Contents • What is E-payment? • Types of E-payment 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 tape 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 interchange (EDI) system to send each other bills and notices of payment. E-Payment • Information online offline $
Advantages of E-Payment • • • Increase payment efficiency – Reduce transaction costs – Enable trade in goods and services of very low value Increase convenience 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
Categories 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 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 • Availability (bank system, laws and regulations) • The consideration of size and type of business, type of a target group 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 Postpaid (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 settlement of non-cash transaction 3. Negative real interest rates paid on bank deposit Advantages of cash over credit cards • It is negotiable • Cash is a legal tender • Cash is a bearer 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
Properties of e-cash E-cash must have following four properties: Monetary values: Interoperability Retrievability Security E-cash in Action • E-cash based on cryptographic systems called “digital signature” • • • This method involves pair 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...