1

Werabe University
Institute of Technology
Department of Information Technology

E-commerce
Chapter 5: E-commerce Payment systems
 E-commerce Payment Systems(EPSs)
2

 The main stakeholders in payment systems are consumers, merchants, financial

intermediaries, and government regulators.
 Issues of trust and acceptance play a more significant role in the e-commerce world
 Traditionally, a customer sees a product, examines it, and then pays for it by cash,
check, or credit card
 In the e-commerce world,
 In most cases the customer does not actually see the concrete product at the time of
transaction, and
 The method of payment is performed electronically.
 EPSs enable a customer to pay for the goods online by using integrated hardware and
software systems.
 The main objectives of EPS are:
 to increase efficiency, improve security, and
 enhance customer convenience and ease of use
 Traditional Payment Systems
3

 There are five main types of payment systems:

1. Cash
 legal tender defined by a national authority to represent value

 Its instantly convertible into other forms of value without intermediation

2. Checking Transfer
 A checking transfer, which represents funds transferred directly via a signed

draft or
 check from a consumer’s checking account to a merchant or other individual

3. Credit cards
 A credit card represents an account that extends credit to consumers,

 permits consumers to purchase items while deferring payment, and

 allows consumers to make payments to multiple vendors with one instrument

 Cont….
4

4. Stored value
 Accounts created by depositing funds into an account and from
which funds are paid out or withdrawn as needed are stored value
payment systems.
 Examples debit cards, gift certificates, prepaid cards, and smart cards

 Debit cards immediately debit a checking or other demand-deposit

account.
 For many consumers, the use of a debit card eliminates the need to

write a paper check.

5. Accumulating balance.
 account that accumulates expenditures and to which consumers
make periodic payments
 example phone
 Online Credit Card Transactions
5

 Payment using credit card is one of most common mode of

electronic payment.
 Credit card is small plastic card with a unique number attached
with an account.
 It has also a magnetic strip embedded in it which is used to read
credit card via card readers.
 Online credit card transactions most closely resemble Mail Order-
Telephone Order transactions.
 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.
 Online Credit Card
6

 Following are the actors in the credit card system.

 The card holder :- Customer
 The merchant :-seller of product who can accept
credit card payments.
 The card issuer bank :- card holder’s bank
 The acquirer bank :- the merchant’s bank
 The card brand :- for example , visa or MasterCard.
 How an Online Credit Card Transactions
Works
7
 Credit Card Payment Process
8
 Limitations of Online Credit Card Payment
Systems
9

 There are a number of limitations to the existing credit card

payment system.
 Security:-neither merchant nor consumer can be fully authenticated
 Merchant risk, administrative and transaction costs
 Social equity :- many people do not have access to credit cards and
social equity.
 PayPal
 which is an example of an online stored value payment system that
permits consumers to make instant, online payments to merchants
and other individuals based on value stored in an online account.
 Mobile Payment Systems
10

 using either credit card readers attached to a smart phone

(Digital-Wallet, PayPal Here) or near field communication
(NFC) chips, which enable contact less payment
 NFC is one of the enabling technologies for mobile payment
systems.
 NFC is a set of short-range wireless technologies used to share
information among devices within about 2 inches of each other.
 Digital Cash and Virtual Currencies
11

 Digital cash such as Bitcoin, which is based on an

algorithm that generates unique authenticated tokens
representing cash value, and
 Not really “cash” - rather, are forms of value storage and
value exchange that have limited convertibility into other
forms of value, and require intermediaries to convert
 Virtual currencies, that typically circulate within an
internal virtual world or are issued by a corporation, and
usually used for the purchase of virtual goods.
 Electronic Billing Presentment and Payment
Systems(EBPP)
12

 are systems that enable the online delivery and payment of

monthly bills.
 EBPP services allow consumers to view bills electronically

and
 pay them through electronic funds transfers from bank or

credit card accounts

 More and more companies are choosing to issue statements

and bills electronically, rather than mailing out paper

versions.
 Cont….
13

 Major players in the EBPP marketspace include

 Biller-Direct Systems:
 which were originally created by large utilities to facilitate routine
payment of utility bills, but which are increasingly being used by
other billers.
 Consolidators:
 which attempt to aggregate all bills for consumers in one place and
ideally permit one-stop bill payment.
 Infrastructure Providers:
 which support the biller-direct and consolidator business models.
14