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Electronic Payment
Systems
5.1 DEFINITION:
In contract of sale, the merchants sell the goods to
price. In offline world the payments are made with cash orcustomers and customers pay the
through cheque. In online sales,
accepting payment is a crucial aspect of the transaction.
central to E-Commerce as companies look for ways to serve E-Payment systems are becoming
cost. Emerging innovations in the payment for goods customers faster and at lower
and services in electronic commerce
promise to offer wide range of new business
banking and commerce is fueled by opportunities. The growth in electronic
1. Increasing numbers of Internet users.
2. Reduced Operational and
Processing costs due to improvement in Technology.
3. The affordability of high
performance
The term 'Electronic Payment' is a technology.
electronic payment methods available and thecollective phrase for many different kinds of
processing of transactions and their application
within online merchants and
e-commerce websites. !
It is essential for all online
Payments in a fast and secure way.businesses
to be able to accept and
Electronic process electronic
flow, reduce administrative costs and Payment Systems can also increase your cash
to pay Care must be taken when
labor and provide yet another way for
choosing an electronic payment solution as ityour customers
will need to fit
5.2
Electronic Payment System
within constraints of your particular online business and integrate seamlessly within your
website.

PAYMENT
5.2 SPECIAL FEATURESS REQUIRED IN
SYSTEM FOR E-COMMERCE
obvious that there will be use of Electroni
If one is doing E-Commerce then it is
E-Commerce efficiently. Electroni
Payment System. To complete the transactions of
features
Payment should possess the following special
1. Anonymity- Payment system should be
anonymous. E- Payment system should be
the information that can be used to
designed in such a way that it could not be able to provide
trace the personal information of the customer.
2. Security- payment system should be
secure. There should be no harm or threat to the
personal details.
user's credit card numbers, smart card number or other
optimum or minimum for the customer,
3. Overhead Cost- The overhead cost should be
the overhead costs.
so that they can buy easily online without bothering
the payment can be carried out
4. Transferability- This feature states that whether
without the involvement of third party.
5. Divisibility- This means that a payment can be
divided into arbitrary small payments
whose sunm is equal to the original payment.
an ElectronicPayment System
6. Acceptability- The last but not the least feature that
globally.
should possess that the payment method should be supported

5.3 TYPES OF E-PAYMENT SYSTEMS

categories:
Electronic Payment Systems are classified into following
53.1 Digital Cash / Electronic Cash
5.3.2 Currency Servers
53.3 Credit Cards
534 Smart Cards
5.3.5 Debit Cards
5.3.6 Digital Wallets
5.3.7 Electronic Cheque

5.3.1Digital Cash:
a system of purchasing casn
|Digital Cash is also known as E-Cash. Digital Cash is
your computer and then spending
credits in relatively small amounts, storing the credits in
when making electronic purchases over the internet, It is best suited for making real
them
payments over the Internet whereas setting up and using digital cash is morc
time
Electronic Payment Systems
5.3
complicated than using conventional cash. First,
ken is an electronic object with a bank issue tokens to their
customers. A
ake purchases. The merchants unique serial number. Customers then use these tokens to
and payment,|The bank handles the
present these tokens to the customersbank for
tokens as it would a physical cheque. Jt processing
the tokens by comparing the unique
serial numbers.) Merchants can accept prevents reuse of
nurchases or services Once they have collected enough digital cash for
digital cash from
1se it themselves to pay for
purchases or services over the internet or theycustomers, they can
can convert it to
regular cash by presenting it to bank! Digital Cash is also
th

be used to buy small known as MICRO CASH that can

session.
items_online such as an image, a sound clip, a
document and a game
Pyoperties of E-Cash
E-Cash must satisfy some general properties which are as
1. Independence- E-Cash must not
follows
depend on its Existence in any give Computer
System or Location.
2. Reusability- E-Cash should not be
reusable after its first use. For Example, if I get E
Cash for $50 and spend it to buy a Suit, then I
cannot spend this money again.
3. Anonymity- E-Cash cannot provide
information that can be used to trace the previous
owner of the cash. If Ibuy a suit, then there should be
trace it to me. nothing associated with E-cash that
4. Transferability- E-Cash should be easily transferable from one person or party to
another. This should occur without leaving any trace of who has been in possession of this
money.
5. Divisibility- E-cash must be available in several
denominations. It should also be
divisible in a way similar to real cash. For example, 25 digital
quarter and four quarter should equal to a dollar. pennies should yield a digital
6. Secure Storage- E-cash should be
available in such a way so it can be securely stored
at the customer's hard drive or on smart card. It is
possible to transfer this electronic cash
between various types of parties on the Internet.
Howelectronic Cash Works
A customer who wants to use digital cash has to
open an
bank. The digital bank then provides its customers with acçount with the digital
digital cash software. In
order to purchase goods and services, the digital cash has to
be
customer's hard drive. So the customer starts 'e-cash' software, enters theavailable on
the mint coin window and clicks ok buttons. amount in
When digital cash withdrawals are
made, the digital cash user's software calculates how many digital
denominations are needed to pay the requested amount. This coins what1S
of
electronically transmitted to bank that debits customer's account information
for the same
amount. E-Cash Software running on customer's PC now shows the
cash coins stored on the hard disk and is amount o e
available to be spent.
5.4
Electronic Payment Systems

- Bank

1
3
Issue of
Ask for
Digital Payment
Cash

Send Digital
Person A Cash Person B
2

signature from the bank, he or she

When Payer receives the coin with validating
spend it.
removes it from the digital envelope and is free to
customer requests customer to make
VA Merchant who sold some goods to the
software generates and sends such requests.
payment. The merchant's purse
Customer just clicks 'yes' button to make payment.
gets incoming payment. For this he sends the coin to bank for
V Merchant signature honors the coin.
authentication. The bank recognizing its own validating
system that allows users to make transactions
An advantage of E-Cash- E-cash is a his
with e-cash, a user must store information on
overthe Internet in real time. In order to pay a
computer in an electronic wallet or--to avoid computer storage-subscribe to
personal wallet to
like PayPal. To complete a transaction, a user transfers money from his
service his PayPal account to a merchant or
(or from
another user's wallet or to a merchant's wallet
various advantages of E-Cash
user's PayPal account). Following are the
E-cash transactions are advantageous for individual users. User-to-user
1. Users- Consumers
occur without waiting for acheck to clear a recipient's bank account.
transactions
because they avoid paying fees to banks for debit-card use, and they dont
find e-cash handy purchases. With e-cash systems like PayPal and
incur debt on credit cards for small
transfer money easily without having to visit a bank and withdraw cash.
DigiCash, youcan marketing tool
benefit from using e-cash systems as a
2. Merchants- Merchants can also DigiCash markets its program
marketplaces. For example,
to attract customers totheir online with e-cash. she
merchants wanting to keep customers on their site. When a user pays
to
digital wallet toamerchant's digital wallet.
makes an instant transfer of cashfrom her With
offers merchants a free option to add its functionality to their website.
PayPal dollar
merchants pay lower fees than credit-card fees for transactions over a certain
PayPal,
amount.

International Exchange- A big advantage of e-cash is the possibility for international

3. consumel.
If you are a Chinese toy merchant, you can sell a $2 toy toan American
exchange. customer s
transaction is easy to complete with a service like PayPal. Youwill receive your
A payme
the transaction is lower than PayPal's
payment in real time and not pay a fee if
Flectronic Payment Systems 5.5

threshold. Of course the consumer still has to wait for the product to be delivered--but
processing a payment will not delay you in shipping your toy from China to the American
Consumner.

4.Transfer of Money- We can transfer funds, purchase stocks, and offer a variety of
dher services without having to handle physical cash or checks as long as bank is providing
ach services online. The significant effect is we do not have to queue in lines, thus saving
ourtime.

5, Privacy- Consumers will have greater privacy when shopping on the Internet using
electronic money instead of ordinary credit cards.
Disadvatages of E-Cash
E-cash and E-Cash transaction security are the major concern. Frauds on E-Cash
are on the catch recent years. Hackers with good skill able to hack into bank
accounts and illegally retrieve of banking records has led to a widespread invasion
of privacy and has promoted identity theft. There are many other tricks including
through phishing website of certain banks and emails.
2. Money flow andcriminal/terrorist activities are harder to be traced by government.
countries at
With the continued growth of E-Cash, money flow in and out of
immediate speed without being traced will weaken the government's ability to
be
monitor and income in tax. Money laundering and tax evasion could
transaction to
uncontrollable in e-cash systems as criminals use untraceable internet
hide assets offshore.
computer and internet
3. E-Cash is not for everyone. Low incomne groups without resolved so that
issue shallbe
access are unable to enjoythe usage of E-Cash. This
E-Cash could be implemented widely.
in electronic cash
4. There is also a pressing issue regarding the technology involved
records and undependable
such power failures, internet connection failure, loss of
software. These often cause a major setback in promoting the technology.
5.32/Currency Servers
and merchant
The Currency Server is a special term used in EPS whereby the customer
used.jFollowing are the
can exchange the different curencies depending upon the machine
types of Currency Servers
1. ATM Machine
2. POS Terminal
3. Card Reader etc.
The various applications where Currency Servers are used as written below
1. Bank Debit Card
2. Credit Card
3. Telephone Card
4. Employee ldentification Card
5.6 Electronic Payment Systems

53.3Credit Cards:
that
Physically. a credit card is a piece of plastic. 3-I/8 inches by 2-1/S inches in size.
them later. lt
caries information that allows you to make purchases now, and pay tor
contains identification intormation such as photo and signatur and authorizes the person's
which will be billed to him at
named in it to charge purchases to his account charges to
regular intervals. The Credit Cards can be used in following ways:
Aan To withdraw cash tronn ATM Automatic Teller Machine
cards such as merhants have
(b) To purchase goods from Merchants who accept cedit
card readersto process the payment transaction
over intemet through websites like
t ) To make payments for purchases made
Www.amazon.com

What the Numbers Mean

4321 5678 9012 1234

08 98-0831/00
JOSEPH SMITH

Bank Account Check

System Number Number Digit
Number

normally l6 digits as shown in above

The front of Credit Card has lot of numbers
number eg. 5 stands for VISA, 5 is for Master
diagram. The first digit signifies the System
numbers. digit 7 to 15 are for account
Card. In VISA card, digits 2 to 6 are for the bank
number and last digit is calledcheck digit.
Magnetic Stripe:

02000 Hox Stuff Works

Magstripe
Electronic Payment Systems 5.7

The Stripe on the back of the Credit Card is a Magnetic Stripe. It is also called a
Magstripe. The Magnetic Stripe is made up of tiny iron based magnetic particles in a plastic
ike filg. On the back. credit card has Magnetic Stripe and space for signatures of card
holder.
/There are three tracks on the Magstripe. Each track is about one-tenth of an inch wide.
Mostly the Credit Cards use only two tracks to hold information about name, country code,
expiration date, account number, credit limit etc.

sERVICES PROVIDED BY CREDIT CARD

Most consumers tings and think of a credit card as a fairly simple device. WE use them
for buying things, and later our bank sends a bill. The reality is quite a bit more complex. A
credit card is a complex bundle of services
1.Consumer Credit- Most credit cards extend credit to the cardholder. If the cardholder
carries a balance from month to month, Interest charges accrue. Generally, if the cardholder
pays his bill in full each month, no extra charges are made.
2. Immediate Payment- Like cash, but unlike checks, credit card transactions result in
immediate (overnight) payment to the merchant. This rapid payment can reduce the
Merchant's requirements for financing Inventory.
3. Insurance- Unlike cash, there is no substantial risk of loss to the cardholder. Merely
by notifying the card issuer, the cardcan be disabled and even without notification, the card
holder's risk is limited.

4. Financial Clearinghouse- Credit card work even when the cardholder's bank is
different from merchant's bank. This simple and perhaps obvious fact makes commerce much
easier and is in contrast to, for example, checks. A check drawn on a faraway bank is less
likely to be accepted than a local check.
5. Global Service- Credit cards handle multiple currencies automatically. The merchant
deals in his own local currency,and when the credit card bill arrives, the transactions have all
been converted to the cardholder's local currency.
6. Record Keeping- Credit card send periodic statements, which are very useful for
reconciling expenses.
7. Customer Service and Dispute Resolution- When a dispute about the quality of
product or non delivery arises, the cardholder can complain to his card issuer. The merchant's
acquiring bank can withhold or reverse payment to the merchant, and this gives the consumer
considerable bargaining power to obtain satisfaction.
HOW CREDIT CARD WORKS ON INTERNET
When a customer is browsing website, decides to purchase some goods or
services and
Pay by Credit Card, he fills credit card details in the web form. This includes Type of Card,
Numbers, Name of Credit Card holder, his address. Credit Card'sExpiry date etc. But Card is
5.8 Electronic Payment Systems
to take additional
not physically presented to the merchant. This means that merchant has
of the card.
steps to verify that Card's information is being given by true owner
MERCHANTS
BUSINESS

INTERNET

CUSTOMER

Authorize.Net'

MERCHANTS
BANK
ACCOUNT

MERCHANTS
BANK

3
CREDIT
CARD
ISSUER MERCHANT
6 BANKS
5 PROCESSOR
CREDIT CARD
INTERCHANGE

Payment Processing involves two main Phases:

verified that
(i) Authorization Phase: Authorization is the process whereby it is
make the transaction. In
customer's credit card is still active and sufficient credit available to
merchant, it is verified that
online transaction, where credit card is not physically presented to
information on record with
address of customer as mentioned in Web form matches with the
the Credit Card Company.
through
In the Online transaction Credit Card based payments processing is explained
following steps:
and
Customer browses the merchant's web site, selects the items to be purchased
at the website.
input the credit card information in order form that is available
Merchant's data base receives the information and forwards the same to payment
gateway. E.g. VeriSign.
Payment gateway routes the information to the processor. Here, the term Processor
means a large data centre that processes credit card transactions and settle the funds
slectronic PaymentSystems 5.9

to merchants. The processor is connected to merchant's website on behalf of an

acquiring bank via payment gateway.
J Processor sends information to Merchant's Acquiring Bank.
4 Acquiring Bank sends transaction information to card holder's issuing bank.
Customer's issuing bank authorizes or declines and sends the information back to
Merchant's acquiring bank.
/ The acquiring bank forwards the result to processor.
Processor sends result of the transaction to payment gateway.
Payment gateway passes the result information to merchant.
Merchant accept the transaction. Merchant ships the goods to customer if
authorization is positive and customer order is accepted. As the Credit card is not
presented physically to merchant so the merchant risk element is high and merchant
may be defrauded in some cases.
(ü) Settlement Phase: Settlement is the process by which merchant's acquiring bank
provides funds to the merchant. Settle takes place through electronic book keeping procedure
that causes all funds of the transactions made on Internet to be credited to merchant's
setlement bank account. Following steps are followed in this Phase:
(a) Merchant requests the payment gateway to settle the transaction.
(b) Payment gateway sends all the transaction to be settled to the processor.
(c) Processor comes into action:
Processor sends payment details to merchant's acquiring bank and amount get
deposited in to merchant's account.
Processor sends settlement details to customer's issuing bank.
V The issuing bank debits the money transferred to merchant in customer's credit
card statement. Normally customer pays monthly installments to issuing bank.
Banks also charge interest.
rantages of Credit Card
1. Not having to carry cash.
2. Having a record of purchases.
3. More convenient than writing checks for each purchase.
4. Consolidating bills.
Pisadvantages of Credit Card
1. Interest Payments.
2: Credit Cards can be lost or stolen.
Membership fees
Ancreased Chance of Overspending.
6. Financial troubles if card is not managed
properly.
5.10 Electronic Payment Systems

5.3.4 Smart Cards:

credit card, with an embedded
A Smart Card is a plastic card about the size of a
cash payments
microchip that can be loaded with data, used for telephone calling. electronic
to:
and other applications. We may be able to use a smart card
per-callbasis.
Dial a connection on a mobile telephone and be charged on a
provider or to an online
Establish your identity when logging on to an internet access
bank.
trains or buses.
Pay for parking at parking meters or to get on subways,
form.
Give hospitals or doctors personal data without filling out a
Make small purchases at electronic stores on the Web.
Buy gasoline at a gasoline station.
To buy a train ticket.
V To buy a movie ticket.
Have a cup of coffee.
V Prepaid telephone cards.
but has microprocessor built into the
jSmart Card has appearance similar to Credit Card information or both. The data gets
value or
card itself. The data stored on chip relates to based
help of Smart Card reader. Smart Card
processed when smart card is used with the care, banking, entertainment
States for health
System are in use today in Europe and United
transaction applications. Every German citizen uses Smart Card for health insurance.
and
taking off in India.
Recently Smart card technology has started

Javd
Cbettex Acces

of magnetic stripe cards used in Credit

/Smart Card technology overcomes the limitations to moisture, scratches and placement
easily due
Cards. Magnetic Stripe Cards get damaged
near magnetic.
wish to accept Smart Cards install Smart Card reader. Smart Card readers
Merchants who
computers and laptops.
can also be placed on modern personal
FlectronicPayment Systems 5.11

Cards:
Features of Smart
I. The Smart Card mieroprocessor uses limited instructicons set for application like
cryptography.
Smart Card receives it power from external source like a cardreader.
3 SmartCards do not have any magneticstripe as found in Credit Cards.
ASmart Card can be used with smart card reader attached with a personal computer.
Itcan also be used with terminal, which is a self contained processing device. Smart
Card reader is going to be an integral part of Personal Computer in coming days.
5. Smart Cards come having a memory of 8KBs of RAM, 356 KBs of ROM and 256
KBs of Programmable ROM.
6. Smart Cards carry Electronic Purse. It is the money value that is loaded in the
Smart Card's processor and can be used by consumer to make purchases.
Working of Smart Cards:
Customers who use Electronic purse based Smart Card can make purchases to the amount
of money value stored in it. Merchants have to install Smart Card Reader if they want to
accept Smart Cards. A Smart Card works in the following manner:
Consumer loads money in his Smart card by visiting the machine by putting cash or
credit card and desired amount is loaded.
The Consumer inserts his/her Smart Card in to Smart card reader. When a valid
password is entered the amount of goods purchased by him is deducted from the
balance of the card.
V At the desired time, the merchant inserts his own Smart card into the reader, enter a
valid password and the amount of sales is downloaded and credited to his account.
V The Smart Card is taken to bank for immediate Cash Payment.
53.5. Debit Card:
An electronic card issued by a bank which allows bank clients access to their account o
Withdraw cash or pay for goods and services. This removes the need for bank clients to go to
the bank to remove cash from their account as they can now just go to an ATM or pay
Clectronically at merchant locations. This ty pe of card, as a form of payment, also removes
ne need for checks as the debit card immediately transters money fronn the client's account to
the business account.
A Debit Card is u plastic card issued by banks to customers.,The card allows instant
Purchase, removing the correct balance from the user's attached bank account. Debit cards
are distinct from credit cards
in that hey allow purçhase based on available tunds in the
account to be deducted immediately, instead of by using aline of credit that can be repaid at a
later time.
5.12 Electronic Payment Systems
Most Debit Cards have two features:

The ability to purchase items at stores that have automated debit or credit card
machines.

The ability to withdraw cash from your bank account at an automatic transaction
machine (ATM).

Partnering
i4 Group Contractors MaestroO
Limited Woridwide

DEBIT CARD

1 234 56781234 5678

MRANAME

VALID FROM VALID TO

11/06 11/06

identification number (PIN) as a security

Most forms of debit card require a personal
using an automatic purchasing machine at
feature. When removing money from an ATM or verification. In online purchases, the PIN is
user will have to enter their PIN for
store, the
required, but users will often need to enter the three or four digit security code
usually not
back of the card. Additional safety measures common for debit cards include a
listed on the
an electronically reproduced customer
photograph of the card's owner on the front, or
signature imprinted on the card.
Credit Card:
Difference between Debit Card and
to Credit Cards because they carry same
As in todav's time Debit Cards look similar
Though Debit Card and Credit card can be swiped at the checkout counter, both can be
logos.
ATM and both can be used to make payments for the purchases, still there are major
used at
explained as under:
differences between them which are
Accounts: Debit Card holder has a deposit account with a bank i.e. Saving
1, Bank
holder spends his/her own money through the Debit Card. But on the
Account. So the
your savings account.
ContraryCredit Card is not an instrument to use
made for purchase through Debit Card is
2. Spending and Withdrawals: The Payments
account. Whereas, Payments made
deducted from the money deposited in the Deposit someone else. We can also say that.
through Credit Card reflect that you are using money of
amnount borrowed by holder from the banking
amount spent through Credit Card becomes the
institution.
ElectronicPayment Systems 5.13

Installments: Credit Card holders repay the spent money or withdrawn money through
install1ments. Whereas, no installments are to be paid by the Debit Card Holder.
4 Withdra wal Limit: In case of Credit Card, cash limit of credit card is fixed in advance
bank after evaluating the financial position of the person to whom the credit card is
bythe withdrawal limit is also fixed by each bank. But in the case of Debit Card,
beingissued. Daily
withdrawal is limitedto balance in the account. Clause of daily withdrawal limit also applies
toDebitcard.
8 Interest: Interest is paid to on the balance by bank to the account holder having Debit
Rout.interest is charged from the credit card holder on the amount spent by him.
Other Differences:
1. While a debit card looks like a credit card, it works more like cash or a personal
check. With Debit Card you "pay now." With a credit card, you "pay later."
2, Debit means "subtract." When you use a debit card, you subtract money from your
for
own checking or savings account. As with credit cards, you use it in stores
purchases. At check-out, the card reader electronically contacts your bank and
subtracts the amount from your account. The money you have in your bank account
limits how much you can spend. However., if you are not careful in watching your
daily account balance, you can over withdraw your account. Some systems will
allow you to use your debit card when you don't have enough money in your
fees.
account to cover the purchase. This can result in hefty overdraft
bank or other
3. Using a credit card is somnewhat like taking out a loan from a
financial institution. You have to pay back the credit you used each month. If you
pay back less than the full amnount you owe each month, you pay interest on the
amount you don't pay back. The credit card company sets the total amount you can
charge based on your credit history, income, debts and ability to pay.
4. Some cards are dual-purpose credit/debit cards. Before you swipe the card through
the reader, you select a "credit" or "debit" button on the reader. If you select
"debit," you then enter your Personal Identification Number (PIN).If you select
"credit," you are given a credit receipt to sign. "Credit" charges will appear on your
next charge account bill.

Advantages of Debit Card:

It is often easier to get than a credit card.
You don't have to get your check approved or show identification at stores.
You don't have to carry cash, a checkbook or traveler's checks.
Debit cards are more readily accepted than checks, especially when you are traveling.
Youdon't pay interest charges.
Because checkout lines move faster, storeowners like debit cards. They dont worry about
5.14 ElectronicPayment Systems
bouncedchecks or need to take checks or cash to the bank. Debit card processing fees for th.
merchant are generally lower than credit card fees.

Disadyantages of Debit Card:

You nced enough money in your bank account to cover each purchase.
Since you paid for the purchase at checkout and the money is out of your accouDL.
you have less protection if something goes wrong with the purchase. Your bank won't
put money back into your account for items that are never delivered, don't work or
were misrepresented.
You may have bank fees- such as monthly service charges, per-transaction costs or
penalties-for dropping below your required minimum balance. Check with your
bank to find out those extra costs.

You have less protection if your debit card is lost or misused than with a credit card.
How to Protect your Debit Card
Adebit card is like a blank check, so you need to guardthe card and the account number
carefully against loss or misuse. Athief can clear out your bank account before you even
know your card is missing.
If your debit card is lost or stolen, or if you think someone is using it fraudulently. call
your bank immediately. Follow the phone call with a letter.
Thieves don't even need your card. As long as they have your name and card number.
they can order goods by mail or over the telephone. They can wipe out your bank account
before you know the card is missing, or even when you still have the card in your pocket.
Protectyour debit card by holding on to your debit card receipts and check them against your
bank statement each month.

Memorize your PIN but don't keep it with your card. Don't choose one that a smart thief
could figure out, like your phone number, address, birthday or part of your Social Security
number. Never giveyour PIN to anyone.
5.3.6 DígitalWallets/ Electronic Purses:
(Pigital Wallet is also known as E-Wallet or Electronic Purse. Digital Wallet is a regular
wallet that we have in pocket of our pants or handbags. It contains our IDs, Cash, Phone
Card, and Debit Card, Credit card, photo,old receipts and other miscellaneous items. Digital
Wallet Software is also supposed to achieve the same functionality. It issupposed to confirm
the user identity and pay bills with the help of credit card association and banks.
The main attracting feature of Digital Wallet is that the user having a digital wallet docs
not have to fill order form available at the merchant's website. The user just has to click on
the digital wallet or drag the information out the Digital Wallet and drop it into he online
form and E-Wallet automatically fills the order form. You just have to click the send order
Flectronic PaymentSystems 5.15

buttononthe web form. So the user is able to buy and pay with a single click of button on the
webform.
Digital wallets are small electronic packages that automatically supply information such
as credit card numbers and shipping addresses for use in conducting Internet transactions.
Hoo known more broadly as Internet payment services, they provide a means by which
customers may order products and services online without ever entering sensitive information
and submitting it via e-mail or the World Wide Web.
where it is vulnerable to theft by hackers and other
cyber-criminals. Digital wallets thus allow consumers to
make online purchases easily and securely, safeguarding Dstal Wate
the privacy of purchasing habits and financial
information alike.
Traditionally, digital wallets were stored on the
desktops of personal computers. By the early 2000s new
digital wallets were compatible with wireless and other
mobile devices, and were more often stored on a central
server owned by a digital wallet vendor or Internet
service provider (ISP).
similar
Digital wallet vendors maintain relationships with online merchants in a manner
stores. The digital wallet
to those between credit card companies and brick-and-mortar
vendor either charges a commission to the retailer on every purchase involving
the vendor's
the vendor's waliet in their
wallet, or merchants pay the vendor a flat fee for accepting
products, software,
transactions. In turn, businesses and customers mutually agree to use the
as an intermediary for all
and services of a particular digital wallet vendor, which then acts
customers needn't transmit
transactions between the firm and its customers. In this way,
purchase order to the wallet
credit card numbers for each transaction. Instead, they send the
vendor, which simply charges it to the customer's account.
TYPES OFDIGITAL WALLETS:
Mainly there are two types of Digital Wallets:
'e-wallet' is Client Side Based
1. Client Side Digital Wallet: A trade mark named
Digital Wallet. Client side digital wallet works in the following manner:
on the customer's
E-Wallet Software is installed on the PC of the client. So it runs
known as Client side Digital
computer and not on the web server. That is why it is
Wallet.
access e-wallet. After
After installing the Software, user fills name and password to
using to pay for the
this customer files credit card information that he will be
purchase to be made online.
on the customer PC. So
All the information on the E-wallet is encrypted and stored one
information except he
nobody can get the credit card number and other personal
who knows user name and password of E-Wallet.
5.16 Electronic Payment Systems
V Customer opens online shopping site and reaches order form page. The user than
drags the open E-Wallet on the web order form and the software automatically copies
the information from E-Wallet and places it in relevant text boxes and other
components of the order form.
V The customer clicks 'send order' button on the web form and thereby is able to buv
pay for online purchases with just one button click on the order form. Galtor.Com
and E-Wallet are the popular client side digitalwallet vendors.
1. Server Side Digital Wallet: Server based digital wallets reside on Server. Microsoft's
passport is a popular server based digital wallet software. It is quite interesting that certain
digital wallets work at a specific website. For example, E-Wallet provided by America Online
worksonly for shopping at America online website. Therefore the efforts are being made to
develop ECML- Electronic Commerce Modeling Language, a standard for digital wallets. By
using ECML, vendors can design multi useable digital wallets. Server side digital wallet
named passport of Microsoft comply with ECML. ECML was formed in 1998 but it has not
made much progress since then. That is why:; Digital wallets have not yet got much popular
among online shoppers.
 J
8.13 ELECTRONIC DATAINTERCHANGE:
| EDI is the electronic exchange of structured
business information in standard formats
between computers. EDI involves the use of Computer system to
forms, vouchers, and invoices with another computer systenm. The communicate electronic
place in a predefined readable form. The forms so used are transactions must take
machine readable forms. Thus,
EDI eliminates the need for a paper-based system by providing an
electronic link between
companies. This reduces data entry tasks and improves business cycle times. EDI is the
automated exchange of structured business documents such as purchase orders or invoices
between an organization and its trading partners.The structured, machine readable format
allows business documents to be transferred, without re-keying, from an
application in one
location to an application in another location, without human intervention or
interpretation.
In EDI information is passed electronically from one computer
network without having to
be read, retyped or printed. Any company or group which uses EDI is called a trading partner.
EDI is different from E-mail. In E-mail data is not structured. E-mails are read by human
beings, so human to software interface is involved, But in EDIl software to software interface
is involved as structured data is to be read by Software at the receiving end. Examples of
current uses of EDI include:
ATM's in banks
Airline Reservation System
Electronic Payment Systems 5.29

Stock Exchange Transaction

Car Reservation System

5,14 ESSENTIAL ELEMENTS OF EDI

1,. Structured Data- EDI transactions are composed of codes, values and if
necessary
short pieces of text; each element with a strictly defined purpose. E.g. an order has codes for
the customer and product and values such as quantity ordered.
2. Agreed Message Standards- The EDI transaction has to have a standard format. The
standard is not just agreed between the trading partners but is general standard agreed at
national or international level. A purchase order will be one of a number of agreed message
standards.
3. From One Computer System to Another. The EDI message sent is between two
computer apphcations. There is no requirement for people to read the message or re-key it
into a computer system. E.g. the message is directly between the customer's Purchasing
System and the supplier's Order Processing System.
4. By Electronic Means- Usually this is by data communication but the physical transfer
of magnetic tape or floppy disc would be within the definition of EDI. Often networks
specifically designed for EDI will be used.

5.15 CHARACTERISTICS OF EDI

1. EDIrefers to the exchange of electronic business documents, i.e. purchasing orders,
invoices etc between applications. This exchange involves no paper, no human
intervention as well takes place in matter of seconds.
2. EDI requires a network connection between the two companies
exchanging
business documents, called Trading Partners. Traditionally this has required
dedicated leased line or a connection to a VAN- Value Added Network. It is also
known as VPN- Virtually Private Network.
3. In 1965, an innovative Sales manager at American Hospital Supply
Company
created a system to assist a local hospital experiencing inventory problems. This
Electronic Data Interchange greatly improved the accuracy and efficiency for many
hospitals ordering their supplies. Immediately, inaccurate orders disappeared and
delivery times decreased as well.

F,16 ADVANTAGES OF EDI

The benefits provided by EDI are cost reductions from eliminating paper document
handling and faster electronic document transmission. Some of the benefits/ Advantages of
EDI are as follows:
5.30 Electronic Payment Systems
Reduced Data Entry Errors: Since data is not repeatedly keyed, the chances ol
errors are reduced. Entering any information into a computer system is a source of
emors and keying paper orders into the order processing system is no exception. EDI
eliminates this source of errors. On the down side there is no order entry clerk who
might have spotted errors made by the customer- customer will get what the customer
asked tor.

Reduced Procesing Cycle Time: Paper orders need to be printed, enveloped and
sent out by the customer's post room, passed through the postal service, received by
the supplier's post room and input to the supplier's order processing system. To
achieve all this, reliably. in under three days would be to do very well, EDIorders are
sent straight into the computerlelectronic network and the only delay is how often the
supplier retrieves messages from the system. As soon as orders are entered into the
system, they can be processed on the receiving side in seconds. There is a
.considerable saving in the processing timeof document transfer.
Availability of Data in Electronic form:Data from EDI is in electronic form, which
makes it easy to share across the organization.
Reduced Paper work: The entire EDIprocess can be handled without using a single
piece of paper. Sone companies believe that they must have appropriate paperwork
for audits and legal issues.
Reduced Cost: Time is money. Any savings in time are directly linked to savings in
money. As data is not re-enter at each step in the process, labour costs can be
reduced.
Reduced Inventories and better Planning: Companies do not have to keep a safety
stock for the time taken with order processing.' Changes to planning schedules can be
communicated instantaneously
Quick Response- With paper orders it would be several days before the customer
was informed of any supply difficulty, such as the product is out of stock. With EDI
the customer can be informed straightaway giving time for an alternative product to
be ordered or an alternative supplier to be used.
EDI Payment- Payment can also be made by EDI. The EDlpayment system can also
generate an EDI payment advice that can be electronically matched against the
relevant invoices, again avoiding query and delay.
Aceurate Invoicing- Just like orders, invoices can be sent electronically. EDI
invoices have similar advantage to EDI orders in saved time and avoided errors.
However, the major advantage in EDI invoices is that they can be automatically
matched against the original order and cleared for payment without the sort of queries
that arise when paper invoices are matched to orders.
Customer Lock-in - An established EDI system should be of considerable
advantage to both customer and supplier. Switching to a new supplier requires that
Electronic Payment Systems 5.31

the electronig trading system and trading relationship be redeveloped, a

avoided if a switch of supplier is not essential. problem to be
Business Opportunities- There is a steady increase in the number of
customers,
particularly large, powerful customers, that will only trade with suppliers that do
business via EDI. Supermarkets and vehicle assemblers are prime
ready and able to trade electronically can be an advantage when examples. Being
business. competing for new

5,17 LIMITATIONS OF TRADITIONAL EDI

1. Significant initial investment is needed.
2. Restructuring business processes is necessary to fit EDI
3. Long start up time is needed.
requirements.
4. Use of expensive private VAN is
necessary
5. High EDIoperating cost is needed.
6. There is a need to use a convertor to translate
business transactions to EDI
standards.

EDI APPLICATIONS IN BUSINESS

KInternational or Cross Border trade and EDI: EDI has a
very close linkage with
international trade always. AS lot of developments have taken place in the
international trade and lot of agreements have been reached. EDI can be a main field of
asset in
accomplishing trade efficiency needed in this new scenario.The paper which has been the
basis for carrying trade related information is replaced by EDI.
communication is inefficient and costly because of the labour Undoubtedly , paper based
involved, error
associated delays.The problem of paper is significant in national trade but becomesrates and
far more
acute in international trade.) Vast amount of time and
resources
and checking the informatión from one document to another.
are often spent transferring
EDI benefits for international trade includes:
1. Reduced transaction
expenditures.
2. Quicker movement of imported and
exported goods
3. Faster custom clearance and
reduced opportunities for corruption.
4. Improved customer service through
"track and trace" programs that quickly identiy
to many participants in a trade deal -
Transport Agents and so on where thingsCompanies, Customer. Banks, Insurers,
are located or being handled.
h. Financial EDI: Financial EDI
comprises the
Payment information between a paver. pavee and electronic transmission of paymens d
their resnective banks. Financial EDI
allows business to replace the labour intensive
activities associjated with issuing. maiins d
 Electronic Payment Systems
5.32

automated initiation, transmission and

collecting checks through the banking system with
processing of payment instructions.
Benefits of Financial EDI:
financial balances throughout the
1. Fast transmission of information about their
world.
rapid speed for settlement of debi/credit
2. The movement of money internationally at
balances.

Three types of Non-Cash Payment:

1. Checks
2. Electronic Fund Transfer

3. Automated Clearing house transfers.

universal mission.
3. Health Care EDI: Providing good and affordable healthcare is a
and health care industries as
EDI is rapidly becoming a pennant fixture in both insurance
electronic networks.
medical providers, patients and payers increasingly process claims via
costs of healthcare. In
Electronic claim processing is quick and reduces the administrative claims for
to processing
most cases clainms can be sent to payers within 25 hrs. In addition
physician, laboratories.
billing purposes, EDI enables doctors to communicate with other
hospitals and other health care settings. In short, it leads to a better managed care.
Manufacturing/Retail
4. Manufacturing Retailing Procurement using EDI: Both
support Just
procurements are already heavy users of EDI. In Manufacturing, EDI is used to
in Time. In Retailing EDI is used to support Quick Response.
5. Just in Time and EDI: Using Just in Time and EDI, Companies can calculate how
electronically transmit
many parts are needed each day based on the production schedule and
orders and schedules to suppliers everyday or in some cases every 30 minutes. Plants are
delivered to the plant "Just in Time" for production activity. EDI has changed the whole
manufacturing process.
6. Quick Response and ED0: For the customer, Quick Response means better service
and availability of a wider range of products. For the Retailer and Suppliers, Quick Response
may mean survival in a competitive market place. jIn Quick Response, EDI documents
include purchase Orders, shipping notices, invoices, inventory positions, catalogs and order
status. The data generated can be used for e.g. in customer information system to provide
better marketing.

5.19 EDI VERSUS E-MAIL

The relationship between EDI and E-mail can be ambiguous as e-mail systems become
features. The distinction
very sophisticated and incorporate more and more form based
between EDI and E-mail is as follows
Electronic Payment Systems 5.33

EDI E-mail
There is no human involvement in the The data are not necessarily structured to be
processing of information, as the interface has software understandable. Ahuman-to-software
software-to-software orientation. The data are interface is involved at aminimum of one end of
structured in a software understandable way. the interchange.
The interchange is composed by one software The message is composed by a human and/or
for interpretation by another software. If a reply interpreted by a human and/or a reply is
is involved, it is composed by software to be composed by ahuman and /or interpreted by a
interpreted by another software. human.

Questions
SHORT QUESTIONS:
1. What do you mean by E-Commerce Payment Systems?
2. Differentiate between E-Cash and E-Cheques.
3. Classify the Electronic Payment Systems.
4. What is Micro Cash?
5. How does Credit Card work on Internet?
6. Write the working of Smart Cards.
7. Write the features of Debit Cards.
8. Differentiate between Debit Cards and Credit Cards.

9. What are the advantages and disadvantages of Debit Cards?

10. What are Digital Wallets?
11. What are the two types of digital Wallets?
12. Define Electronic Cheque.
13. How can you protect your Debit Card?
14. What are the various legal risks in E-Payment Systems?
15. What are the various Components of an Effective Electronic Payment System?
16. Define SET.
17. Define EDI.
18. What are the advantages of EDI?
19. What are the elements of EDI?
20. What are the features of Smart Card?
21. What are the various parties involved in SET?
22. What are the limitations of Traditional EDI?