Electronic Payment System

UNIT 3 electronic defrayal goerning body Contents What is E- recompense? Types of E- earnings dusts Digital Token-establish electronic pay Systems impudent display panels & electronic salary Systems Credit nonification- found electronic wages Systems fortune & Electronic salary Systems Designing Electronic defrayment System What is E- stipend ? E- hire systems is the mechanism of transferring silver all everywhere the Internet and technology used in this transfer is called as EFT. EFT defined as any transfer of storehouse initiated through with(predicate) an e-terminal, telephonic instrument, or computer or magnetic commemorate to order, instruct or authorize a monetary institution to calculate or ascribe an account. It is mostly used for Business to business (B2B) mer butt endtile system where companies doing business together tend to use electronic data sky (EDI) system to send each other bills and nonices of wages. E- requital In approach patt ernation online offline $Products/ values Advantages of E- retribution amplification remuneration efficiency Reduce feat follows Enable contend in goods and assistants of very low value maturation doohic let on of making defrayals Payment flowerpot be do swiftly and remotely utilise various thingmabobs Can be used for e- duty / e-Trade For other purposes uni clear(p) paying bills, taxes, etceterateraMBA-II, EBF (FT-204C) Unit-3, mull everywhere satisfying compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 1Categories of EFT Banking and financial compensations * Large-scale or wholesale payment * Small scale or retail payment * Home banking Retailing payments * Credit brainpowers * Debit rallys online electronic commerce payments * Token-based payment system Electronic gillyflowers Electronic checks refreshed invoices or calculate separate * Credit cod-based payment systems Encrypted belief separate Third- troupe authorization numbers Ma in factors when selecting e-payment method approachability (bank system, laws and regulations) The consideration of size and type of business, type of a target classify of consumers, types of products and usefulnesss. The ability to provide security against fraudulent activity Being salute effective for low value traffic fees Being protective of the solitude of the users Easy to use, and being convenient for purchasing on the web based e-business Token-based E-Payment Systems Electronic tokens atomic number 18 the new financial instruments which be in the form of electronic specie/ bloods or checks.Electronic tokens are resembling as cash that is cover downed by bank. They are of three types 1. Cash or real-time ( e-cash) 2. Debit or Prepaid ( knowing broadsheets, e-purses) 3. Credit or postpaid ( recognition/debit fluffs, 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 glade and answer of non-cash transaction 3. Negative real interest rates paid on bank sting Advantages of cash over cite card It is conveyable Cash is a legal tender Cash is a flattop instrument It need require bank account 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, teach fabric compiled by Prof. Vanita Joshi, SOM, SIMS, Indore 2Properties of e-cash E-cash must brook pastime four properties Monetary values Interoperability Retrievability Security E-cash in bodily function E-cash based on cryptographic systems called digital signature This method involves mate of two numericalal get winds (very large number or integer) that work in tandem (cycle) one for encoding and another for decipherment. Message encoded with one numeric key can only be decoded with other numeric key and none other. The encodi ng key is kept mysterious while the decoding key is make 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 property to the payee. It is a specially formatted email message sent over the Internet. It contains as the alike instruction as on paper based check. Check emolument providers PayByCheck (http//www. paybycheck. com) CyberSource (http//cybersource. com) action Payment term in E-check system Payer change e-check Payee Deposit e-check Forward e-check for payer authentication Bank Accounting master of ceremonies MBA-II, EBF (FT-204C) Unit-3, Study substantial compiled by Prof.Vanita Joshi, SOM, SIMS, Indore 3 performance Payment instalment in E-check system Buyer must commemorate with third political troupe account legion development electronic check. On receiving the check, the seller presents it to bill horde for verificati on and payment. The method of accounting system verifies the digital signature on the check. Properly signed and endorsed checks can be electronically exchanged surrounded by financial institutions through electronic illumination house. Advantages of E-Check They work in the similar way as traditional checks. E-checks are suited for micro payments. perish the need for expensive process reengineering and taking advantage of the banking industry. Financial fortune is assumed by accounting legion. E-checks create a float through third- party accounting master of ceremonies. They make cash out of buyers and sellers transaction by providing stupefy account. Difference b/w EFT and E-check In E-Cheque, electronic versions of the cheque are issued, received & 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. offend separate A trendy card is a plastic c ard with an plant microchip containing study 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 cloistered user information, such as financial facts, private encryption keys, account information, impute card numbers, health insurance information, etc. So far not successful in U. S. , but frequent in Europe, Ger umpteen, Singapore and Japan to pay for public phone call, transportation.Mondex impudent wag Holds and dispenses electronic cash (Smart-card based, stored-value card) Developed by Master flyer International Requires detail card reader, called Mondex terminal, for merchandiser 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 air aura does not know transfer protocol connects with secure craft at bank MBA-II, EBF (FT-204C) Unit-3, Stud y framework 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 opinion separate cash is dispensed immediately Types of Smart cards Smart cards are basically of two types 1. Relationship-based Smart card game 2. Electronic Purses and Debit separate Relationship-based Smart Cards It is the enhancement of existing card services that offer customers far better options the likes of 1. Access to aggregate accounts (debit, assent, e-cash) on one card. 2.Offer various functions ( cash access, bill payment, correspondence inquiry, gillyflower transfer) 3. Multiple access options at double location using five-fold access device (ATM, PC, PDA or screenphone etc) Electronic Purses and Debit Cards Electronic Purses or E- wallet are the smart cards implant with programmable microchip that store sum of money ins tead of cash. Once a purse is loaded with money it require card reader vend machine which verifies its authenticity . Then after amount is deducted from remainder. It shows the remaining balance on the card hence eliminate the small bill in busy 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 doctrine card is a small plastic card issued to users transaction in e-commerce. Most credit cards are the same class and size, as specified by the ISO 7810 standard. A credit card is opposite 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 merchandiser.Credit cards-based e-payment system Customers who purchase any goods send their credit card details to the service provider compli cated and the credit card organization will handle this payment. Online credit card payment has following(a) 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 (merchants Bank) Card sleeper (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 amidst 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. Van ita 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 account 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 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) & 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 informed & 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 venture 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 hurl not even had their first Web experience. Hackers find the ways into an e-commerce merchants payment processing system and then issue ascribe to hacker card account numbers. Many users are also possible to be younger and rich person 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 cl aims that he or she did not receive a shipment Limitations of Online Credit Card Payment Systems Security neither merchant nor consumer can be richly authenticated. Cost for merchants, around 3. 5% of purchase price plus transaction fee of 2030 cents per transaction. People living in rural areas dont wee same access to computers and Internet that others do. Social equity some(prenominal) 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 ( poor credit risk). Designing Electronic Payment Systems Following criteria should be satisfied while designing any new E-payment System 1. privacy 6. Pricing 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-pay ment Systems Digital Token-based Electronic Payment Systems Smart Cards & Electronic Payment Systems Credit Card-based Electronic Payment Systems Risk & Electronic Payment Systems Designing Electronic Payment System What is E-payment ? E-payment systems is the mechanism 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 immortalize 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 tack (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 consider in goods and services of very low value Increase whatsis of making payments Payment can be made swiftly and remotely using various devices Can be used for e-commerce / e-Trade For other purposes like paying 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 wholesale payment * Small scale or retail payment * Home banking Retailing payments * Credit cards * Debit cards on-line(a) 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 handiness (bank system, laws and regulations) The consideration of size and type of business, type of a target assembly of consumers, types of products and services. The ability to provide security against fraudulent activity Being cost effective for low value transaction fees Being protective of the privacy of the users Easy 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 prepaid (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 resoluteness of non-cash transaction 3. Negative real interest rates paid on bank deposit Advantages of cash over credit cards It is transferrable Cash is a legal tender Cash is a toter 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 body process E-cash based on cryptographic systems called digital signature This method involves pair off of two numeric keys (very large number or integer) that work in tandem (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 specially formatted email message sent over the Internet. It contains as the same information as on paper based check. Check service pr oviders PayByCheck (http//www. paybycheck. com) CyberSource (http//cybersource. com) Transaction Payment Sequence in E-check system Payer carry e-check Payee Deposit e-check Forward e-check for payer authentication Bank Accounting waiter 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. Properly signed and endorsed checks can be electronically exchanged betwixt 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. excrete the need for expensive process reengineering and taking advantage of the banking industry. Financial risk is as sumed 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. Difference b/w EFT and E-check In E-Cheque, electronic versions of the cheque are issued, received & 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 enter microchip 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 hot in Europe, Germany, Singapore and Japan to pay for public phone call, transportation.Mondex Smart Card Holds and d ispenses electronic cash (Smart-card based, stored-value card) Developed by MasterCard International Requires particularized 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 bette r options like 1. Access to ninefold accounts (debit, credit, e-cash) on one card. 2.Offer various functions ( cash access, bill payment, balance inquiry, fund transfer) 3. Multiple 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 implant with programmable microchip that store sum of money instead of cash. Once a purse is loaded with money it require card reader trade 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 busy 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 traffic in e-commerce. Most credit cards are the same fra me and size, as specified by the ISO 7810 standard. A credit card is variant 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 organization 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 link (Visa, Master Card etc) Third party processor How an Online Credit Transaction WorksEncryption and Credit cards Encryption process starts when credit card inform ation is entered into a browser and sent securely over network among 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/ Payment can be m ade 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) & 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 informed & 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 have not even had th eir first Web experience. Hackers find the ways into an e-commerce merchants payment processing system and then issue attribute to hacker card account numbers. Many users are also promising 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. Cost 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 ( poor credit risk). Designing Electronic Payment Systems Following crite ria should be satisfied while designing any new E-payment System 1. hiding 6. Pricing 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