E-Business

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Syed Asim Jalal
Department of Computer Science
University of Peshawar
Electronic Fund Transfer - EFT

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Electronic Fund Transfer - EFT
 It is also called Online Money Transfer
 It is a very popular electronic payment method to
transfer money from one bank account to another bank
account.
– Both accounts can be in the same bank or different
banks.
 A user accesses their bank account using online banking
though website or ATM (Automated Teller Machine)
and then transfer fund to another bank account (seller’s
bank account).
– This method can incur charges if transfer is done to a
branch of a different bank.
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EFT process
 Now a day, internet based EFT is getting popularity.
 In this case, customer uses a website provided by their bank.
Customer logins to the bank's website.
 They enters the details of the account they want to transfer money
to and then requests his bank to transfer certain amount in the
recipient account.
 Customer's bank arranges transfer of the amount to the recipient
account if it is in same bank otherwise transfer request is
forwarded to ACH (Automated Clearing House) to transfer the
amount. When transfer is done, the amount is deducted from the
customer's account.
 Once amount is transferred to other account, customer is notified
of the fund transfer by the bank.
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Electronic Cash

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Digital Currency or Electronic Cash
 One of the first forms of alternative payment systems
 It is not really a cash, it is a form of value storage with some serial
number that represents some specific amount of money in a some
real bank account
– i.e. each generated e-cash represent some fixed value, just like
paper note.

 Digital cash account is implemented by e-cash service provider,

where each digital cash account is linked with some real bank
account
– Digital cash accounts are similar to traditional bank accounts
in terms of transactions.
– It transfers e-cash from one account to another e-cash
account.
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 Many of early examples of digital cash have failed and
disappeared.

 The concepts has survived and is used in some P2P payment

systems.
– For example, in Paypal.
– PayPal also comes under another category called Peer-to-Peer
payment

 Bitcoin and all cryptocurrencies are also

examples of e-cash.

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 Payment through e-cash is done by transmitting a serial number
from one payer’s computer to payee’s computer to pay for goods
or services
 This transfer of a serial number is implemented in variety of
ways in different e-cash technologies.
 A customer may not see the actual number, but just a label

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E-cash serial numbers

 The Serial numbers are generated using complex

algorithms to prevent its duplicate generation by
hackers
– Just like prevention of fake currency notes publication

 Complex cryptographic algorithms prevents double

spending as well.
– i.e. the number could only be used once for payment. (unlike
real cash, where each cash note can be used again and again)
– Anonymity is preserved unless double spending is attempted
– Serial numbers can allow tracing to prevent money laundering

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 Like the serial numbers on real currency notes, the E-cash numbers are unique.
 This is issued by a digital currency service provider (could be a bank) and
represents a specified sum of real money.
 It is anonymous and reusable

 Digital cash can be used with other payment technologies (digital wallets)

– It is stored electronically, used to make online electronic payments.

– Merchants accepting digital-cash payments avoids credit-card transaction fees.

– eCash Technologies, Inc. is a secure digital-cash provider that allows you to

withdraw funds from your traditional bank account

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The process of using e-cash
1. Consumer buys e-cash from Bank through digital cash service
provider’s software.
2. Bank sends e-cash bits (number) to consumer (after charging that
amount plus fee).
Digital Cash is stored on a computer in a software called e-Wallet.

3. Consumer sends e-cash to merchant

4. Merchant checks with the Bank that e-cash
is valid and also verifies for forgery or fraud
5. Bank verifies that e-cash is valid
6. Parties complete transaction

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Micropayment

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Micropayment
 A micropayment is an e-commerce transaction involving a
very small sum of money in exchange for something made
available online, such as an application download, a
service or any web-based content.

 Internet payments for items costing from a few cents to

approximately a dollar are called micropayments.
– Sometimes, the term micropayment is used to describe
any payment of less than $10
– It could be $0.0001

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 Micropayments or small fee transactions could be the
driver behind many new businesses

 Many products and services cost very less.

– Many tangible products can cost around $1.
– Many online services could cost very little.
 File download cost.
 Stamps? Mobile apps.
 Searching some database for information?
– Getting vehicle details or person’s credit history.
 Getting payments from advertisements on a website?
– Per ad view or per ad click in Advertisement revenue model.

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 Example:
– Any service that is provided for suppose $0.01
– If such service is used by 100000 customers each
day, it will make total income to $1000 per day.
– $0.01 could be for some regularly updated data file
or it could be a song or video

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 Normal payment mechanisms that take a small
percentage of each transaction does not work well on
transactions of low monetary value. 

– They make business based on small prices or fees not feasible

and not profitable.
– Take a percentage as a fees or any fixed transaction fees will
not leave any profit margin on services or products with
smaller prices
– For example, in many cases processing even a small amount
of $0.05 could cost a bank $1 to process the payment request

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 Micropayments have not been implemented very well on the Web
yet.

 There is a need for a micropayments processing system on the

Web, but no company has gained broad acceptance of its system.

 Any suitable micropayment system would result in new online

business models

 A special type of system is required for such payments, which are

too small to be feasible for processing through credit card
companies.

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 Many companies have developed systems to process
micropayments. Millicent, DigiCash, Yaga, and BitPass were
among the companies that entered this business and failed.

 Some approaches adopted:

– User and seller establish account with third party service provider.
Micropayments are added together until it is feasible to collect
them as single large payment.
– Another approach was to add micropayments to users phone bill.
The seller would than collect larger amount for different users
from the phone company.
– Prepayment: One approach is to accept a deposit and charge the
micropayments against that deposit.

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 Some recent examples:
– M-Coin
 The user's phone bill is charged by the mobile network
operator
– Zong
 charged payments to users' mobile phone bills

– PayPal
– Using electronic cash implementation

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Smart Cards

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Smart Cards
 Smart card
– Smart card is a credit / debit card size plastic card with a
computer chip embedded on its face, holds more information
than ordinary credit card with magnetic strip
– A smart card can store about 100 times the amount of
information that a magnetic strip plastic card can store.
– Smart Card is not a payment mechanism but an
implementation technology

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Smart card contains
different layers

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 These days debit/credit cards also comes in smart card
standard. i.e. it has a chip.
 If a smart card does not have any number of like debit/credit card,
then it can not be used for online purchases.

 Smart card is generally used for a lot of applications

– ID cards
– Driving Licenses
– Healthcare cards
– Telephone calling
– Travel card (for pay as you go payment)
– Payment cards

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 Payment information is stored in the memory of the card.
 Mostly smart card has a value (money value) stored on it, which
will be deducted as you keep paying using it.

 Contact smart cards

– To read the payment information on smart cards and update
information, contact smart cards need to be placed in a smart
card reader.

 Contactless smart cards

– They have both a coiled antenna and a computer chip inside,
enabling the cards to transmit payment information through
wireless mean.
– To read information it has to be brought nearer to wireless card
reader, without touch the reader.
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Peer-to-Peer Payment Systems

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Peer-to-Peer Payment Systems
 In Peer- to-Peer (P2P) system payments are from one
type of entity to another of the same type (peers).

 PayPal is main example of Peer-to-Peer payment system.

 Any one who has an email address (and a bank account)

can open an account in PayPal
– There is no need for payment card!

 A PayPal account is associated with a bank account.

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 The system was very attractive to auction sellers,
most of which were individuals or small businesses
that were unable to accept credit cards, and for
consumers as well.

 In fact, many sellers could not qualify for a credit

card Merchant account because they lacked a
commercial credit history.

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 PayPal was initially a free service but later PayPal started to
charge businesses that receive payment through PayPal.
– Though the charge is less than the credit card charges

 PayPal still does not charge if money is transferred to family or

friend.

 PayPal is safer
– In PayPal nobody can misuse payment information like those
on credit or debit card
– PayPal only makes a payment and does not share payment
information with seller

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 PayPal provides easy interface to send money to anyone
by giving the person's e-mail account. In order for the
person to retrieve the money, they must have a PayPal
account.

 PayPal revenue generation:

– A part from charging fees per transaction from
businesses, PayPal earns a profit on the float, which is
money that is deposited in Pay-Pal accounts and not used
immediately.

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Electronic checks

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Electronic checks
 Electronic checks are modeled on paper checks system
except that they are initiated electronically, and are
cheaper to process.

– They are generated from Electronic Checkbook

– They use digital signature for signing and endorsing for

security/authentication .

– They require the use of digital certificates to authenticate the

payer, the payer’s bank and bank account.

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– The security/authentication aspects of digital checks
are supported using public key cryptography using
Public Key Infrastructure (PKI)

– Electronic check payments are gathered by banks

and cleared through existing banking channels, such
as Automated Clearing Houses(ACH) networks.

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Automatic Clearing House

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Process
1. A customer must register with bank offering e-check service for
bank account.

2. The customer requests the bank for electronic-checkbook

– The electronic check-book contains digital certificates of the bank and the
customer.

3. The customer generates e-check and issues to a pay for a

purchase
– This is done using email or any other electronic transfer
mechanism

4. The Merchant's e-check processing system authenticates both

the customer and the issuing bank

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5. The merchant then deposits the e-check to its account
in a bank

6. Automatic Clearing House (ACH) verifies the e-check

and initiates the fund transfer between the bank
accounts.

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E-wallet

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E-wallet
 Electronic Payments options for online purchases
expects customers to enter payment details including
security information and shipping information and
again and again for each transaction.

 This is tiring job!

 E-Wallet helps user avoiding entering payment

details, shipping etc information again and again.

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 An electronic wallet(sometimes called an e-wallet), serving a
function similar to a physical wallet, holds credit card and debit
card information, electronic cash, owner identification, and owner
contact information and provides that information at an electronic
commerce site’s checkout counter.

 Electronic wallets give consumers the benefit of entering their

information just once, in a e-wallet, instead of having to enter
their information at every website with which they want to do
purchases.

 The aim is to give shoppers a single, simple, and secure way of

carrying currency electronically.

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 E-Wallet should be compatible with sellers’ website in order to
make purchases through E-Wallet.

 For example
– Visa e-wallets
– Google wallet
– etc.

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 Most important functions:
 Authenticate consumer through use of digital
certificates or other encryption methods
 Digital certificates are stored in e-wallets, similar to
person’s identification cards.
 Store and transfer value
 Secure payment process from consumer to merchant
 Two major categories:
 Client-based digital wallets
 Server-based digital wallets

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 A server-side electronic wallet stores a customer’s
information on a remote web server.
– The wallet can belong to one specific merchant
(business e.g. amazon or ebay)

– Or the online Wallet can belong to online e-wallet

provider. e.g. PayPal Wallet
– Amazon.com stores your information in a server-side
electronic wallet.

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 A client-side electronic wallet stores a consumer’s
information on his or her own computer or mobile
device.

 Many of the early electronic wallets were client-side

wallets that required users to download the wallet
software.

 MasterCard Wallet

 Visa e-Wallet

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 This need to download software onto every computer
used to make purchases, which is a major disadvantage
of client-side wallets.

 A client-side wallet can be used on multiple vendors.

 Before a consumer can use a server-side wallet on a

particular merchant’s site, the merchant must enable that
specific wallet.

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