E-Business

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Syed Asim Jalal
Department of Computer Science
University of Peshawar
Electronic Payments

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E-Commerce Transaction overview

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Electronic Payments
 Electronic payment is an integral part of electronic
commerce.
– An important function of electronic commerce sites is the
handling of payments over the Internet.

– Electronic payment is a financial exchange that takes place

online between buyers and sellers.

– Most electronic commerce involves the exchange of some

form of money for goods or services.

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Benefit of Electronic Payments

 Being able to pay electronically is one of the main

reason behind E-commerce success
– No need for face-to-face payment
– User friendly and less time consuming than manual
processing
– Helps business organization to expand its market reach
(expansion) beyond geographical locations

 Without electronic payments we had to rely on manual checks,

sending them by normal mail services which is very time
consuming.

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 Electronic payment helps in increasing business sales
online

 Electronic payment offers security in payments

compared to cash

 Transactions in electronic payment mechanisms are

increasingly covered for financial fraud.
– Offering peace of mind while spending money online
electronically.

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Cost-effective

 Regardless of the format and methods, all electronic payments are

far cheaper than mailing paper checks.
– Electronic payments can be convenient for customers and can
save companies money as well.
– Estimates of the cost of billing one person by mail (paper
checks) range between $1 and $1.50.
– Sending bills and receiving payments over the Internet can
drop the transaction cost to an average of 50 cents per bill.
– The total savings is huge when the unit cost is multiplied by
the number of customers who could use electronic payment.

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Benefits of Multiple Payment Options

It is important for businesses to be flexible and offer

variety of payment mechanisms for their customers.

– It helps in increasing sales of products and

services.
– Same payment mechanisms are not available with
all customers.

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Some Electronic Payment Technologies
1. Debit Card
2. Credit Card
3. Electronic Funds Transfer
4. Peer-to-Peer Payment
5. Micropayment
6. E-Wallet
7. Electronic Checks
8. Smart Card

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E-Payments Mechanisms for both Online and
offline purchases
 Some electronic payment can only be used in online
payment through internet.
– Some electronic payment can also be used in offline
physical purchases.
– For example, using card readers in shops.

– Credit Cards and Debit Cards can be used both

online and offline shopping.
– E-cash can only be used in online shopping for
example.
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Debit Card

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Debit Card

 Debit card is a small plastic card with a unique number (16 digits)
mapped with an owner’s bank account number.
– One must have a bank account before getting a debit card for
that account from the bank.

 Debit Card offers an alternative for card-holders to access their

bank accounts and frees customer to carry cash and cheques.

 Many merchants accepts debit card more readily both through

card machine in shops and online.

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 Debit Cards can also be used for withdrawing cash from
Automatic Teller Machines (ATMs).

 Debit Card also has a 16 digit number which should be provided

online to make payments

 Funds are instantly deducted from checking account upon purchase

 There should be sufficient balance in bank account for

the transaction to get completed.
 Through debit card you can not spend more money than what you have in
your bank account.
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Credit Card

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Credit Card
 Credit Card, just like debit card is small plastic card that can be
used for payment.
 Credit Card also has user’s name and a 16 digit number.
– This number is used for online purchases.
– This 16 digit represents customers bank account connected to
the credit card.
 Credit Card represents an account that basically provides “credit”
or loan to consumers, permitting consumers to purchase items
even if they don’t have money in their actual bank account.

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 The payment using credit card is deferred and allows consumers
to pay back the amount to the credit company later.
– Credit is provided to customer based on Interest and possible
other fees.

 A user is issued a credit card after an account has been approved

by the credit provider (banks), with which they will be able to
make purchases from merchants accepting that credit card up to a
pre-established credit limit.

 The major difference between debit card and credit card is that in
case of payment through debit card, the amount gets deducted
from card owner’s own bank account immediately.

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 When a purchase is made, the credit card user agrees to pay back
the amount to the bank that issued the card.

 Each month the user is provided with a bill to payback. This bill
also includes a minimum amount to be paid to prevent any
negative impact on credit history.

 The total payment by a user also includes an interest on previously

unpaid credit (loan)

 Non-payment results in default and it negatively impacts users

credit history, as result the user would not be able get credit in
future.

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 To accept credit-card payments, a merchant (Seller) must
have a merchant account with a bank
 Specialized merchant accounts are established to receive
money through credit-card transactions
– Traditionally, typical merchant accounts accepted only
POS (point-of-sale) transactions on credit card
– At point-of-sale, the merchants ask for users’ signature.
– But in online purchase there is no opportunity for manual
signatures.

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 Organizations Involved in Credit Cards

– Credit card associations

– Associations like Visa and MasterCard set standards for
Credit cards for issuing banks
– Issuing banks
– Banks that issue cards and process transactions
– Processing centers (clearinghouses)
– They handle verification of accounts and balances
– They are third party organizations

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 Online credit card purchase process:
– Processed in much the same way that as in-store purchases.
– Major difference is that online merchants do not see or take
impression of a card and no signature is available.
– Verification is done by third party clearing houses.
– Participants in credit card system include
– Consumer
– merchant
– Clearinghouse
– merchant bank (acquiring bank)
– consumer’s card issuing bank

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To provide Credit
Card information

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 Issues in credit card
1. Security
– Neither merchant nor consumer are authenticated at the time
of purchase. Merchant gets consumers credit card number
that could be misused later.

2. Cost
– for merchants, it costs around 3.5% of purchase price plus
transaction fee of 20-30 cents per transaction

3. Social equity
– many people do not have access to credit cards (young
adults, plus other adults who cannot afford cards or are
considered poor risk.

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4. Implications of default
1. In case of inability to pay back the credit on time results
in bad credit rating. This means many negative impacts
on a user.
2. Customer with bad credit rating is unable to get any sort
of credit (loan) in the future.
3. Credit rating is maintained by credit rating agencies.

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Online Credit Card Purchases are Risky for Merchants
 Many security procedures that credit card companies rely on in real
life payments are not applicable in online environment.
 Merchants have to pay back to customers when goods are not
delivered, order is disputed or in cases of credit card fraud.
 Percentage of Internet transactions charged back to online
merchants is much higher than for traditional retailers (3-10%
compared to 0.5-1%)

 To protect themselves merchants can:

 Refuse to process overseas purchases
 Insist that credit card and shipping address match
 Require users to input 3-digit security code printed on back of
card
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