Electronic Payment System

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.

Categories of EFT:

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• 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 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:

• Lack of trust in banking system
• Inefficient clearing and settlement of non-cash transaction
• 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

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 better options like:

• Access to multiple accounts (debit, credit, e-cash) on one card.
• Offer various functions ( cash access, bill payment, balance inquiry, fund transfer)
• Multiple access options at multiple location using multiple access device (ATM, PC, PDA or screenphone etc)

Encryption and Credit cards Encryption process starts when credit card information is entered into a browser and sent securely over network between 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 customer’s bank for authorization approval
5. The customer’s 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 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 customer’s account no.
4. OTPP payment server verifies the customer’s 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.

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