BBA-VI Semester

BBAN606
Fundamental of E-
Commerce

UNIT III NOTES

Unit III: Electronic Payment Systems: E-Cash, e-cheque, credit cards, debit cards, smart cards,
E-Banking,Manufacturing information systems.

Electronic Payment Systems

E-commerce sites use electronic payment, where electronic payment refers to paperless monetary
transactions. Electronic payment has revolutionized the business processing by reducing the
paperwork, transaction costs, and labor cost. Being user friendly and less time-consuming than
manual processing, it helps business organization to expand its market reach/expansion. Listed
below are some of the modes of electronic payments −

• Credit Card
• Debit Card
• Smart Card
• E-Money
• Electronic Fund Transfer (EFT)

Ecash(digital cash)

Ecash is a computer generated internet based system which allows funds to be transferred and
items to be purchased by online payment.

DEFINITION of 'eCash'

An Internet-based system that allows funds to be transferred anonymously. Similar to credit

cards, eCash was free to users, while sellers paid a fee. Because of security concerns, eCash
remains more of an idea and less of an actual payment system.

Digital cash is a system of purchasing cash credits in relatively small amounts, storing the credits
in your computer, and then spending them when making electronic purchases over the Internet.
Theoretically, digital cash could be spent in very small increments, such as tenths of a cent (U.S.)
or less. Most merchants accepting digital cash so far, however, use it as an alternative to other
forms of payment for somewhat higher price purchases. There are several commercial
approaches to digital cash on the Web. Among these are eCash from DigiCash and Cybercash.

Digital cash can also be stored on an electronically sensitive card.

BREAKING DOWN 'eCash'

eCash uses blind signatures (a type of digital signature where the message's content cannot be
seen before it is signed) so no link could be made between withdrawal and spend transactions.
The system was used by one bank in the United States, the Mark Twain bank; however, the
system was dissolved in 1997 after the bank was purchased by Mercantile Bank. eCash was a
trademark of DigiCash, a firm that went bankrupt in 1998 and was sold to eCash Technologies.
eCash Technologies was acquired in 2002 by InfoSpace.
e-Cheque

What is e-Cheque?

e-Cheque is an electronic counterpart of paper cheque. It turns the cheque writing and deposit
processes totally online. Paying with e-Cheques will be an entirely paperless experience.

An e- Cheque is an electronic document which substitutes the paper check for online
transactions. Digital signatures (based on public key cryptography) replace handwritten
signatures.

Definition of 'Electronic Cheque' A form of payment made via the internet that is designed to
perform the same function as a conventional paper cheque. Because the cheque is in an
electronic format, it can be processed in fewer steps and has more security features than a
standard paper cheque. Security features provided by electronic cheque include authentication,
public key cryptography, digital signatures and encryption, among others.

The e-Cheque is compatible with interactive web transactions or with email and does not depend
on real-time interactions or on third party authorizations. It is designed to work with paper
cheque practices and systems, with minimum impact on payers, payees, banks and the financial
system. Payers and payees can be individuals, businesses, or financial institutions such as banks.
E- Cheques are transferred directly from the payer to the payee, so that the timing and the
purpose of the payment are clear to the payee

The payer writes an e-Cheque by structuring anelectronic document with the information legally
required to be in a cheque and digitally signs it. The payee receives the e-Cheque over email or
web, verifies the payer's digital signature, writes out a deposit and digitally signs it.

The payee's bank verifies the payer's and payee's digital signatures, and then forwards the
cheque for clearing and settlement The payer's bank verifies the payer's digital signature and
debits the payer's account

PAYER PROCESS In order to send a cheque, the client simply fills out a standard e-cheque.
The system allows clients to define common payees in order to speed the e-cheque creation
process. When the cheque has been written it can beeasily transferred from the payer to the
payee over a secure e-cheque channel.

This secure channel will be established between the payer and the payee before the transaction
begins. The e-cheque is automatically signed by the user using his private key based on RSA
algorithm and SHA-128; this ensures the authenticity and the integrity of the e-cheque

PAYEE PROCESS When the payee receives the e-cheque he can open and view it using the e-
cheque system. In order to deposit the cheque, the payee simply connects to the bank (which is
expected to provide e-cheque services) and uploads the e-cheque to his bank account.
 Once the bank receives the e-cheque, it will decrypt it using the e-cheque system. After clearing
(i.e. verifying both the cheque signature and account balance) with the payer’s bank, the payee’s
account will be credited accordingly.

BENEFITS OF E-CHEQUE TO CUSTOMERS;No physical movement of cheques so no fear

of loss of cheque in transit. Quicker clearance; within 3-4 working days. Its more secured
than physical cheques. Decrease errors and fraud. eCheques reduce the potential for errors
and fraud because fewer people handle them. They can serve corporate markets. Firms can use
them in more cost-effective manner

Benefits to Bank Reduce the risk associated with paper clearing Superior verification and
reconciliation process No geographical restrictions No physical movement of cheques- it
saves cost and time for banks. No chance of cheque dishonor- The risk is taken care of by the
accounting server, which will guarantee that the cheque would be honoured.

Well suited for clearing micro payments Reduce processing costs by up to 60%. E-cheques
require less manpower to process and don’t come with any deposit or transaction fees. As a
result, processing an e-cheque is generally much cheaper than processing a paper check or credit
card transaction.

Work smarter and greener.; Electronic check conversion is easy to set up. It relies on the
trusted ACH Network. And eChecks help reduce the more than 67.4 million gallons of fuel used
and 3.6 million tons of greenhouse gas emissions created by transporting paper checks ACH –
Automated Clearing House.

DRAW BACKS

Customer education Chances of misuse, hacking etc Need a different infrastructure

Unauthorized transactions becomes challenge for banks Problem could be when there is more
than one signer or endorser. Transactions based on internet- network failure may lead to
delay in payment. Both payer and payee should have e-cheque facility.

In India the e-cheque facility is now replaced by CTS- Cheque Truncation System 2o1o. Where
there will be a physical cheque which will be converted into e-cheque by scanning and
transferred for clearance. And the time taken for clearance is 24hrs.

Key features

➢ It is in PDF format. It has similar layout of a paper cheque with the display of a
➢ standardized e-Cheque logo on the face of e-Cheque
➢ It has the same legal status as paper cheque
➢ It is not negotiable nor transferable
➢ It must be addressed to a payee and deposited to the payee’s bank account only
Benefits

➢ It can be issued anytime anywhere

➢ It removes the need for physical delivery and deposit
➢ It carries enhanced security features
➢ It removes the need of physical cheque book. The e-Cheque book is kept by the paying
bank
➢ It is environmentally friendly

How secure is e-Cheque?

➢ The payer is required to pass through Two Factor Authentication (2FA) before issuing an
e-Cheque,the e -Cheque issuance record kept by the paying bank provides an additional
channel for the bank to verify the e-Cheques

➢ Adoption of Public Key Infrastructure (PKI) technology in the digital signature of

➢ e-Cheque prevents e -Cheque tampering

➢ Centralized presentment checking mechanism avoids multiple deposits of e-Cheques

➢ The payer may consider encrypting an e-Cheque before delivery to further

➢ improve security

How to issue e-Cheque

Before issuance of e-Cheque

Sign up for the e-Cheque service through your Internet banking account and apply for a digital
certificate for the purpose of e-Cheque signing

Obtain the payee’s agreement and the latest email address for receiving e-Cheques
Some paying banks may offer to apply, renew and keep custody of the digital certificate on
behalf of the payers.

The application and renewal can be completed online in a short period of time.
Issuance of e-Cheque

Step 1 – Log onto your Internet banking account

Step 2 – Select e-Cheque Issuance service
Step 3 – Input the payee name, cheque date and cheque amount in figures
Step 4 – The bank will generate the e-Cheque with the digital signature based on the payer’s
given instruction
Step 5 – Download and send the e-Cheque to the payee through electronic means (e.g. by email)
Some paying banks may send a SMS notification to the registered mobile number of the
payerafter an e-Cheque is issue
Smart Card

Smart card is again similar to a credit card or a debit card in appearance, but it has a small
microprocessor chip embedded in it. It has the capacity to store a customer’s work-related and/or
personal information. Smart cards are also used to store money and the amount gets deducted
after every transaction.

Smart cards can only be accessed using a PIN that every customer is assigned with. Smart cards
are secure, as they store information in encrypted format and are less expensive/provides faster
processing. Mondex and Visa Cash cards are examples of smart cards.

A smart card is a security token that has an embedded chip. Smart cards are typically the same
size as a driver's license and can be made out of metal or plastic. They connect to a reader either
by direct physical contact (also known as chip and dip) or through a short-range wireless
connectivity standard such as Near Field Communication (NFC).

A smart card is a security token that has an embedded chip. Smart cards are typically the same
size as a driver's license and can be made out of metal or plastic. They connect to a reader either
by direct physical contact (also known as chip and dip) or through a short-range wireless
connectivity standard such as Near Field Communication (NFC).

The chip on a smart card can be either a microcontroller chip or an embedded memory chip.
Smart cards are designed to be tamper-resistant and use encryption to provide protection for in-
memory information. Those cards with a microcontroller chip have the ability to perform on-card
processing functions and can add, delete and manipulate information in the chip's memory.

The first mass use of smart cards was the Télécarte, a telephone card for payment in French pay
phones which launched in 1983. Smart cards are now ubiquitous and are fast replacing magnetic
stripe card technology, which only has a capacity of 300 bytes of non-rewriteable memory and
no processing capability.

There are various international standards and specifications that cover smart card technology,
with some focused on industry-specific applications. In the United States, smart card technology
conforms to international standards (ISO/IEC 7816 and ISO/IEC 14443) and is championed by
the Smartcard Alliance.

Various attacks are possible against smart card technology that can recover information from the
chip. Differential power analysis can deduce the on-chip private key used by public key
algorithms such as RSA while some implementations of symmetric ciphers can be vulnerable to
timing attacks or differential power analysis as well. Smart cards can also be physically
disassembled to gain access to the on-board microchip.

Eurosmart, a trade organization for smart security based in Brussels, forecast that nearly 9.8
billion devices using smart card technology will ship in 2016, with financial services driving
demand due to the need to migrate to EMV payment cards -- cards equipped with a chip instead
of just a magnetic stripe. The arrival of the Internet of Things and 4G wireless communications
as well as machine-to-machine applications like Apple Pay will drive demand for smart card
technology for some time to come.

E-Money

E-Money transactions refer to situation where payment is done over the network and the 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.

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

Electronic Fund Transfer

It is a very popular electronic payment method to transfer money from one bank account to
another bank account. Accounts can be in the same bank or different banks. Fund transfer can be
done using ATM (Automated Teller Machine) or using a computer.

Nowadays, internet-based EFT is getting popular. In this case, a customer uses the website
provided by the bank, logs in to the bank's website and registers another bank account. He/she
then places a request to transfer certain amount to that account. Customer's bank transfers the
amount to other account if it is in the same bank, otherwise the transfer request is forwarded to
an ACH (Automated Clearing House) to transfer the amount to other account and the amount is
deducted from the customer's account. Once the amount is transferred to other account, the
customer is notified of the fund transfer by the bank.

Credit Cards

What is the meaning of Credit Card?

A credit card is a small plastic card that is associated with you. It looks very similar to a debit
card but it works in a different way. Whilst a debit card is associated with your bank account and
lets you pay for things using that money, and draw the money out of your account when you
wish, a credit card represents money that has been loaned to you.

Credit cards come with credit limits: this is the maximum amount of money that has been loaned
to you by the bank or the credit card company.

Credit cards also accrue interest on all of your purchases. As soon as you use some of your credit
to make a purchase, you will start accruing interest on that purchase.
When you first get a credit card, you can feel as if you are being given free money. But, you
have to pay back all of the money that you use from your credit limit back at a later date – plus
interest. This is why credit cards must be used very wisely, and it is best not to use them at all.

A credit card can be defined as a card (usually plastic) that financial institution issue to their
customers so that they can access credit facilities. The card holder can make payment on credit at
some point of sale.

Credit cards contain information about your identity and your credit account at bank. They are
designed so that this information can be read in ATMs and by electronic card readers in shops.
The information can also be used online.

Credit cards incur some interest which starts a month after the payment was made. Most banking
institutions issue these cards to facilitate an increase in revenue and customer loyalty.

How are the credit cards read? These cards contain magnetic strips and also shiny metallic
chips. When the strip or the chip comes into contact with an electronic card reader or inserted
into an ATM, they are ‘read’ by the technology. Most credit cards require you to enter a PIN
(personal identification number). When they are used online, credit cards are used slightly
differently: here, you just need to enter your card’s long number, security code and usually the
expiry date in order to make a purchase.

After the expiry date of your credit card, you will no longer be able to use it.

Credit cards are prevalent in the world as many people prefer using them due to some of the
advantages that have. Below are the advantages and disadvantage of the use of these cards.

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. 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.

• 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.

Credit Card Payment Proces

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

Advantages

1. Enables the holder to pay on credit. This card enables the card holder to make payment at
the point of sale even when they don’t have money in their bank account.

2. Helps in handling transaction disputes. Most institutions that give credit cards will come to
your rescue when there is disputed transaction.

3. The card is convenient to use for large amount of money. Unlike the use of cash, which
limits the amount you can pay; the credit card can be used to pay large sums of money with no
limitation.

4. Helps in accessing instant loans. When you run out of cash and you don’t know where to get
some money, a credit card will help to get a short-term loan.

5. It’s light to carry around. The weight of the card is negligible hence you will conveniently
when travelling.

6. Helps in tracking your credit transactions. You can get the transactions you have made by
requesting for a statement, hence clarifying where you have doubts.

7. Increases customer loyalty. The customer tends to love a place they can get credit facilities.
This means that they will remain loyal to the financial institution.

8. Helps the customer to get Discounts. Many credit card institutions offer discounts to attract
people to use their cards. The discount is based on the amount you are purchasing.

9. Provides security from theft. Credit cards cannot be used by any other person without the
holders’ permission making it difficult for your money to be stolen.

10. They help in time-saving. You don’t have to waste time going to the ATM to withdraw
money to make a payment.
Disadvantages

1. They are prone to fraud. Many people have had their cards hacked and large amounts of
money added to their accounts.

2. Promotes impulse buying. As long as you have the card, you are prone to buying what you
had not planned for. Further, you forget to keep control over your expenses while paying through
a credit card.

3. Convenient for the literate in the society. The card is given to the rich and the literate living
out the poor and the illiterate.

4. Can only be used in selected points of sale. These cards are not accepted in all points of sale
meaning you will be inconvenienced is some shops or supermarkets. Thus, you should always
carry some cash, even if you plan to use a credit card.

5. They charge some interest on the card. When you pay money by using a credit card, you are
in reality burrowing money from the bank. On the burrowed amount, the bank or the issuing
institution will charge interest. This means that you will have to pay more than the amount you
used.

6. There are increased chances of financial institutions losing money. If the customer is
unable to pay the debt, the financial institution can incur losses.

7. Promotes bad credit. Since one can access loans instantly, many people may take too much
money that they can’t be able to pay in/on time.

8. More cost in case it is lost. When you lose the card, you will have to pay some amount of
money to get a replacement.

9. Used to pay only large amounts of money. It’s not suitable for payment of a small amount in
your neighborhood shop.

10. Promotes excessive use of money. Since you cannot see the money being depleted, there are
chances that you will misuse your money thinking that you still have more.

Conclusion: Credit cards are good to use but one has to be careful when doing so. Keep it safe
and ensure nobody knows your PIN number to safeguard your money.

Debit Card
A debit card is a small plastic card that you keep in your wallet. The card is associated with
your bank account and with you by means of identifying information such as a long number on
the front, a security number on the back, your name and your signature.

A debit card allows you to pay for goods in shops using an electronic card reader. It also allows
you to withdraw money from your bank account using an ATM, or by going in to the bank and
showing the cashier your card.

With a debit card, you can only withdraw money that is actually in your account. You may have
an overdraft which enables you to withdraw additional money over and above your positive
balance, but this will typically be associated with charges. If you make several withdrawals in a
short space of time, your bank may choose to honor them and place you over your limit,
incurring heftier charges.

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 a debit card and a credit card is that in case of payment through
debit card, the amount gets deducted from the card's bank account immediately and there should
be sufficient balance in the bank account for the transaction to get completed; whereas in case of
a credit card transaction, there is no such compulsion.

Debit cards free the customer to carry cash and cheques. Even merchants accept a debit
card readily. Having a restriction on the amount that can be withdrawn in a day using a
debit card helps the customer to keep a check on his/her spending

Major Differences between Debit and Credit Cards

Debit and credit cards look similar: both are plastic cards that enables you to make payments.
You can use it online or in store.

However, whilst with a debit card you pay immediately from your own bank account, with a
credit card, you pay using money that the credit card company or bank has loaned you and then
pay the company or bank back later.

Though they may look very similar they are different in several key ways. The major differences
between Debit and Credit cards are given below:

1. Different etymologies. ‘Debit’ comes from the Latin for ‘to owe’. ‘Credit’ comes from the
Latin for ‘to believe’.

2. Payment from your money vs payment on credit: Debit cards make payments using money
you actually have in your account. Credit cards make payments from money that has been loaned
to you by a bank or credit company.
3. Different interest rates. Credit cards usually have higher interest rates than debit cards. You
may pay interest on a debit card if your money is coming from your overdraft, otherwise you will
not usually pay interest on payments.

4. Different charges involved. With a debit card, you can withdraw more than your bank-
balance if you are given over draft facility. In that case, you may be charged for going over your
overdraft. However, with a credit card, you can be charged for exceeding your credit limit. In
addition there are penal charges involved in using a credit card: if you are late in paying your
credit card bill, you will have to pay additional money.

5. Usefulness. Credit and debit cards are useful in different ways. Credit cards can be good for
getting you out of a sticky situation – for instance if you are hit by a bill before payday. Debit
cards are useful for making everyday payments without fear of higher interest rates.

6. Repayment. When you pay with a credit card, you need to repay the bank or credit company
on a future date. This is not the case with a debit card – you have paid with your own money.

7. Limits on spending: With a debit card, the limit on how much you can spend is usually
however much money is in your account (including any overdraft facilities). With a credit card,
the limits will be set by the credit company.

8. Credit rating: Overspending on your credit card or missing repayments can harm your credit
rating. Overspending on your debit card may incur charges if you go over your overdraft limit
but it does not usually harm your credit rating.

Conclusion: A credit card may seem attractive, but it is important to bear in mind factors like
late payment fees and higher interest rates.

Manufacturing Information Systems

A management information system designed specifically for use in a manufacturing

environment. The role of manufacturing information systems is to support manufacturing
operations by providing relevant and timely information for decision making at different levels
of the company hierarchy. It also automates and secures the sequencing of manufacturing and
business processes.

Management information system type targeting any production becoming computerized.

Managers need to plan and direct operations within the company and use modern management
information systems designed to collect and present the necessary data that is typically
computerized.
What is MIS?

Manufacturing Information Systems are powerful software platforms capable of tracking the
progress of raw materials into finished goods. An integrated MIS enables the control of multiple
variables—from inputs to support services, to machines, and personnel—in real time so that
management both on the ground and in head offices can optimize production and eliminate
inefficiencies. These systems do the essential work of providing key decision makers the
information they need to facilitate the smooth functioning of operations and to enhance
productivity. So how can MIS help your company?

The Benefits of MIS

The number of ways in which MIS can assist your company is virtually unlimited. These
information management systems are highly adaptable to industry and user needs, so the ways in
which MIS may serve your particular industry are varied.

Benefits of MIS implementation might include:

• Streamlined product production

• Reduced costs, waste, and re-work
• Increased efficiency in set-up times
• Assessment of correct order priority
• Assignment and reassignment of inventory as necessary
• Evaluation of optimal times to turn machines on and off
• Scheduling and rescheduling equipment
• Embedding best practices
• Improving reaction time within the supply change management process
• Making and measuring parts
• Assigning personnel
• Moving inventory from one workstation to another
• Managing suppliers
• Embedding lean and six sigma thinking into your manufacturing process
• Improving efficiency
• Increasing transparency in record-keeping processes
• Audit preparation
• Increasing total output

Top 10 MIS options and a summary of their pros and cons:

1. E2 Shop System
Pros: Designed specifically for job shops and make-to-order manufacturers

• User friendly and easy to use

• Ability to enter information on the fly

Cons: Some reports give too much information

 • Reports need more options to customize the experience
• Does not include project management, HR management, or distribution management

2.ArenaPLM
Pros: Enables engineering and manufacturing teams to extend their supply chains

• Simplifies billing of materials

• Solution for companies of all sizes
• Balance of flexibility and control
• HIPAA compliant

Cons: Offers limited reporting

• Works only for specific needs in a specific industry

3. EnterpriseIQ MES

Pros: User friendly

• Real time makes it easy to manage what’s going on at any given moment
• Traceability

Cons: BOM architecture is limited

• Limited report options

4. Fishbowl Manufacturing Software

Pros: Excellent customer support

• Simple, intuitive software

Cons: Limited capabilities

• Limited flexibility

5. Exact JobBOSS Software

Pros: Easy to learn

• Flexible database

Cons: Allows users to delete data which can affect audit trails

• Reports could be more complex

6. Datacor Chempax Software

Pros: Can handle a wide range of information

• Can export to Excel

• Ability to copy orders
• Specific to the chemical industry

Cons: Reporting can be difficult to learn

• Sales reports are limited

• Specific to the chemical industry

7. Global Shop Solutions One-System ERP

Pros: All-inclusive

• Includes payroll and accounting functions

• Flexible product

Cons: Interface is confusing

• Hard to learn
• Too many capabilities

Cost: Varies based on users/industry/modules chosen

8. abas ERP

Pros: Can watch flow of purchase order

• Excellent search capabilities

• Easy to link to other databases

Cons: Source coding is in German

• Training modules are confusing

• You can’t void, delete, or make corrections after posting

9. ECi M1

Pros: Very intuitive

• Allows companies to tweak many features to their specific needs

• Integrates well with other programs
Cons: Slow performance

• Initial data conversion can be tricky

• Scrap tracking is difficult

10. QT9 Quality Management

Pros: Custom configuration is simple

• Offers excellent traceability

• Adjustable pricing structure

Cons: Vendor management system lacks functionality

• Excessive emails
• Training modules are inflexible