04-06-2012, 10:18 AM
E – COMMERCE
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Types of Electronic Payment Systems
Electronic payment systems are proliferating in banking, retail, health care, on-line markets, and even government—in fact, any where money needs to change hands.
Organizations are motivated by the need to deliver products and services more cost effectively and to provide a higher quality of service to customers.
The emerging electronic payment technology labeled electronic funds transfer (EFT).
EFT is defined as “any transfer of funds initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution.
EFT can be segmented into three broad categories:
Banking and financial payments
Large-scale or wholesale payments (e.g., bank-to-bank transfer)
Small-scale or retail payments (e.g., automated teller machines)
Home banking (e.g., bill payment)
Retailing payments
Credit Cards (e.g., VISA or MasterCard)
Private label credit/debit cards (e.g., J.C. Penney Card)
Charge Cards (e.g., American Express
Digital Token-Based Electronic Payment Systems
Electronic tokens are three types:
1.Cash or Real-time
Transactions are settled with exchange of electronic currency.
Ex: on-line currency exchange is electronic cash (e-cash).
2.Debit or Prepaid
Users pay in advance for the privilege of getting information.
Ex: prepaid payment mechanisms are stored in smart cards and electronic purses that store electronic money.
3.Credit or Postpaid
The server authenticates the customers and verifies with the bank that funds are adequate before purchase.
Ex: postpaid mechanisms are credit/debit cards and electronic checks.
Electronic Cash in Action:
Electronic Cash is based on cryptographic systems called “digital signatures”.
This method involves a pair of numeric keys: one for locking (encoding) and the other for unlocking (decoding). (Through public key and private key).
Purchasing E-cash from Currency Servers:
The purchase of e-cash from an on-line currency server (or bank) involves two steps:
Establishment of an account and
Maintaining enough money in the account to bank the purchase.
Some customers might prefer to purchase e-cash with paper currency, either to maintain anonymity or because they don’t have a bank account.
Smart Cards & Electronic Payment Systems
Smart cards have been in existence since the early 1980s and hold promise for secure transactions using existing infrastructure.
Smart cards are credit and debit cards and other card products enhanced with microprocessors capable of holding more information than the traditional magnetic stripe.
The smart card technology is widely used in countries such as France, Germany, Japan, and Singapore to pay for public phone calls, transportation, and shopper loyalty programs.
Designing Electronic Payment systems
Brokers. A “network banker”-someone to broker goods & services, settle conflicts, & facilitate financial transactions electronically-must be in place
Pricing. One fundamental issue is how to price payment system services. For e.g., from cash to bank payments, from paper-based to e-cash. The problem is potential waste of resources.
Standards. Without standards, the welding of different payment users into different networks & different systems is impossible.