UNIT-III (E COMMERCE)

Prepared By:
SWATI CHAWLA
Asst Professor
MERI
Real-world cash:
Money is known to be medium of exchange to
simplify transactions, a standard of value to make it
easier to decide on the worth of goods and a store of
value to facilitate the concept of saving.
Payment online (using credit card etc) is not very
different from cash transactions made in the real
world, except for speed of transfer, ease of handling
and the safety of not having to carry cash.
Features Of Real World Cash:
Convenience: Easy to use, easy to carry and easy to
handle in small quantities.
Wide acceptance: The U.S dollar is the most widely
accepted paper currency in the world because of its
stability and durability.
Anonymity: No identification is needed to pay in
cash.
No cost of use: For customers who use cash, there
are no hidden costs, overhead or processing fees.
No audit trail
Problems in traditional payment
system
Lack of convenience
Lack of security
Lack of coverage
Lack of eligibility
Lack of support for micro transactions
REASONS FOR CASHLESS TRANSACTIONS
The growth of eCommerce industry in India, which
allowed consumers to purchase products at
discounted rates at the realm of their homes.
Also, the new generation is shifting towards hi-tech
gadgets and technology to make funds transfer as it’s
easier, hassle-free and instant transaction compared
to paying by cash or cheque.
With online funds transfer or virtual payment system,
people can send or receive payments instantly at the
touch of a button rather than visiting banks to
withdraw or deposit money.
E PAYMENTS
Two parties are not face to face
Transactions cannot be concluded by physical
transfer of cash
There needs to be a payment system which transfers
cash equivalent b/w the parties electronically.
Security Schemes In EPS:
Four essential security requirements are:
Authentication: a method to verify the buyer’s
identity before payment is authorized.
Encryption: a process of making messages unreadable
except by those who have an authorized decryption
key.
Integrity: Ensuring that information will not be
accidentally or maliciously altered or destroyed
during transmission.
Non repudiation: protection against customers denial
of orders placed and against merchants denial of
payments made.
Overview of Electronic Payments
• Electronic payment refers to paperless monetary
transactions.
• Electronic payment has revolutionized the
business processing by reducing paper work,
transaction costs, labour cost.
• A payment system means ensuring payment
security, transaction privacy, system integrity,
customer authentication and the purchaser’s
promise to pay.
MECHANISM E PAYMENTS
Advantages Of EPS:
Time savings. Money transfer between virtual
accounts usually takes a few minutes, while a wire
transfer or a postal one may take several days.
Expenses control. The virtual account contains the
history of all transactions indicating the store and the
amount you spent. And you can check it anytime you
want. This advantage of electronic payment system is
pretty important in this case.
Low commissions- less processing fee
Advantages Of EPS:
User-friendly. It has the understandable user
interface. In addition, there is always the opportunity
to submit a question to a support team, which often
works 24/7. Anyway you can always get an answer
using the forums on the subject.

Convenience. All the transfers can be performed at

any time, anywhere. It's enough to have an access to
the Internet.
Disadvantages Of EPS:
Restrictions. Each payment system has its limits
regarding the maximum amount in the account, the
number of transactions per day and the amount of
output.
The risk of being hacked.
The information about all the transactions, including
the amount, time and recipient are stored in the
database of the payment system. And it means the
intelligence agency has an access to this information.
The necessity of Internet access. If Internet
connection fails, you can not get to your online
account.
E-money
E-money is an electronic medium for making
payments and is the trend today. It includes credit
cards, debit cards, smart cards, electronic funds transfer.
It is a notational money system that can be online or off-
line, identified or anonymous.

Identified ( also known as digital cash) contains

information that makes it possible to identify the person
who withdrew the money from the bank. The process
generates an audit trail and can be traced.

Anonymous: Cash payments where the identity of the

purchaser is anonymous and a purchase is made on the
spot for cash.
Types of E Money
Identified and Online – when credit/debit cards are
used for online transactions
Identified and Offline – Payment made through
cheque or traveller’s cheque
Anonymous and Online – Withdrawals from ATM
Anonymous and Offline – Using a credit card at a
merchant who doesnot have online connection to
Visa/Master Card network
Properties of E-Money
Regardless of the form of money, there are two distinct
set of properties to consider in a money transfer

a)The ACID test (atomicity, consistency, isolation and

durability)
b)The ICES test (interoperability, conservation,
economy and scalability)
ACID Test
The Acid test addresses the following important
properties of money transfer:
(i)Atomicity – A transaction must occur completely or not at
all. There should be any points of failure
(ii)Consistency – All parties in the transaction must agree to
exchange
(iii)Isolation – Each transaction must be independent of any
other transaction and be treated as a stand-alone activity
(iv)Durability – It must be possible to recover the last
consistent state or reverse the facts of exchange.
ICES Test
 Interoperability: It is the ability to move back and forth b/w
different operating systems i.e. customer should not find any
discomfort in using e-money
 Conservation: It means how well a money holds its value over
time and how easy is to store and access
 Economy: The cost of processing the transaction should be zero
or minimum. If the users have to pay a higher transaction cost they
may switch to other payment product or prefer using cash where
processing cost is zero.
 Scalability: The system must be able to handle new customers
and merchants. It must be easily scalable to handle new intake
Evaluation of Payment
Methods on ACID AND ICES
TEST
Cash/Digital Cash doesn’t satisfy the conservation
property of ACID Test. Cash loses its value over a
period of time due to inflation
Credit Card/Debit Card does not satisfy the economy
properties of ICES test. The processing cost for low
value transactions generally is higher
Other Properties of E Money
Security - First and foremost users must be confident about
the security of the financial details like credit/debit card
details being transferred over the internet. So there must be
proper authentication and encryption rules in place.
Anonymity – System must protect the identity of buyers and
sellers over the open network.
Ease of use and Interactive Interface – Making payment
online should as simple as offline and interface user friendly
Wide Acceptability - The system should be widely
acceptable across all the transactions and all the time
METHODS of E-Payments
I. Credit Card
II. Debit Card
III. Smart Card
IV. Net Banking
V. E-Wallat
CREDIT CARDS
 Credit Card is a plastic card with a magnetic strip issued by a bank
or financial institution entitling its holder to purchase goods and
services.
 It is called a credit card as it enables its holder to purchase now
and pay later on (usually within a month). It is used as a form
of short term financing.
 Credit Card Company fixes a credit limit for every card holder
depending upon his credit worthiness and past payment record.
 The credit card company generally doesnot charge any fees from
the holder for making credit purchases if the payment is made
within grace period.
Credit Cards & DEBIT CARDS
• Credit card provides a card holder credit to make
purchase up to amount fixed by a card issuer.
• In B2C business, it continues to be the most used
form of payment system given its high
convenience.
• Entities that involve in the credit card payment
system include

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.

24
Credit Card - Business Model Logical Money Flow
3. Clearance/Settlement

Customer Visa Store’s

Bank (3rd Party) Bank

2. Credit
4. Payment Authorization

Customer Store
1. Charge
Credit Card – IT Physical Data Flow
Customer EFT 3rd Party
Customer Bank Authorization EFT
System System Store’s
(Visa) Bank
Card Info, System
CARD Signature

Authorization
Request
Reader
Authorization
Program 56k bps
modem
POS Terminal OK!
Credit card processing works in 8 simple
steps:
1. Making the Purchase. The customer finds a product
that he or she likes and decides to make the purchase.
The customer can use a credit card to pay for the item
in the store, through an online payment gateway, by
phone or by mail.
2. Entering the Transaction. The credit card is
swiped through a secure credit card terminal, or the
card and transaction information is entered in. For e-
commerce transactions, the cardholder keys in the
payment option.
3. Transmitting the Data. The credit card data is
transmitted for approval as the terminal, secure
payment gateway is connected to the processing
27 network.
4. Approve or Decline. Once the data is transmitted,
the credit card issuer can approve or decline the
transaction. This is based on the validity of the card,
the transaction, as well as the cardholder’s available
funds.
5. Responding. If the transaction is approved, the
processor and the merchant receive an authorization
response.
6. Completing the Transaction. The merchant
completes the transaction.
7. Submitting a Batch Closure. The merchant
completes the credit card payment process at the end
of the day with a batch closure. This closes out the
transactions that have been processed on that day.
The processor’s acquiring bank then collects the
funds from the credit card issuers.
8. Depositing the Funds. The processor’s acquiring
bank then deposits the funds into the merchant’s
business account. This typically takes up to 48 hours.
Pros and Cons – CREDIT CARDS
ADVANTAGES DISADVANTAGES
Ease of Use Overspending
Low Processing Cost High Interest Rates
Convenience Risk of Losing Card
Means of Short Term
Financing
Addition Benefits – Cash
Back, Reward Points, Free
Insurance cover
Credit Card Security and
Encryption – SET Protocol
 Secure Electronic Transaction (SET) is a protocol for ensuring the
security of financial transactions on the internet
 SET enables the credit card information to be sent to all parties
right from the customer to merchant, then from merchant to
merchant’s bank and from merchant’s bank to credit card issuing
bank in encrypted form.
 SET is not a payment system rather it is a set of protocols that
allow the credit card information to be transmitted safely and
securely on an open network INTERNET.
 The system is jointly managed by Visa and Master Card though
many companies like IBM, Microsoft, Netscape, RSA and Verisign
were involved in developing the protocol.
I-BANKING
• Online banking (or Internet banking or E-banking) allows
customers of a financial institution to conduct financial
transactions on a secure website operated by the
institution, which can be a retail or virtual bank, credit
union or society.

• Online banking through traditional banks enable

customers to perform all routine transactions, such as
account transfers, balance inquiries, bill payments, and
stop-payment requests, and some even offer online loan
and credit card applications.

• Account information can be accessed anytime, day or

night, and can be done from anywhere.
DEBIT CARDS
A debit card is a way to pay now.
It is a small plastic card with a unique number
mapped with the bank account number
A debit card is an alternative to carrying a checkbook
or cash.
It allows you to spend only what is in your bank
account.
Debit cards are accepted at many locations including
grocery stores, retail stores and restaurants etc.
Smart Cards
Also known as an Integrated Circuit Card (ICC), a smart
card is a small, credit card-sized device, with a
microprocessor and other circuits embedded inside it.
Credit, debit, charge cards store limited information on
magnetic strip
Store information
About 100 times more than magnetic strip plastic card
Hold private user data
Financial facts, encryption keys, account information,
credit card numbers, health insurance information,
medical records etc.
Smart Cards
Safer than conventional credit cards
Information encrypted on smart card
Popular in Europe, parts of Asia
The government will soon issue smart cards that will
help them avail of multiple benefits related to health,
insurance, pension and banking.
Electronic Check (i-check)
An e-check uses the same legal and business protocols
associated with traditional paper checks. It is a new payment
instrument that combines high-security, speed, convenience,
and processing efficiencies for online transactions. It shares
the speed and processing efficiencies of all-electronic
payments. An e-check can be used by large and small
organizations, even where other electronic payment solutions
are too risky or not appropriate.
The key advantages of e-checks are as follows:
 Secure and quick settlement of financial obligations
Fast check processing
Very low transaction cost
Electronic Check (i-check)
 E-Wallet
E-Wallet is a payment scheme that operates like a
carrier of e-cash and other information in the same
way a wallet carries real cash.

Readily exchanged for physical cash on demand.

It gives shoppers a single, simple and secure way of

carrying currency electronically.
Procedure for using E-Wallet:
Decide on an online site where you would like to
shop.
Download a wallet from the merchant’s web site
where you intend to shop. The special form requires
the buyer to fill in some personal information.
Fill in the personal information such as your name,
address and phone number.
When you are ready to buy, click on the wallet button
and the buying process is fully executed.
Advantages Of E-Wallets:
Ease of use – It’s like a one click pay with no need to fill
in card numbers and passwords every time.
Ease of access – There will be no need of physical wallet
like we do in the case of cash or cards. Also mobile wallets
are upgrading to allow you to store your documents
digitally like your Driving License, Aadhar Card, Pan
Card, etc.
There will no issue of asking or searching for change
which we have while handling cash.
It will be possible to make instant payments. Just like we
can exchange cash at any moment, we can exchange and
transfer money anytime.
Advantages Of E-Wallets:
It is extremely useful for unorganized sector where
cash is considered as the most suitable medium.
Exchange of money through mobile wallet at chaat
stalls, street vendors, small shops, etc. would remove
the need to carry cash/cards at such places.
Disadvantages Of E-Wallets:
Mobile network connectivity is the biggest impediment.
Network problems and reliable and fast internet
connectivity is not available in most of the developing
countries.
More than connectivity, security issues are at the forefront
nowadays. People are always under the fear of misuse of
their money by hackers and frauds.
Enough support infrastructure is not available. In
countries like India there is not enough financial inclusion
and financial literacy. Unless that builds up, there is no use
in bringing in more and more advanced technologies.
Replacing day-to-day transactions with money is easier
said than done.
Paytm, Journey From Mobile Recharge to E-
Commerce Market
Founded in 2010, Paytm started as a prepaid mobile
recharge website. Currently its business is not only
limited to recharge but has expanded as online
payment platform including mobile recharges, utility
bill payment, wallet payment and wallet to wallet and
wallet to bank transfers for many leading internet
based companies like Bookmyshow, Makemytrip,
FoodPanda, IRCTC and many others.
It was founded under the implemented idea of Vijay
Shekhar Sharma and has got the first mover
advantage in the mobile industry.
Paytm is growing faster and they have over 20 million
registered users as per their current data. Their website
and mobile app has been transformed into a fully-
fledged e-commerce marketplace offering categories
from electronics, mobile phones, sports & health, home
& kitchen, books, baby & toys and many more categories.
The app downloaded on various platforms has touched
the mark of 7 million. The additional features added like
Bargain power which is not currently available at any
other marketplace and unified dashboard has made the
selling and buying more interesting. Monthly order of
over 15 million is completed over here.