 3D password, no one can vst if consumer's 4 F Making payments..But in the case of e-vall+ Smartphone is lost or stolen, anybody can use money with di y with digital -wallet is password protected, al wallet app. If ex Password can be easily cracked. ‘Scanned with CamScannerpayment System até mw 33 re E-Wallets can be used? 3 W stores: Big Basket.com, an online fo roK 5 st od and grocery e grocery iB 2 an c ffers e-wallet facility for simple payment options. E-w let on 0 fa fi ns, E-wal st0 this site can be filled up ranging from % 10 to ine ),000. , utility bills payment: Payment the electricity bill ile bi ae ca payments cane male with F f mobile bill, theatre obit These e-wallets can be filled and rae eae credit cards, debit cards or even cash payments at RePeanet a . Fly prepaid: Money can be saved up with fly wallets to book ‘im ie s ets. E-wallet on mobile: Airtel money has transformed mobile phone int e-wallet, The money stored in Airtel Money wallet can be used 4 several shopping sites such as ebay, Home Shop 18, Myntra as ci * 1 , o My Show. All that is needed to avail this facility is an Airtel soicen Buying online: Major e-commerce sites, such as Flipkart have e-wallet facility where consumers can create an e-wallet and fill it up to < 10,000 at a time. Recharging mobile phones and DTH connections: Amobile recharge can be done automatically at munkey.in, an e-wallet service, on an guto disconnect missed call to their number. A consumer can also opt for scheduled recharge option in which a filled e-wallet can recharge a number or DTH connection on fixed dates of the month. 46 ELECTRONIC MONEY (E-MONEY) mercantile process and prompt payment (or tronic medium Payment is an integral part of al, Electronic money is an elec account settlement) is very cruci for making payments. Eteeronie money or e-money is 2 generic MANY for the exchange of money through the Internet. Electronic money (also known as electronic cash, kewonic eurrency, digital currency, digital mr of Interet mone) fers ed only electronical rvpcaly, this involves tse te digital stores value Ls Pas i debit cards, smart cards, 100 ae eats house (ACH) systems: and direct for financial cryptography and technologies ‘omoney which of Tet The of electronic money are: ¢! funds transfers (EFT), automated its. Also, it is a collective term ‘nabling it. 46.1 Advantages of Electronic Money ; is becoming a Mow money in today’s world is electronic, and tang! cast jebit cards: O"" gion ae a adetion of Enerme¥O™ — ‘Scanned with CamScanner3.4 wy " fine bill payments and Internet business, paper money is becoming of the past. Some of the ben Faster, more ¢| nefits of e-mONCY to consumers include : fficient transactions nt user plans pocket money rd-keeping » Loyalty and freque Less need £0 carry sonal financial reco" Possible financial anonymity possible security from theft Access 10 clectronic-commerce ‘ed banking services and in: business include : > > > Automatic per > > > > More personalis struments. ‘The benefits of e-money to > Instant transactions Substantial cost savings beca of currency. > Easier collection of marketing in > Promotion of free banking Traditionally, the two most impo time and distance. E-money systems ¢ almost certainly help to globalise trade, > Esmoney can also hel customer is more likel her information has already been entere > formation on customers _ ed and stored. 3.6.2 Disadvantages of Electronic Money Although there are mat significant disadvantages tracking of individuals and loss of human interaction. The other disadvantages. of electronic money are: Fay, y use of the reduction in the physical handy stant constraints on business wer fectively erase both. They wil Ip business in improving customer retention. A ly to return to same e-commerce site where his) ny benefits of electronic money, there are also maty . These include fraud, failure of technology, possite > For the operator, the'cost of installing the technological infrastructut | may be substantial. with current methods of payment. > The risk of losing cé i The sk of ong ards and their charged value could intimidate > Becausi ity is sj ¢ security is a major concern, full convertibility, rece! transactions and high levels of security may all become leve bet : igh f se mi | di i | ; 4 > Competing e-moncy systems will have to be compatible and integral *| ‘Scanned with CamScannerPayne pale 4 packs to e-mony Sis . grawbacks ley are concems over Drivac in (nt nett. Power failu rae theft. Pe ures, loss of Tecords and non, 'Y and the possi ily . a Possibility i jt setback in promotion the technology, : eo) «dependable Software i Kinds of E-Money i pifferent inds of E- e oral, there are two distinct types of money, Th i dentified e-money: Identified money contains sion a + ie identity of the person who originally withdrew the men 8 pank. Also, in much the same manner as credit card he money enables the bank to track the Money as it eee i economy. This type of e-money is unique to credit card and ‘ain si transactions. Identified c-money is based on more general kh oe signature schemes and always reveals the identity of the ciaon : {dentified schemes are the electronic analog of debit and credit ans Anonymous €-money: Anonymous e-money is also known as digital cash, Anonymous e-money works just like real paper cash. Once anonymous e-money is withdrawn from an account, it can be spent or given away without leaving a transaction trail. Anonymous e-money js created by using blind signaturés rather than non-blind signatures. Anonymous e-money does not reveal the identity of the customer and are based on blind signature schemes. Anonymous schemes are the electronic analog of cash. e: Both these types of e-money, i.c. identified e-money and anonymous emoney may further be classified into two categories: ES > Online e-money > Offline e-money ONLINE y, Me IDENTIFIED ANONYMOUS Ns . vy Sa 78 OFFLINE “ ~ Fig, 3.4: Types of E-money t with a bank ( ha third party. ithout hav’ yia modem oF Offline means ing directly to On vllé Fequires the user to interae thay) to conduct a transaction with a 0 iygtt® USer can conduct a transaction wi "We a bank, ‘Scanned with CamScanner3.16 Fem Based on above classification, e-money can be further Classifieg in 8 . ™ Identified online e-money systems a In this ovstem, bye, . identified. Credit and debit card are used in such transactions : system prevents double spending by requiring merchants to : the bank’s computer with every sale. The bank — m, a database of all the spent pieces of e-money and can easily to the merchant if'a given piece of e-money is still spendabk bank computer says that the e-money has already been g merchant refuses the sale. This is very similar to the way currently verify credit cards at the point of sale. oy COnta, aint indi, ie I hy PENT, the Merchany 2. Identified offline e-money systems : It is unique to Purchasing cheques. It can accumulate the complete path the e-money made through the economy. The identified e-money grows each time it ig 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 spen, 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 where identity of the buyer is anon: against e-cash. This also prevents d make money available until the dey + It is unique to cash Payments ymons and a purchase is made louble spending as bank does nat Posited cheque clears through bank. © Spent. The information accumulated along double spender, nonymous offline e-money and identified information accumulated with anonymous {ransaction trail if the e-money is double-spett the way will identify the The big difference between a offline e-money is that the Spender nor can it reconstruct the path the ¢-money took through the economy. ‘Scanned with CamScannerle Payment System ’ ed e-money, b a7 ih iaentified Ys both offline and o wi "qsirel the path the e-money took through ee what everyone bought, where they bough ve pc they paid el oniine, the bank ine, can alway i economy, The bank wal it, when they bought it and 4 Analysing Cash, Cheques and Credit Cards “ gs of the form of m ict _gatess of the joney, two distinct gered in money transfer, These are Sets of properties should be ‘Test For Money ACID i Fnonicly { ¥ Interoperability i Consistency : i * Conservation | ¥ Isolation i * Economy i ¥ Scalability 364.1 The Acid Test The ACID test addresses following four properties of money transfer: . 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. . Consistency Consistency test states that: > All parties involved must aj > 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, he goods for a specific price the customer must agree (© purchase the a r and the merchant must agree to sell it at that price, otherwise, there is no basis for exchange. * Isolation 'solation test states that: > Each transaction is independ! > Bach transaction is treated as @ stan¢ gree to the exchange lent of any other transaction. d-alone episode. ‘Scanned with CamScanner4 3.18 By “omen, 4, Durability Durability test states that = > It must always be possibl or reverse the state of an exchange. > For example, customer is not happy with the product s, i merchant should refund him. It je to recover to the last consisten, Slay 3.6.4.2 The ICES Test The ICES test addresses foll transfer: 1. Interoperability Interoperability me: different systems. Conservation Conservation test states : > How well money holds its value over time (temporal consistency) > How easy it is to store and access (temporal durability) lowing four important properties of Money ans the ability to move back and forth between 2. 3. Economy Economy test states that: > 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 Scalability test refers to the ability of the system to users at the same time. handle multiple Comparing Different Systems {| ___AcTD TEST ICES TEST ‘Atom- | Consis-| Isol | Dura | Interoper- | Conser- icity | tency | ton | bility | ablity vation Cash | ”, y y y N Cheque |_¥ Y N Y in Y Creit_ | Y % N 7 N = Card Table 3.1 : Comparison of Different Systems ‘Scanned with CamScannerplectronic Payment System ay ‘As shown in the Table 3.1, cash has all the ACID and ICES test properties except conservation. Cash also fulfils all the properties of the ACID test, but the problem with cash is transportability and storage of large amounts. Cash is the most anonymous form of Payment. While using cash as a mode of payment, it is not necessary for the buyer to reveal his identity. Cheques do not fulfil the isolation Property of the ACID test. This is due to the fact that the drawer of the cheque can always stop the payment of the cheque before it is cleared, Although it takes two- three days for getting the cheque cleared, but the cheques may be considered atomic’ for money transfer. Moreover, cheques do not fulfil conservation and economy properties of the ICES test, Credit cards 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 fraudulently. 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 €-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 another it illicit activities, e.g. to abuse the victim’s is ities or other assets. The payment is done usually es in a password and sometimes answering security ions. There is no way of verifying the true identity of the sees ioe she transaction. AS long as the password and security maker of te the system assumes the legitimacy of questions are correct, ‘Scanned with CamScanner| 3.20 E-commerce the person. If this information falls into the possession of fraudsters, then they can misuse this information and divert funds to an | unauthorized account. > Phishing: Attackers use fraudulent e-mails and internet sites to lure consumers into revealing personal and/or financial information, This type of attack is called phishing. The information received by fraudsters can be misused. > Skimming: Another popular form of attacks is the unnoticed duplication of electronic data from a payment card. Fraudsters can easily create duplicate cards and withdraw money from the accounts. > Denial of Service: A customer falsely claims that the or she did not service a shipment. + 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, including the amount, time and recipient are stored in the database of the payment system. This is both the benefit and risk of using e-payment. All e-payment modes except e-cash provide an audit trail and the transaction can be traced from its inception. The intelligence agency and tax authorities can have access to this information. E-payments can be casily concealed or manipulated to evade tax. Payment conflict: Payment conflicts often arise because the payments are not done manually but by an automated system that can cause errors. This is especially common when payment is done on a regular basis to many recipients. | Buyer's habits: The biggest risk of e-payments is that they encourage people to spend money that they don't have. Most credit cards do not | require the holder to pay off the balance each month. E-funds may seem like ‘free money’ to the holder at the time of making purchases ‘The card holder may become an impulsive buyer and tend to overspend ‘Scanned with CamScannersectranle Payment System because of the case a purchasing of goods oat Credit cards. Cards ca afford. Services which the mnie a encourage the T cannot really e z = 2 = g z e Z of e-payment system, “D} ete. would lead to non-functioning 4 ELECTRONIC FUND TRANSFER > glectronic fund transfer is a vey TY popular electroni i money from one bank account to another bank a nt a eansfering in same bank or different bank, Seunt: Accoung aa be 38.1 How EFT Works? For transferring funds electronically from one bank account to another bank account, costumes uses website provided by the bank. Customer ioe t the bank’s website and registers another bank account. He/she then ci 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. 3.8.2 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, ete. are directly credited to the accounts through EFT. Online Payment of Bills: co as electricity bills, phone bills, Taxes: Payment of income t@%, GST, ete. can be made through ET by transferring money from payee’s account {0 the account o! government. | . ed Debit/Credit Cards: Using credit/debit card, money eed electronically from buyer’s account 0 the seller's sccou : po Direet Debit: Under this method, money is automation coun on fixed dates of the month as per the ine instalments 0 holder This mode of payment is generally used 10 Pay heavy purchases like vehicles. asumers can pay their utility bills such etc. through EFT. ‘Scanned with CamScanner3:22 F-commer, 3.8.3 Advantages of EFT offers the following advantages: Time saving: EFT saves time by allowing making payment fro, office, home or any place. Through EFT, payments will Occup automatically, This helps in saving the time of the payee and givin hinvher peace of mind. zg Convenience: The biggest advantage of EFT is its convenience, The users can pay phone and clectricity bills, conveniently. In some cases companies such as insurance companies may waive the installmeny processing fee if the payment is made through EFT. 24x7 services: Funds can be transferred from one account to another at any time and from 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. 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 withia moments, 3.8.4 Disadvantages of EFT Following are the disadvantages of EFT: + Process cannot be reversed: The main disadvantage of EFT is that the payment process cannot be reversed even if the person making the payment has entered the incorrect account number. Internet connection: Internet connectivity is a Pre-requisite to perform EFT transactions. Internet connectivity may not be available in rural or remote areas. Many people may not have internet connectivity due to which they may not be able to transfer funds electronically. Computer knowledge: EFT transactions can be performed by persons who are computer-literate. This is a major disadvantage of EFT. Security concerns: One of the biggest disadvantages of transferring funds through EFT is the question of security. Technical obstacles including issues related to security and reliability of network and intemet are major concems in EFT. There is always fear of safety and Security to the personal information due to the increased spywares and malwares being Tampant on the internet. ; i i ‘Scanned with CamScannerpleceromle TAymnent Oystem When a customer purchases » Poperiess Monetary transaction, bank pays on behalf of the Aa ‘oduct via credit card, credit card issuer 5 . “ustomer an period after which he/she can pay the im dit enn has a certain time card bill. oa ice fo Prepaid card similar to credit card and debit card in appearance but it has a small microprocessor chip embedded in it. Digital cash is a system that allows a shi Person to pay for goods or services by transmitting a number from one computer to another. E-wallet is an online prepaid account where one can stock money, to be used when required. A payment gateway is a server that is dedicated to linking websites and banks so that online credit card transactions can be completed in real- time. Electronic fund transfer is a very popular electronic method of online transferring money from one bank account to another bank account. ‘Accounts can be in same bank or different bank. What is electronic payment? - . Explain the requirements that are needed to accept digital payment. What are the advantages of electronic payment? 7 ; advantages of electronic payment I = sient a involved in credit card payments. . Explain the steps involved in oredit card payment process. |. What are the advantages of credit cards? ; | What are the disadvantages of credit cards? What are the advantages of debit cards? , What are the disadvantages of debit cards? | What are the differences between credit ca . What is a smart card? + amar ears? of |. What are the advantages i What are the disadvantages of smart car ds and debit cards? ‘Scanned with CamScanner3.24 15. 16. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36, E-commerce Briefly explain the purposes for which smart eards can be used, What is digital cash? |. What are the disadvantages of digital cash? Explain the different steps involved in digital cash payment. What is e-wallet? What are the advantages of e-wallet? What are the disadvantages of e-wallet? ‘What is electronic money? Explain the advantages of electronic money. Explain the disadvantages of electronic money. Explain the different kinds of electronic money. Differentiate between identified e-money and anonymous e-money, Differentiate between identified online ¢-money systems and identified offline e-moncy systems. Differentiate between anonymous online ¢-money systems and anonymous offline c-money systems, Explain the distinct sets of properties that should be considered in any form of money transfer. Explain the properties of money transfer addressed by the ACID test, Explain the properties of money transfer addressed by the ICES test. Explain the different types of threats involved. in e-payments, What is Electronic Fund Transfer (EFT)? How EFT works? Explain the common uses of EFT. Explain the advantages of EFT. Explain the disadvantages of EFT, ‘Scanned with CamScanner