Fdb40Module IV E-Commerce Jan 2011

8/6/2019 Fdb40Module IV E-Commerce Jan 2011

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Amity School of Business

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MODULE-IV

E-Commerce and Payment

Systems


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Payment Systems

After creating a Web site that

allows a customer to choose an

item for purchase, a paymentmust be made before the item is

shipped


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Payment Systems When we walk into a real world store we basically have

three ways to pay for an item. These are:

Cash (most common form of payment) Cheques

Payment card (i.e. debit cards, credit cards, smart cards

or automated teller machine (ATM) cards)


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Real World Cash Money as a medium of exchange is known to simplify

transactions, a standard of value to assess the worth of goods and astore of value to facilitate the concept of savings.

In e-commerce, electronic money becomes the primary medium ofexchange. Outside the internet, cash continues to be the mostwidely used form of payment. The main features include:

1. Convenience: Easy to use and easy to handle in small quantities

2. Wide Acceptance: The paper currency is most widely acceptedcurrency because of its stability and durability.

3. Anonymity: No identification is needed to pay in cash

4. No cost of use: For customers who use cash, there are no hiddencost, overhead or processing cost

5. No audit trail: Lack of traceability means you can do what youwant with your cash.


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Electronic Money (E-Money) E-Money is an electronic medium for making payments and is thetrend today. It includes credit cards, debit cards, electronic funds

transfer, etc.

It is a notational money system that may be on-line or off-line,identified or anonymous.

Identified e-money, also called digital cash, contains information

that makes it possible to identify the person who withdrew the

money from the bank. The process generates an audit trail.

Anonymous e-money works like paper money and leaves no audit

trail. With the on-line option, each transaction is verified and

approved by the issuing institution (such as a bank) before payment

is made. Off-line e-money requires no validation.


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Money AnalysisTwo distinct set of properties should be considered in a money transfer.1. ACID test: Atomicity, Consistency, Isolation, Durability.

2. ICES test: Interoperability, Conservation, Economy, Scalability.

ACID Test:1. Atomicity: A transaction must occur completely or not at all.(e.g. a payment of $50 means that the intended recipient's willreceive the $50)

2. Consistency: All parties involved in the transaction must agree to

the exchange. In a customer-retailer relationship involving apurchase, the customer must agree to purchase the goods for thespecific price and the merchant must agree to sell it at that price,otherwise, there is no basis for exchange.

3. Isolation: Each transaction must be independent of any other

transaction and be treated as a stand-alone episode.


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Money Analysis4. Durability: It must always be possible to recover the lastconsistent state or reverse the facts of the exchange. His mean

reversing charges in the event that customers change their mind.

ICES Test:

1. Interoperability: Ability to move back and forth between

different systems.

2. Conservation: How well money holds its value over time and

how easy is to store and access.

3. Economy: Processing a transaction should be inexpensive and

affordable. This property has a direct relationship to the size of the

transaction. A $10,000 purchase costly only $0.90 is process is

economical.


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ICES Test: Scalability: This test refers to the ability of the system to handle

multiple users at the same time.


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Money AnalysisACID Atomicity Consistency Isolation Durability

Cash Yes Yes Yes Yes

Cheque Yes Yes No Yes

Credit

Card

No Yes No Yes

ICES

Inter-

operabilit

y

Conservatio

n

Economy Scalabilit

y

Cash Yes No Yes Yes

Cheque No Yes No Yes

Credit

Card

No N/A No Yes


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Money Analysis Credit cards are:

Not isolated since another transaction might be processed

before a given transaction although the actual date/time of

the transaction was afterwards

E.g. a merchant might take an imprint of a credit card

during the transaction and process it at the end of the

day; while another merchant might process the same

card immediately Not interoperable (since it is difficult for them to move

between different systems)


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Money Analysis Credit cards are (Contd):

Not atomic since although the seller is guaranteed payment

the credit card issuer may lose out if the card is stolen orused fraudulently

Not economic since credit card processing is expensive

especially for transactions of small value


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Requirements for Internet-based Payments Electronic payments are financial transactions made without the use of

paper documents such as cash or checks

Internet-based Payment Systems Models

Electronic currency is the network equivalent of cash Credit and debit cards are the electronic equivalent of checks

Properties important to an electronic payment system:

Acceptability

Ease of integration Customer base

Ease of use and ease of access


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Internet Based Payment MethodsInternet-based payment methods include:

Electronic Currency / E-Cash

Credit Cards

Debit Cards

Smart Cards

E-Wallet


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Electronic CurrencyElectronic Currency is the network equivalent of cash. For example,

electronic funds transfer (EFT) moves cash from one account, such as

the employers payroll account, to another account such as the

employees checking account, regardless of bank type or location.


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Debit Card Debits cards are also known as check cards. Debit cards look like

credit cards or ATM (automated Teller Machine) cards , but they

operate like cash or personal checks. The word debit means subtract

and, as the name suggests, your debit card will subtract money fromyour account each time you use it.

We can use it as an ATM card as well, to withdraw cash from your

account and carry out other ATM transactions.

However, you can't use a debit card to obtain credit. This can be an

advantage since you can only buy what you can afford.


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Credit Card A credit card allows you to borrow money when making purchases.

The money isn't directly debited from your bank account at the time ofpurchase; instead, you are sent a bill every month for the sum total ofyour purchases.

You can choose to either pay your bill in full or in part. If you choosethe latter, you will have to pay interest on the balance.

The ability to obtain credit is both a blessing and a curse. It allows youto fund big purchases when you are short of money, giving you theoption to pay them off over a period of time. However, you must bedisciplined and not spend beyond your means.


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Smart Cards Smart cards are cards that look like credit cards, but store informationon a microprocessor chip instead of magnetic strips. A microchip canhold significantly more information than a magnetic strip. Because ofthis capacity, a single smart card can be used for many different

purposes. Unlike magnetic strip cards which can be read by anymagnetic reader, and are therefore vulnerable to loss or theft, a smartcard can be password-protected to guarantee that it's only used by theowner.

Smart card is a mini-computer without the display screen andkeyboard. Smart cards contain a microchip with an integrated circuitcapable of processing and storing thousands of bytes of electronicdata.

All smart cards have some form of electronic memory that can berewritten by an external card reader. For example, in a payment card,the funds available is sometimes represented on the card itself, and

when the card reader interacts with it to perform a transaction, itdeducts funds a ro riatel


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Smart Cards Uses for Smart Cards Provides users with the ability to make a purchase

Holds cash, ID information, and a key to a house or an office

Three categories of applications Authenticate an individuals claim of personal identification

Authorization for things like drug prescription fulfillment andvoting purposes

Transaction processing Provides encryption and decryption of messages to ensure

security, integrity, and confidentiality

Acts as a carrier of value


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E-Wallet An electronic payment system that operates like a carrier of e-cashand information in the same way a real-world wallet functions. Theaim is to give shoppers a single, simple, and secure way of carryingcurrency electronically.

The procedure for using an e-wallet is easy.1. Decide on an online site where you would like to shop.

2. Download a wallet from the merchants Web site where you intend

to shop. The special form requires the buyer to fill in some personal

information.

3. Fill in the personal information such as your credit card number,name, address and phone number, and where merchandise should be

shipped.

4. When youre ready to buy, click on the wallet button and the

buying process is fully executed. Billing information is filled out

automatically.


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M-Commerce and M-Payment The ability to secure payments over wireless devices like mobilephones and personal digital assistants is the major focus of m-commerce and e-commerce today. The success of m-commercedepends on its payment infrastructure, delivering confidential data

safely and reliably. With the growing mobility of consumersworldwide, the infrastructure also must be capable of handling

payments between authorized parties anywhere and at any time in aconsistent and interoperable manner.

Security and convenience are two important motivations for usingmobile devices for transactions.

The key players are the user, the mobile device, and a mobile device

transaction provider, - a bank, a cellular operator.


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Each transaction goes through three independent processes:

Identification of the user via passwords, biometrics, etc.

Authentication of the transaction via encryption mechanism

like digital signatures

Secure performance of the total transaction process via secure

payment protocols like Secure Electronic Transactions (SET)

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M-Commerce and M-Payment


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Mobile-specific Transaction Architecture

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Guidelines to E-PaymentsGeneral rules & tips to consider before paying for goods & services on

the internet include:

Use a secure Web browser, with up-to-date encryption capabilities.

Ensure the "lock" icon is visible on the browser's status bar.

Read the Web site's privacy policy carefully, to find out how the

website will use or share any personal information you provide.

Figure out the merchant's refund and return policies in advance

of the final purchase. These are tough areas to figure out should you

decide to return merchandise for refund. 25


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Guidelines to E-Payments Investigate the trustworthiness of the merchant before you initiate

a purchase. We should know by now that not every Web merchant is

reliable or long lasting.

Keep a record of all online transaction and check email and other

contacts regularly. After the purchase is finalized, most merchants

will e-mail you a confirmation with specific information that acts like

a receipt.

Review your credit card statements line by line to ensure

authenticity. Be sure to notify the proper issuing bank of any

unauthorized purchases or irregularities in your account. 26

Documents

Fdb40Module IV E-Commerce Jan 2011