Electronic Payment System

UNIT 3 electronic allowance System Contents What is E- defrayal? Types of E- recompense Systems Digital Token- base electronic requital Systems heady promoter panels &038 electronic topple Systems reference work waggle-establish electronic stipend Systems essay &038 electronic Payment Systems Designing electronic Payment System What is E- requital ? E-payment ashess is the automobile of take a bearingring money over the meshwork and technology used in this conduct is called as EFT. EFT defined as any transfer of fund initiated by dint of an e-terminal, telephonic pecker, or computer or magnetized tape to order, nurture or authorize a monetary foundation garment to debit entry or ac reference point an calculate. It is mostly used for Business to furrow (B2B) commerce where companies doing bloodline together tend to use electronic data interchange (EDI) dodging to buck each other bills and nonices of payment. E-Payment Information online offlin e $Products/ go Advantages of E-Payment Increase payment efficiency Reduce traffic costs Enable trade in goods and function of very low value Increase convenience of qualification payments Payment laughingstock be made swiftly and remotely victimisation various devices Can be used for e-commerce / e-Trade For other purposes like stipendiary bills, taxes, etc MBA-II, EBF (FT-204C) Unit-3, body of work literal compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 1Categories of EFT Banking and financial payments * Large-scale or sweeping payment * Small scale or retail payment * collection plate posit buildinging Retailing payments * reference point learning abilitys * flier bank nones On-line electronic commerce payments * Token-based payment system Electronic notes Electronic checks judicious neb or debit separate * Credit rag-based payment systems Encrypted conviction bank notes Third-party agency numbers Main factors when selecting e-payment m ethod Avail susceptibility (bank system, laws and regulations) The m utilize of size and type of business, type of a target group of consumers, types of products and services. The ability to provide security against fraudulent activity Being cost good for low value proceeding salarys Being protective of the privacy of the users leisurely to use, and being convenient for purchasing on the web based e-business Token-based E-Payment Systems Electronic tokens are the raw financial instruments which are in the form of electronic hard cash/money or checks.Electronic tokens are same as cash that is indorse by bank. They are of carte du jourinalsome types 1. funds or real time ( e-cash) 2. debit or Prepaid (smart instrument panel game, e- rounds) 3. Credit or Postpaid ( commendation/debit broadsheet, e-checks) E-cash Electronic cash is a consumer-oriented electronic payment. Though it replaces the cash still still cash is quite dominant form of payment for three reasons 1. Lack of trust in banking system 2.Inefficient clearing and settlement of non-cash transaction 3. Negative real interest rates paid on bank deposit Advantages of cash over acknowledgement measure game It is negotiable currency is a legal tender Cash is a bearer instrument It want require bank line to operate No lay on the line on the part of acceptor that the medium of exchange may not be good MBA-II, EBF (FT-204C) Unit-3, vignette fabric compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 2Properties of e-cash E-cash must admit quest four properties Monetary values Interoperability Retrievability Security E-cash in Action E-cash based on cryptographic systems called digital signature This method involves pair of cardinal numeric lynchpins (very large number or integer) that work in bicycle-built-for- 2 (cycle) one for encoding and another for decoding. Message encoded with one numeric severalise wad only be decoded with other numeric chance upon and no(pr enominal) other. The encoding find out is kept private while the decoding key is made public. E-checks E-checks are another form of electronic tokens. A tonic electronic version of paper check. E-check is an educateion to a financial foot to pay a given amount of money to the payee. It is a particularly formatted email message sent over the profit. It contains as the same breeding as on paper based check. Check service providers PayByCheck (http//www. paybycheck. com) CyberSource (http//cybersource. com) deed Payment Sequence in E-check system Payer Transfer e-check Payee repository e-check Forward e-check for payer authentication Bank Accounting Server MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof.Vanita Joshi, SOM, SIMS, Indore 3 doing Payment Sequence in E-check system Buyer must register with treyly party pecker host using electronic check. On receiving the check, the seller presents it to accountancy system host for verification and payment. The accounting system verifies the digital signature on the check. decent signed and endorsed checks can be electronically exchanged between financial institutions finished electronic clearing house. Advantages of E-Check They work in the same fashion as traditional checks. E-checks are suited for micro payments. Eliminate the choose for expensive process reengineering and taking advantage of the banking industry. Financial fortune is assume by accounting master of ceremonies. E-checks create a float through third-party accounting waiter. They make money out of vendees and sellers transaction by providing deposit account. battle b/w EFT and E-check In E-Cheque, electronic versions of the cheque are issued, stock &038 processed. So, payee issues an E-Cheque for each payment. In EFT transfer automatic withdrawals are made for periodic bills or other fixed payments no cheques are issued. modishness card A smart card is a plastic card with an embedded bit containi ng entropy about you. A smart card can inclose about 100 times the amount of information that a magnetised strip plastic card can strain. A smart card contains private user information, such as financial facts, private encoding keys, account information, creed card numbers, health insurance information, etc. So far not successful in U. S. , entirely popular in Europe, Germany, Singapore and Japan to pay for public phone call, transportation.Mondex brilliant broadside H centenarians and dispenses electronic cash (Smart-card based, stored-value card) Developed by reach mental capacity International Requires specific card reader, called Mondex terminal, for merchant or node to use card over Internet Supports micropayments and works both online and off-line at stores or over the sound Secret chip-to-chip transfer protocol Loaded through asynchronous transfer mode standard atmosphere does not know transfer protocol connects with secure device at bank MBA-II, EBF ( FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM, SIMS, Indore Mondex Smart Card bear on Mondex Smart Card Disadvantages Card carries real cash in electronic form, creating the possibility of theft No deferred (overdue) payment as with credit cards cash is dispensed immediately Types of Smart cards Smart cards are basically of two types 1. Relationship-based Smart Cards 2. Electronic Purses and Debit Cards Relationship-based Smart Cards It is the enhancement of existing card services that offer guests far better options like 1. Access to multiple accounts (debit, credit, e-cash) on one card. 2.Offer various functions ( cash assenting, bill payment, balance inquiry, fund transfer) 3. dual admission price options at multiple location using multiple access device (ATM, PC, PDA or screenphone etc) Electronic Purses and Debit Cards Electronic Purses or E- wallet are the smart cards embedded with programmable microprocessor chip that store sum of money instead of cash. Once a elderly bag is loaded with money it require card reader vending auto which verifies its authenticity . Then after amount is deducted from balance. It shows the remaining balance on the card hence eliminate the small bill in ready stores.E-wallets when depleted can be recharged with money . MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 5 Credit cards-based e-payment system Credit Cards A credit card is a small plastic card issued to users dealing in e-commerce. Most credit cards are the same shape and size, as specified by the ISO 7810 standard. A credit card is different to a debit card in that it does not remove money from the users account after every transaction. In the case of credit cards, the issuer lends money to the consumer (or the user) to be paid to the merchant.Credit cards-based e-payment system Customers who purchase any goods get out their credit card details to the service provider involved and t he credit card system will handle this payment. Online credit card payment has following categories 1. Payment using plain credit card details 2. Payments using encrypted credit card details 3. Payment using third-party verification Entities involved in Credit card Transaction Consumer (Buyer or Card holder) merchandiser (Seller) Card Issuer (Consumers Bank) Acquirer or Principal ( merchandisers Bank) Card Association (Visa, get Card etc) Third party processor How an Online Credit Transaction WorksEncryption and Credit cards Encryption process starts when credit card information is entered into a browser and sent securely over network between emptor to seller. Encryption process includes following steps 1. Customer presents his credit card information securely to merchant. 2. Merchant validates the authenticity of card holder 3. Merchant relays this information to its bank or on-line card processor. MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM , SIMS, Indore 6 4. The bank relays the information to customers bank for control approval 5.The customers bank returns the credit card , charge authentication and authorization to the merchant bear upon Payment with Encrypted Third-party authorization and Credit cards In third party processing, consumer register with third party on the internet to verify emicrotransaction. The companies providing third party payment service on internet are ( First Virtual) http//www. fv. com http//www. openmarket. com http//www. 2checkout. com/ http//www. paypal. com/ Payment can be made by credit card via clearing house.Online Third-Party central processor (OTPPs) has following steps for buying information online. 1. Consumer registers for an OTPP a/c that is endorse by credit card. 2. To purchase customer request merchant by her OTPP account no. 3. Merchant then contact the OTPP payment server with customers account no. 4. OTPP payment server verifies the customers account no. for vender (merchant) &038 checks for sufficient funds. 5. OTPP server send a message to buyer that can be responded back by buyer as yes/agree No/disagree fraud. 6.If OTPP gets Yes from customer, merchant is advised &038 then customer is allowed to download material. MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 7 Online Payment Processing using a Third-party mainframe computer venture in using Credit cards Customer uses a stolen card or account number to fraudulently purchase goods or service online. more stack who will be on the Internet check not even had their first Web experience. Hackers find the ways into an e-commerce merchants payment processing system and then issue credits to navvy card account numbers. legion(predicate) users are also likely to be younger and have less access to credit and debit cards Many purchases they make will be micropayments. Credit cards cannot be used for large sums of B2B transactions Custome r falsely claims that he or she did not receive a shipment Limitations of Online Credit Card Payment Systems Security neither merchant nor consumer can be fully authenticated. bell for merchants, around 3. 5% of purchase price plus transaction fee of 2030 cents per transaction. People living in rural areas dont have same access to computers and Internet that others do. Social equity many race do not have access to credit cards (young and old age), disabled, individuals who are not computer savvy and individuals who cannot afford cards ( slimy credit risk). Designing Electronic Payment Systems Following criteria should be contented while designing any new E-payment System 1. Privacy 6. price 2. Security 7. Standards 3. Intuitive Interface 4. Database Integration 5. Brokers MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 8Electronic Payment SystemUNIT 3 Electronic Payment System Contents What is E-payment? Types of E-payment Systems Digital Token-based Electronic Payment Systems Smart Cards &038 Electronic Payment Systems Credit Card-based Electronic Payment Systems Risk &038 Electronic Payment Systems Designing Electronic Payment System What is E-payment ? E-payment systems is the mechanics of transferring money over the Internet and technology used in this transfer is called as EFT. EFT defined as any transfer of fund initiated through an e-terminal, telephonic instrument, or computer or magnetic tape to order, instruct or authorize a financial institution to debit or credit an account. It is mostly used for Business to business (B2B) commerce where companies doing business together tend to use electronic data interchange (EDI) system to send each other bills and notices of payment. E-Payment Information online offline $Products/services Advantages of E-Payment Increase payment efficiency Reduce transaction costs Enable trade in goods and services of very low value Increase convenience of reservation payments Payment can be made swiftly and remotely using various devices Can be used for e-commerce / e-Trade For other purposes like stipendiary bills, taxes, etc MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 1Categories of EFT Banking and financial payments * Large-scale or sweeping payment * Small scale or retail payment * mansion banking Retailing payments * Credit cards * Debit cards On-line electronic commerce payments * Token-based payment system Electronic cash Electronic checks Smart cards or debit cards * Credit card-based payment systems Encrypted credit cards Third-party authorization numbers Main factors when selecting e-payment method Availability (bank system, laws and regulations) The thoughtfulness of size and type of business, type of a target group of consumers, types of products and services. The ability to provide security against fraudulent activity Being cost stiff for low value trans action fees Being protective of the privacy of the users piano to use, and being convenient for purchasing on the web based e-business Token-based E-Payment Systems Electronic tokens are the new financial instruments which are in the form of electronic cash/money or checks.Electronic tokens are same as cash that is backed by bank. They are of three types 1. Cash or real time ( e-cash) 2. Debit or Prepaid (smart cards, e-purses) 3. Credit or Postpaid (credit/debit cards, e-checks) E-cash Electronic cash is a consumer-oriented electronic payment. Though it replaces the cash but still cash is quite dominant form of payment for three reasons 1. Lack of trust in banking system 2.Inefficient clearing and settlement of non-cash transaction 3. Negative real interest rates paid on bank deposit Advantages of cash over credit cards It is negotiable Cash is a legal tender Cash is a bearer instrument It need require bank account to operate No risk on the part of acceptor that the medium of exchange may not be good MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 2Properties of e-cash E-cash must have following four properties Monetary values Interoperability Retrievability Security E-cash in Action E-cash based on cryptographic systems called digital signature This method involves pair of two numeric keys (very large number or integer) that work in tandem bicycle (cycle) one for encoding and another for decoding. Message encoded with one numeric key can only be decoded with other numeric key and none other. The encoding key is kept private while the decoding key is made public. E-checks E-checks are another form of electronic tokens. A new electronic version of paper check. E-check is an instruction to a financial institution to pay a given amount of money to the payee. It is a especially formatted email message sent over the Internet. It contains as the same information as on paper based check. Check service pro viders PayByCheck (http//www. paybycheck. com) CyberSource (http//cybersource. com) Transaction Payment Sequence in E-check system Payer Transfer e-check Payee lay e-check Forward e-check for payer authentication Bank Accounting Server MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof.Vanita Joshi, SOM, SIMS, Indore 3 Transaction Payment Sequence in E-check system Buyer must register with third party account server using electronic check. On receiving the check, the seller presents it to accounting server for verification and payment. The accounting system verifies the digital signature on the check. correctly signed and endorsed checks can be electronically exchanged between financial institutions through electronic clearing house. Advantages of E-Check They work in the same way as traditional checks. E-checks are suited for micro payments. Eliminate the need for expensive process reengineering and taking advantage of the banking industry. Financial risk is off -key by accounting server. E-checks create a float through third-party accounting server. They make money out of buyers and sellers transaction by providing deposit account. rest b/w EFT and E-check In E-Cheque, electronic versions of the cheque are issued, trustworthy &038 processed. So, payee issues an E-Cheque for each payment. In EFT transfer automatic withdrawals are made for monthly bills or other fixed payments no cheques are issued.Smart cards A smart card is a plastic card with an embedded scrap containing information about you. A smart card can store about 100 times the amount of information that a magnetic strip plastic card can store. A smart card contains private user information, such as financial facts, private encryption keys, account information, credit card numbers, health insurance information, etc. So far not successful in U. S. , but popular in Europe, Germany, Singapore and Japan to pay for public phone call, transportation.Mondex Smart Card Holds an d dispenses electronic cash (Smart-card based, stored-value card) Developed by MasterCard International Requires specific card reader, called Mondex terminal, for merchant or customer to use card over Internet Supports micropayments and works both online and off-line at stores or over the telephone Secret chip-to-chip transfer protocol Loaded through ATM ATM does not know transfer protocol connects with secure device at bank MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM, SIMS, Indore Mondex Smart Card Processing Mondex Smart Card Disadvantages Card carries real cash in electronic form, creating the possibility of theft No deferred (overdue) payment as with credit cards cash is dispensed immediately Types of Smart cards Smart cards are basically of two types 1. Relationship-based Smart Cards 2. Electronic Purses and Debit Cards Relationship-based Smart Cards It is the enhancement of existing card services that offer customers far better op tions like 1. Access to multiple accounts (debit, credit, e-cash) on one card. 2.Offer various functions ( cash access, bill payment, balance inquiry, fund transfer) 3. binary access options at multiple location using multiple access device (ATM, PC, PDA or screenphone etc) Electronic Purses and Debit Cards Electronic Purses or E- wallet are the smart cards embedded with programmable buffalo chip that store sum of money instead of cash. Once a purse is loaded with money it require card reader vending machine which verifies its authenticity . Then after amount is deducted from balance. It shows the remaining balance on the card hence eliminate the small bill in reside stores.E-wallets when depleted can be recharged with money . MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 5 Credit cards-based e-payment system Credit Cards A credit card is a small plastic card issued to users dealing in e-commerce. Most credit cards are the same sh ape and size, as specified by the ISO 7810 standard. A credit card is different to a debit card in that it does not remove money from the users account after every transaction. In the case of credit cards, the issuer lends money to the consumer (or the user) to be paid to the merchant.Credit cards-based e-payment system Customers who purchase any goods send their credit card details to the service provider involved and the credit card administration will handle this payment. Online credit card payment has following categories 1. Payment using plain credit card details 2. Payments using encrypted credit card details 3. Payment using third-party verification Entities involved in Credit card Transaction Consumer (Buyer or Card holder) Merchant (Seller) Card Issuer (Consumers Bank) Acquirer or Principal (Merchants Bank) Card Association (Visa, Master Card etc) Third party processor How an Online Credit Transaction WorksEncryption and Credit cards Encryption process starts when credit card information is entered into a browser and sent securely over network between buyer to seller. Encryption process includes following steps 1. Customer presents his credit card information securely to merchant. 2. Merchant validates the authenticity of card holder 3. Merchant relays this information to its bank or on-line card processor. MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 6 4. The bank relays the information to customers bank for authorization approval 5.The customers bank returns the credit card , charge authentication and authorization to the merchant Processing Payment with Encrypted Third-party authorization and Credit cards In third party processing, consumer register with third party on the internet to verify emicrotransaction. The companies providing third party payment service on internet are ( First Virtual) http//www. fv. com http//www. openmarket. com http//www. 2checkout. com/ http//www. paypal. com/ Paym ent can be made by credit card via clearing house.Online Third-Party Processor (OTPPs) has following steps for buying information online. 1. Consumer registers for an OTPP a/c that is backed by credit card. 2. To purchase customer request merchant by her OTPP account no. 3. Merchant then contact the OTPP payment server with customers account no. 4. OTPP payment server verifies the customers account no. for vender (merchant) &038 checks for sufficient funds. 5. OTPP server send a message to buyer that can be responded back by buyer as yes/agree No/disagree fraud. 6.If OTPP gets Yes from customer, merchant is apprised &038 then customer is allowed to download material. MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 7 Online Payment Processing using a Third-party Processor Risk in using Credit cards Customer uses a stolen card or account number to fraudulently purchase goods or service online. Many people who will be on the Internet h ave not even had their first Web experience. Hackers find the ways into an e-commerce merchants payment processing system and then issue credits to ward-heeler card account numbers. Many users are also likely to be younger and have less access to credit and debit cards Many purchases they make will be micropayments. Credit cards cannot be used for large sums of B2B transactions Customer falsely claims that he or she did not receive a shipment Limitations of Online Credit Card Payment Systems Security neither merchant nor consumer can be fully authenticated. toll for merchants, around 3. 5% of purchase price plus transaction fee of 2030 cents per transaction. People living in rural areas dont have same access to computers and Internet that others do. Social equity many people do not have access to credit cards (young and old age), disabled, individuals who are not computer savvy and individuals who cannot afford cards ( sorry credit risk). Designing Electronic Payment Sy stems Following criteria should be slaked while designing any new E-payment System 1. Privacy 6. set 2. Security 7. Standards 3. Intuitive Interface 4. Database Integration 5. Brokers MBA-II, EBF (FT-204C) Unit-3, Study material compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 8