E-commerce

1. E-commerce Payment Systems
CHAPTER
FOUTR

2. What is Online Electronic Payment
 An electronic payment system (EPS) also known
as electronic currency, broadly speaking, refer to
a transaction in the online exchange of funds;
 is a system of financial exchange between
buyers and sellers in the online environment
that is facilitated by a digital financial
instrument (such as encrypted credit card
numbers, electronic checks, or digital cash) backed
by a bank, an intermediary, or by legal tender.

3. What is Online Electronic Payment
(contd.)
 Electronic Payment System is the basis for
online payments, and online payments system
development is a higher form of electronic
payment.
 It means electronic payment may, at any time,
through the Internet directly to the transfer,
settlement and form e-business environment.

4. Electronic Payments Benefits
Electronic payments can benefit our business by:
 extending our customer base;
 boosting (increasing) cash flow;
 reducing costs;
 enhancing customer service
 improving your competitive advantage.

5. Five reasons why Electronic payments
improve customer service
 Choice – like our competitors, we can offer a wide range of
payment options
 Convenience – they remove the need for invoices(bill)
cheques, cash
 Credit – they may allow purchases that would otherwise be
delayed
 Concessions – small discounts to encourage online
purchases improve the perception of value
 Competitive Edge - if we don’t offer the full range of
payment options but your competitors do, what does this
say about your business?

6. Five reasons why Electronic payments
increase profitability
 Convenience – removing administrative resources
required by invoices, cheques and cash
 Immediacy – credit cards enable instant
purchasing (without delay)
 Improved cash flow – payment at the time of
purchase reduces the pressures caused by 30-day
invoicing
 Growth – open additional payment channels via the
phone, mail order and Internet and increase your
customer base. More customers mean more
revenue(income).
 Competitive advantage – match and beat the
services of your competitors and gain the edge

7. Electronic Payment Methods
 Innovations affecting consumers, include credit
and debit cards, automated teller machines (ATMs),
stored value cards, and e-banking.
 Innovations enabling online commerce are e-
cash, e-checks, smart cards, and encrypted credit
cards. These payment methods are not too popular
in developing countries. They are employed by a few
large companies in specific secured channels on a
transaction basis.
 Innovations affecting companies pertain to
payment mechanisms that banks provide their
clients, including inter-bank transfers through
automated clearing houses allowing payment by
direct deposit.

8. Available payment methods
 Credit Card
 Debit Card
 Smart Card
 E-Money
 Electronic Fund Transfer (EFT)

9. Credit Card
 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.

10.  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.
 It is usually credit card monthly payment cycle.
 Following are the actors in the credit card system.

11.  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.

12. Credit card payment process
Step Description
Step 1 Bank issues and activates a credit card to customer on his/her request.
Step 2
Customer presents credit card information to merchant site or to
merchant from whom he/she want to purchase a product/service.
Step 3
Merchant validates customer's identity by asking for approval from card
brand company.
Step 4
Card brand company authenticates the credit card and paid the
transaction by credit. Merchant keeps the sales slip.
Step 5
Merchant submits the sales slip to acquirer banks and gets the service
chargers paid to him/her.
Step 6
Acquirer bank requests the card brand company to clear the credit
amount and gets the payment.
Step 6
Now card brand company asks to clear amount from the issuer bank and
amount gets transferred to card brand company.

13. Debit Card
 Debit card, like credit card is a small plastic card with a
unique number mapped with the bank account number.
 It is required to have a bank account before getting a debit
card from the bank.
 The major difference between debit card and credit card
is that in case of payment through debit card, amount gets
deducted from card's bank account immediately and
there should be sufficient balance in bank account for
the transaction to get completed.
 Whereas in case of credit card there is no such
compulsion.

14. Debit cards free customer to carry cash,
cheques and even merchants accepts debit card
more readily.
Having restriction on amount being in bank
account also helps customer to keep a check
on his/her spending.

15. Smart Card
Smart card is again similar to credit card and
debit card in appearance but it has a small
microprocessor chip embedded in it.
It has the capacity to store customer work
related/personal information.
Smart card is also used to store money which
is reduced as per usage.

16. Smart card can be accessed only using a PIN
of customer.
Smart cards are secure as they stores
information in encrypted format and are
less expensive/provides faster processing.
Mondex and Visa Cash cards are examples
of smart cards.

17. E-Money
E-Money transactions refers to situation
where payment is done over the network
and amount gets transferred from one
financial body to another financial body
without any involvement of a
middleman.
E-money transactions are faster,
convenient and saves a lot of time.

18. Online payments done via credit card, debit
card or smart card are examples of e-money
transactions.
Another popular example is e-cash. In case
of e-cash, both customer and merchant both
have to sign up with the bank or company
issuing e-cash.

19. E-Cash (Electronic-cash) Internet Payment
Online payments via debit cards, credit
cards or smart card are the examples of e-
money transactions.
ECash is transferred directly from
customer’s desktop to the merchant’s
site.

20. HOW TYPICAL E-CASH SYSTEM WORKS?

21. E-cash and e-payment systems
E-cash and e-payment systems also have the
advantage of cash, mainly as follows:
 Anonymity (facelessness);
 Not shadowing (investigation);
 Savings on transmission costs;
 Less risk
 Pay flexibility

22. Electronic check (E_cheque) Internet
Payment System

23. E-CHEQUE
 E-Cheque is the result of co-operation
between several banks, government
entities, technology companies and e-
commerce organizations.
 These can be used for small and large
organizations

24. BENEFITS OF ELECTRONIC
PAYMENT SYSTEM
BENEFIT TO
BUYERS
BENEFITS TO
SELLERS

25. • Electronic payment methods provide a wide range of payment options
and enhanced financial management tools through which individuals
can pay for numerous different types of transactions ranging from
parking payments to travel tickets pr payments in foreign currency.
1. Convenience
of global
acceptance
• With electronic payment methods payments can be made over the
phone, on the internet, and through the post and accepted everywhere.
2. Universal
acceptance
• Electronic payment system is safe and secure as it follows strict
encrypted secure system for making payments keeping buyer’s
identity and details completely confidential and reduced liability for
stolen or misused cards.
3. Greater
security

26. • The electronic payment system provides additional
insurance by facilitating disputes resolution in the case of
unsatisfactory receipt of goods and services .
4. Consumer
protection
• E-payment system allow consumers to transfer funds,
purchase stocks, and offer a variety of other services
without having to handle physical cash. Using credit card it
is very easy to make payments.
4. Accessibility
to immediate
credit
• Electronic payment also provides the ability to control
payment for goods and services over time by allowing
buyers to pay at will whenever they want or have sufficient
funds to make payments.
6. Better
control over
payments

27. BENEFITS TO SELLERS
• EPS ensure faster processing of transaction from
verification and authorization to clearing and
settlement . It reduces the visibility of information.
1. Speed and
security
• EPS provides companies freedom from more costly
labour, materials and accounting services hat are
require in paper based processing.
2. Reduces cost
• It leads to better management of cash flow, inventory
and financial planning due to swift bank payment.
3. Efficiency
• When used properly the electronic aspects of purchasing
and prepaid cards can increase internal controls over
high volumes .
4. Better control

28. Risks in Electronic Payment systems:
Customer's risks
 Stolen credentials or password – Dishonest
merchant – Disputes over transaction –
Inappropriate use of transaction details
Merchant‘s risk
 Forged or copied instruments
 Doubtful charges
 Insufficient funds in customer‘s account
 Unauthorized redistribution of purchased items