4. E-Commerce & Payment System

Amity School of Business

Jitendra Tomar

09650512300
jitendratomar@hotmail.com
jitendratomar@rediffmail.com

Orator


• Part 4:

E-CoMmErCe & pAyMeNt SyStEm


• Real World Cash


What is Real World Cash?
• It is technology mediated exchange between parties
(individuals or organizations) as well as the electronically
based intra or inter organizational activities that facilitate such
exchanges.
• Money is know as
• a 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.
• In e-commerce, electronic money must fulfil the first function.
• Payment online (using credit cards and the like) is not very
different from cash transactions made in the real world,
except for speed of transfer, ease of handling, and safety of
not having to carry cash.
Real World Cash


• Outside the Internet, cash continues to be the most widely
used form of payment. It offers several features:
• Convenience – easy to use, easy to carry, and easy to handle
in small quantities.
• Wide Acceptance – paper currency is the most widely used
exchange through out the world.
• 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. For the merchant,
it means transporting cash to the bank for safekeeping on a
daily basis.
• No audit trail – lack of traceability means that users can do
what they wanted with the cash. Places where trust in
currency, banking system or the government is in question,
cash is used to buy all kinds of products, including homes,
automobiles, and other big-ticket items. Trust is the basis of
electronic payment system. Real World Cash


• Despite these features, the credit system is more attractive for
conducting business in the real world.
• Cash is easy to loose, difficult to trace, cumbersome to carry,
and time consuming to count, organize, and manage.

Real World Cash


• Electronic Money


Generics of E-Money
• It is an electronic medium for making payments and is the
trend today. It includes
• Credit cards
• Debit cards
• Smart cards
• Electronic fund transfer
• Automated Clearinghouse.
• It is a notational money system that may be
• Online or offline
• Identified or anonymous

Electronic Money


Generics of E-Money
• There are four types of E-Money
• Identified and online (+I +L)
The buyer is clearly identified and the card is validated against the
issuing banks computer before the payment is made.
Credit/Debit cards with PIN nos, Online Banking

• Identified and Offline (+I –L)
Credit/Debit Cards without a PIN no. The merchant asks for the ID to
make sure & know the identity of the user, but no verification is
made against the account. If false transaction is made, the
merchant has to backtrack through the issuing bank and chase
the purchaser for the payment.
It is like the check payment, traveller’s check, MOs and the like.

Electronic Money


Generics of E-Money
• There are four types of E-Money
• Anonymous and online (-I +L)
Payments where identity of the user is anonymous and the
transaction is made on the spot against a card. Payments using
loyalty cards, metro card transaction.

• Anonymous and Offline (-I –L)
Using loyalty card with a Merchant who does not have an online
connection to the Visa/Master card Network.

Electronic Money


• Analyzing Cash, Cheque, and Cards


Regardless of the form of money, two distinct sets of properties
(ACID & ICES) should be considered in a money transfer.
The ACID Test: A set of properties of a money transfer that
include Atomicity, Consistency, Isolation, Durability.
• Atomicity - A transaction must occur completely or not at all.
When a user transfer Rs. 10,000 from savings account to checking
accounts, the full amount must be debited from the savings
account and credited tot he checking account before the
transfer is considered successful.

• Consistency - All parties involved in the transaction must agree to
the exchange. In a customer-retailer relationship involving a
purchase, the customer must agree to purchase and the
merchant must agree to sell the specific quantity of the product
at a specific price. They should also fix the type of payment
system, and total amount of payment, otherwise, there is no basis
for exchange.
Money Analysis


• Isolation - Each transaction must be independent of any other
transaction and be treated as a stand-alone episode.
• Durability - It must always be possible to recover that last
consistent state or reverse the facts of the exchange. This may
also lead to reversing charges in the event when customers
change their mind.

The ICES Test - Set of properties of a money transfer that includes
interoperability, conservation, economy and scalability.
• Interoperability - The Ability to move back and forth between
different systems. With the global nature of business, the basic
requirement in time is the interconnectivity of distinct platforms so
as to enable transactions among all the discrete systems.

Money Analysis


• Conservation - How well money holds its value over time
(Temporal consistency) and how easy money is to store and
access (Temporal Curability).
• Economy - Processing a transaction should be inexpensive and
affordable. In online banking, wiring money from one bank to
another usually generates a fee for using the transfer platform.
• Scalability - This test refers to the ability of the system to handle
multiple users at the same time. The number of users will increase
with the time and expansion, and the varied users should not lead
to any discrepancy.

Money Analysis


The ACID and ICES tests, integrate the following properties that
are important to create the interest in electronic payment
system and enhance the use of it.
• Acceptability - It should be widely accepted by and to
merchants/users. Merchants must have the technical ability and
processes to expedite sale without delay.
• Ease of integration - The website interface must be effective and
well integrated into the total network environment. It should even
enhance the MIS capabilities of the organization.
• Customer base - Enough users and enough traffic must be
present to justify investing in the electronic payment mechanism.
• Ease of use and access - Users don’t like to wait. Using a payment
system should be as easy as pressing a button on the screen.

Money Analysis


• Secure Electronic Transaction (SET)


Secure Electronic Transaction (SET) is a standard protocol for
securing credit card transactions over insecure networks,
specifically, the Internet. SET is not itself a payment system, but
rather a set of security protocols and formats that enable
users to employ the existing credit card payment
infrastructure on an open network in a secure fashion.
A protocol designed to ensure the security and integrity of online
communications and purchases, Secure Electronic
Transaction (SET) uses digital certificates, issued to merchants
and other businesses and customers, to perform a series of
security checks verifying that the identity of a customer or
sender of information is valid. SET provides the basic
framework within which many of the various components of
securing digital transactions function. Digital certificates,
digital signatures, and digital wallets all function according to
the SET protocol.
Secure Electronic Transaction


There are several components for the SET protocol.
• The Cardholder Application, also referred to as a digital wallet, is
held by an online consumer and packages a digital signature
and credit card information that ensures his or her identity and
safeguards his or her financial information through a complex
encryption system.
• The Merchant Server component is the verification product held
by the merchant to process the online card payment.
• The Payment Gateway component is held by an acquiring bank
or other trusted third party that accepts and processes the
merchant's verification and the customer's payment information
and filters them to their appropriate financial institutions.
• The Certificate Authority component, usually run by a financial
institution, is the trusted agent that issues the digital certificates
and is responsible for ensuring that all users of digital certificates
are in fact secure and trustworthy customers.
Once a security product Secureof these components has
for any Electronic Transaction
passed the SET Compliance Testing, it bears the SET Mark,


Once a security product for any of these components has
passed the SET Compliance Testing, it bears the SET Mark,
ensuring all users that it meets the SET standards.

The History and Evolution
SET was developed by SETco, led by VISA and MasterCard (and
involving other companies such as GTE, IBM, Microsoft,
Netscape, RSA and VeriSign) starting in 1996. SET was based
on X.509 certificates with several extensions. The first version
was finalised in May 1997 and a pilot test was announced in
July 1998.
SET was intended to become the de facto standard of payment
method on the Internet between the merchants, the buyers,
and the credit-card companies. Despite heavy publicity, it
failed to win market share.


Reasons for this include:
• Network effect - need to install client software (an e-wallet).
• Cost and complexity for merchants to offer support and
comparatively low cost and simplicity of the existing SSL based
alternative.
• Client-side certificate distribution logistics.
By the 2000s, however, reports of credit-card fraud and abuse
rekindled interest in the SET protocol, and companies and
card suppliers began integrating SET into their transactions
systems.
One factor helping the resurgence of the SET standard in the
early 2000s was the switch from client-side digital wallets to
server-side wallets, allowing for far greater flexibility in their use
and for data storage.



And as more and more consumers opted for online payment
systems through use of debit cards and credit cards for their
online purchases, the demand for tighter security only
escalate. Therefore, the nervous customers required the
strongest possible security protocol for their online payments.
Key features
To meet the business requirements, SET was developed with the
following important goals:
• Confidentiality of information/Payment - Of the financial account
of the customer and the confidentiality of the personal
information of the customer.
• Integrity of data - This means that data will not be corrupted
during transmission or processing.



• Cardholder account/Merchant authentication - Authentication
that a cardholder is, in fact, the person authorized to use the
card. It also verifies that the merchant handling a sale can
accept an authorized card via the acquiring bank.
• Interoperability across network providers - This implies a more
encompassing or comprehensive way of making electronic
payments over the Internet 24 hours a day, seven days a week,
without delay.
Participants - A SET system includes the following participants:
• Cardholder
• Merchant
• Issuer
• Acquirer
• Payment Gateway
• Certification Authority


Transaction - The sequence of events required for a transaction
are as follows:
• The customer obtains a credit card account with a bank that
supports electronic payment and SET.
• The customer receives a X.509v3 digital certificate signed by the
bank.
• Merchants have their own certificates.
• The customer places an order.
• The merchant sends a copy of its certificate so that the customer
can verify that it's a valid store.
• The order and payment are sent.
• The merchant requests payment authorization.
• The merchant confirms the order.
• The merchant delivers the goods/service to the customer.
• The merchant requests payment.


• B2B and E-Payment


Business to Business online Payment System.
One area which is drawing high attention in the dawn of
business to business is the e-payment platform, which is
bringing in the value and quality in the mannerism of how
business is done over the electronic medium.
The advantages which e-payment platform is bringing to
business-to-business environment are:
• B2B e-Payment system can save processing cost and improve
overall efficiency.
• It is to automate the whole process of seller presenting the invoice
to paying the invoice by the other business.
• Most significant advantages comes from savings in staff, postage
and handling.

B2B & E-Payment


This all is the part of EIPP (Electronic Invoice presentment and
payment) system which leads to:
• Most efficient invoicing (Just-in-time invoicing, on-demand
output).
• Quicker receipt of payments
• Easier processing of receipts, and
• Reduced handling of invoice and complaints.

B2B & E-Payment


• General Guide to E-Payment


With all the options, procedures, and technical support
available, there are general rules and tips to consider before
paying for goods or services on the Internet.

• Use a secure Web browser
In today’s security-threatened Internet, a browser must have the
most up-to-date encryption capabilities. When submitting
payment information, make sure the “lock” icon is visible on the
browser’s status bar.
• Read the Website’s privacy policy carefully
Specifically, find out how the site will use or share any personal
information which the user provides.

B2B & E-Payment



• Figure out the merchant’s refund and return policies in advance of
the final purchase.
These are tough areas to figure out once user decide to return
merchandise for refund.
• Investigate the trustworthiness of the merchant before you initiate
a purchase
User should know by now that not every Web merchant is reliable
or long-lasting.

B2B & E-Payment



• Keep a record of all online transactions and check e-mail and
other contacts regularly
After the purchase is finalized, most merchants will e-mail the user
a confirmation with specific information that acts like a receipt.
• Review the credit card statements line by line to ensure
authenticity.
The user should be sure to notify the proper issuing bank of any
unauthorized purchases or irregularities in his account.

B2B & E-Payment


• Issues and Implications


Issues & Implications.
With the Internet’s increasing traffic and congestion resulting
from growing e-commerce, there are issues regarding
electronic payment methods and methodologies of which
users should be aware. The issues can be grouped as follows:

• Consumer needs
What features will make electronic payment cheaper and more
secure for the consumer and the merchant?
• Corporate processes
How will today’s increasing e-commerce business affect the way
tomorrow’s corporation operates in the marketplace? Will small
and medium size businesses be harmed or helped by the
electronic payment system?

Issues & Implications


• Corporate strategy
Will the electronic payment system end up in the hands of fewer
financial institutions, or will it generate a number of smaller banks
that cater specifically to clearing and processing digital business
transactions?

• Regulation of competition
How does the government ensure fail play among companies
doing business on the Internet? What standardization can be
expected? How can we be sure that financial service providers
will behave in the public’s best interests? How will the government
levy taxes on electronic funds flowing over open networks like the
Internet, especially with the increasing sophistication of
encryption?



• Economics of social process
Will the government pull out of the cash making business? If so,
what are the consequences for business and society? It taxing
goods and services over the Internet ends up being a big job to
control, will the government find new ways to tax the working
public?
In principle, the present technology seems to do the job of
securing electronic payment over the internet with a hope
that it will widely expedite and provide better security,
allowing the customer to user unfamiliar workstations without
endangering the security of the transaction.



• Payment Medium


Types of Electronic Payment Media
• Credit Cards
• Debit Cards
• Smart Cards
• E-Wallet
• EFT

Payment Medium


• End of Part 4

E-CoMmErCe & pAyMeNt SyStEm

4. E-Commerce & Payment System

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