E payment systems

UNIT IV
E-Payment Systems
By Dr. Dhobale J V
Associate Professor
School of Engineering & Technology
RNB Global University, Bikaner
RNB Global University, Bikaner. 1

Objectives
 Models and methods of e–payments.
 Payment gateways, online banking.
 Risks involved in e-payments.
 Digital signatures.
2RNB Global University, Bikaner.

Introduction
 The electronic payment system has grown
increasingly over the last decades due to the
widely spread of internet-based banking and
shopping.
 As the world advance more on technology
development, a lot of electronic payment
systems and payment processing devices
have been developed to increase, improve
and provide secure e-payment transactions
while decreasing the percentage of check and
cash transaction.

Introduction - E-Payment
 E-payment system is a way of making
transactions or paying for goods and services
through an electronic medium without the use
of check or cash. It’s also called an electronic
payment system or online payment system.

Benefits of E-Payment
 eCommerce websites use an e-payment
system to make it easier and more convenient
to pay for their customers. It comes with many
benefits, which are:
1. More sales by reaching a new audience.
2. More effective and efficient transactions.
It’s because these are made just in minutes
(even with one-click), without wasting
customer’s time.
3. It also lowers the whole transaction cost.

Benefits of E-Payment
4. Convenience. Customers can pay for items
on e-commerce website at anytime and
anywhere. They just need an internet
connected device. As simple as that!
5. Today it’s easy to add payments to the
website, so even a non-technical person
may implement it in minutes and start
processing online payments.
6. Payment gateways and payment providers
offer highly effective security and anti-fraud
tools to make transactions reliable.

E-Payment Methods
 E-Commerce or Electronics Commerce sites
use electronic payment where electronic
payment refers to paperless monetary
transactions.
 Some of the modes of electronic payments are
following.
1. Credit Card
2. Debit Card
3. Smart Card
4. E-Money
5. Electronic Fund Transfer (EFT)
6. Other Methods 7RNB Global University, Bikaner.

E-Payment Methods
1. Credit Card: Payment using credit card is one of
most common mode of electronic payment.
 Credit card is small plastic card with a unique
number attached with an account. It has also a
magnetic strip embedded in it which is used to
read credit card via card readers.
 When a customer purchases a product via credit
card, credit card issuer bank pays on behalf of the
customer and customer has a certain time period
after which he/she can pay the credit card bill.
 It is usually credit card monthly payment cycle.
 Following are the actors in the credit card system.

E-Payment Methods
1. Credit Card:
1. The card holder – Customer.
2. The merchant - seller of product who can
accept credit card payments.
3. The card issuer bank - card holder's bank.
4. The acquirer bank - the merchant's bank.
5. The card brand - for example , visa or
mastercard.

E-Payment Methods
1. Credit Card Payment Process:

E-Payment Methods
2. Debit Card: Debit card, like credit card is a small
plastic card with a unique number mapped with the
bank account number.
 It is required to have a bank account before getting a
debit card from the bank.
 The major difference between debit card and credit
card is that in case of payment through debit card,
amount gets deducted from card's bank account
immidiately and there should be sufficient balance in
bank account for the transaction to get completed.
Whereas in case of credit card there is no such
compulsion.

E-Payment Methods
2. Debit Card: Debit cards free customer to carry cash,
cheques and even merchants accepts debit card
more readily.
 Having restriction on amount being in bank account
also helps customer to keep a check on his/her
spending.

E-Payment Methods
3. Smart Card : Smart card is again similar to credit
card and debit card in appearance but it has a small
microprocessor chip embedded in it.
 It has the capacity to store customer work
related/personal information. Smart card is also used
to store money which is reduced as per usage.
 Smart card can be accessed only using a PIN of
customer.
 Smart cards are secure as they stores information in
encrypted format and are less expensive/provides
faster processing.
 Mondex and Visa Cash cards are examples of smart
cards.

E-Payment Methods
4. E-Money: E-Money transactions refers to situation
where payment is done over the network and amount
gets transferred from one financial body to another
financial body without any involvement of a
middleman.
 E-money transactions are faster, convenient and
saves a lot of time.
 Online payments done via credit card, debit card or
smart card are examples of e-money transactions.
 Another popular example is e-cash.
 In case of e-cash, both customer and merchant have
to sign up with the bank or company issuing e-cash.

E-Payment Methods
5. Electronic Fund Transfer: It is a very popular
electronic payment method to transfer money from
one bank account to another bank account. Accounts
can be in same bank or different bank.
 Fund transfer can be done using ATM
AutomatedTellerMachine or using computer.
 Now a day, internet based EFT is getting popularity. In
this case, customer uses website provided by the
bank.
 Customer logins to the bank's website and registers
another bank account. He/she then places a request
to transfer certain amount to that account.

E-Payment Methods
5. Electronic Fund Transfer:
 Customer's bank transfers amount to other account if
it is in same bank otherwise transfer request is
forwarded to ACH AutomatedClearingHouse to
transfer amount to other account and amount is
deducted from customer's account.
 Once amount is transferred to other account, customer
is notified of the fund transfer by the bank.

E-Payment Methods
6. Other Methods:
a. Cash on delivery – CoD has emerged as one of the most
sought after services for e-commerce entities and it is
reported that in some cases as high as 50 per cent of orders
are placed with various online retailers with this payment
option, while the remaining opt for credit card or bank
payments. In India, many customers tend to prefer CoD as
the online payment modes are yet to catch up in many parts
of the country.
b. Reward Points – Some other more indirect ways of online
payments are rewards points. On certain things that are
purchased by a person, a number of rewards points will be
awarded which will get added to the buyers account. In the
next transaction, the buyer can choose to pay for their next
purchase using the accumulated rewards points, which will
replace what they would otherwise be paying as money.

E-Payment Methods
6. Other Methods:
c. Mobile Money – Out of India’s 1.2 billion people, only a
small percentage have bank accounts. Amongst that
massive unbanked population, many hundreds of millions
have mobile phones, and for them, mobile money is likely to
be hugely beneficial. Even for smaller transactions, where
credit cards are not accepted, it might be simpler to just hand
over cash. But if you don’t have sufficient cash, then
mobilemoney becomes useful. However, mobile money
would be convenient to buy a movie ticket or pay your utility
bills on your phone, where otherwise you might have to key
in your entire credit card number, CVV number, etc, every
time you make a payment.

E-Payment Methods
6. Other Methods:
c. Mobile Money –It’s meant for transactions between Rs 50 –
Rs 500 to buy things like games, music, ebooks, and virtual
goods in games, and where people may not want to use
credit or debit cards In India, this is a developing payment
option and still evolving in terms of regulations and
guidelines. As on date the main method to pay for products
using your mobile is still linked to your bank account.
Payments using mobile carrier billing ie where your
payments are deducted from your mobile prepaid balance or
billed to your postpaid account are still restricted to services
provided through the mobile operator eg for value added
services. Mobile carrier billing has not yet started for
ecommerce transactions though this is expected soon .

Payment Gateways
 A payment gateway is an e-commerce application
that authorizes payments for e-businesses, online
retailers, bricks and clicks, or traditional brick and
mortar businesses.
 It is the virtual equivalent of a physical point of sale
terminal located in most retail outlets.
 Payment gateways encrypt sensitive information,
such as credit card numbers, to ensure that
information passes securely between the customer
and the merchant.

Payment Gateway - Working
 A payment gateway facilitates the transfer of
information between a payment portal (such as a
website, mobile phone) and the Front
End Processor or acquiring bank.
 Here is a step by step guide detailing how Payment
Gateways work:

Payment Gateway - Security
 The security of payment processing is
extremely important. Here is a list of some of
the technical details that happen with payment
gateways to ensure the process is secure:
1. Since the customer is usually required to
enter personal details in the transaction
process, the payment gateway is often
carried out through HTTPS protocol.

2. To validate the request of the payment page
result, signed request is often used – which is
the result of the hash function in which the
parameters of an application confirmed by a
«secret word», known only to the merchant
and payment gateway.
3. To validate the request of the payment page
result, sometimes IP of the requesting server
has to be verified.

4. There is a growing support by acquirers, issuers and
subsequently by payment gateways for Virtual Payer
Authentication (VPA), implemented as 3-D
Secure protocol – branded as Verified by VISA,
MasterCard SecureCode and J/Secure by JCB,
which adds additional layer of security for online
payments.
 3-D Secure promises to alleviate some of the
problems facing online merchants, like the inherent
distance between the seller and the buyer, and the
inability of the first to easily confirm the identity of the
second.

Digital Signature
 Digital signatures are like electronic
“fingerprints.” In the form of a coded
message, the digital signature securely
associates a signer with a document in a
recorded transaction.
 Digital signatures use a standard, accepted
format, called Public Key Infrastructure (PKI),
to provide the highest levels of security and
universal acceptance.
 They are a specific signature technology
implementation of electronic signature
(eSignature). 30RNB Global University, Bikaner.

E-signature - Digital Signature
 The broad category of electronic signatures
(eSignatures) encompasses many types of
electronic signatures.
 The category includes digital signatures,
which are a specific technology
implementation of electronic signatures.

E-signature - Digital Signature
 Both digital signatures and other eSignature
solutions allow you to sign documents and
authenticate the signer.
 The use of digital signature technology for
eSignatures varies significantly between
countries that follow open, technology-neutral
eSignature laws.

Digital Signature - Working
 Digital signatures, like handwritten
signatures, are unique to each signer.
 Digital signature solution providers, follow a
specific protocol, called PKI.
 PKI requires the provider to use a
mathematical algorithm to generate two long
numbers, called keys.
 One key is public, and one key is private.
 When a signer electronically signs a
document, the signature is created using the
signer’s private key, which is always securely
kept by the signer. 33RNB Global University, Bikaner.

 The mathematical algorithm acts like a
cipher, creating data matching the signed
document, called a hash, and encrypting that
data.
 The resulting encrypted data is the digital
signature.
 The signature is also marked with the time
that the document was signed.
 If the document changes after signing, the
digital signature is invalidated.

 To protect the integrity of the signature, PKI
requires that the keys be created, conducted,
and saved in a secure manner, and often
requires the services of a reliable Certificate
Authority (CA).

 Creating Digital Signature: Depending upon
the Certificate Authority you are using, you
may be required to supply specific information.
 There also may be restrictions and limitations
on whom you send documents to for signing
and the order in which you send them.
 When you receive a document for signing via
email, you must authenticate as per the
Certificate Authority’s requirements and then
“sign” the document by filling out a form online.

 What is Public Key Infrastructure (PKI)?:
 Public Key Infrastructure (PKI) is a set of
requirements that allow (among other things)
the creation of digital signatures.
 Through PKI, each digital signature
transaction includes a pair of keys: a private
key and a public key.
 The private key, as the name implies, is not
shared and is used only by the signer to
electronically sign documents.

 What is Public Key Infrastructure (PKI)?:
 The public key is openly available and used by
those who need to validate the signer’s
electronic signature.
 PKI enforces additional requirements, such as
the Certificate Authority (CA), a digital
certificate, end-user enrollment software, and
tools for managing, renewing, and revoking
keys and certificates.

 What is Certificate Authority (CA)?:
 Digital signatures rely on public and private
keys.
 Those keys have to be protected in order to
ensure safety and to avoid forgery or malicious
use.
 When you send or sign a document, you need
assurance that the documents and the keys
are created securely and that they are using
valid keys.

 What is Certificate Authority (CA)?:
 CAs, a type of Trust Service Provider, are
third-party organizations that have been widely
accepted as reliable for ensuring key security
and that can provide the necessary digital
certificates.
 Both the entity sending the document and the
recipient signing it must agree to use a given
CA.

 Why would I use a digital signature?:
 Many industries and geographical regions
have established eSignature standards that
are based on digital signature technology, as
well as specific certified CAs, for business
documents.
 Following these local standards based on PKI
technology and working with a trusted
certificate authority can ensure the
enforceability and acceptance of an e-
signature solution in each local market.

 Why would I use a digital signature?:
 By using the PKI methodology, digital
signatures utilize an international, well-
understood, standards-based technology that
also helps to prevent forgery or changes to the
document after signing.

 What is digital Certificate?:
 A digital certificate is an electronic document
issued by a Certificate Authority (CA).
 It contains the public key for a digital signature
and specifies the identity associated with the
key, such as the name of an organization.
 The certificate is used to confirm that the
public key belongs to the specific organization.

 What is digital Certificate?:
 The CA acts as the guarantor.
 Digital certificates must be issued by a trusted
authority and are only valid for a specified
time.
 They are required in order to create a digital
signature.

 Digital Signature technology, legally
enforceable?:
 Yes. By now, most countries have adopted
legislation and regulations modeled after the
United States or the European Union, with a
preference in many regions for the E.U. model
of locally managed, digital signature
technology-based eSignatures.
 In addition, many companies have improved
compliance with the regulations established by
their industries.

 Digital Signature technology, legally
enforceable?:
 These country- and industry-specific
regulations are continuously evolving, a key
example being the Electronic identification and
trust services (eIDAS) regulation that was
recently adopted in the European Union.

Online Banking
 Online banking enables bank customers to
handle account management and perform
account transactions directly with the bank
through the internet.
 This is also known as internet banking.

Online Banking - Working
 Most banks offer customers the option of
online banking. Customers are able to
access to all of their accounts through an
internet connection using the banks own
website or a commercial software package.

 Online banking allows customers to monitor
accounts, download transactions,
transfer funds between accounts, including
checking, saving, and money market/CD
accounts, management investments, and
handle loan activity, including applications
and repayments.
 Clients can transfer funds to their bank
accounts, and pay bills either electronically
(with an account transfer) or by having the
bank issue paper checks directly to
the payee. 50RNB Global University, Bikaner.

 Banks have set up security systems to
ensure that transactions conducted online are
protected from internet security threats.
 Most banks use an industry-standard Secure
Transaction software and protocol to manage
the security on their systems.
 Online banking has made personal and
business banking faster, more efficient and
safer.

 Advantages:
 Convenience is a major advantage of online
banking.
 Basic banking transactions such as paying
bills and transferring funds between accounts
can easily be performed at times convenient
to consumers.
 Consumers can perform banking transactions
24 hours-a-day, seven-days a week. Online
banking is fast and efficient.

 Advantages:
 Funds can be transferred between accounts
almost instantly, especially if the two
accounts are held at the same banking
institution.
 Banking accounts can be monitored more
closely thanks to online banking. This allows
consumers to keep their accounts safe.
 Around-the-clock access to banking
information provides early detection of
fraudulent activity that has the potential to
cause financial or damage loss. 53RNB Global University, Bikaner.

 Advantages:
 Online banking allows for the opening and
closing of fixed deposit and recurring deposit
accounts that typically offer higher rates of
interest.

 Dis-advantages:
 Online banking security is continually
improving, such accounts are still vulnerable
when it comes to hacking.
 Consumers are advised to use their data
plans, rather than public Wi-Fi networks when
using online banking, to prevent unauthorized
access.

 Dis-advantages:
 Additionally, online banking is dependent on
a reliable internet connection.
 Connectivity issues from time-to-time may
make it difficult to determine if banking
transactions have been successfully
processed. On occasion, consumers may
prefer face-to-face interactions for more
complex banking issues.

 Objectives and divers of Internet banking:
1. To improve customer access.
2. To facilitate the offering of more services.
3. To increase customer loyalty.
4. To attract large number of customers.
5. To provide cost-effective services offered by
competitors.
6. To reduce customer attrition.

 Trends of Internet banking:
1. Core or Anywhere Banking.
2. Progress of Internet Banking.
3. Security Precautions.

 Facilities available Under Internet banking
in India:
1. Bill Payment Service.
2. Fund Transfer.
3. Credit Card Customers.
4. Railway Pass and Online Booking.
5. Investing through Internet Banking.
6. Recharging Prepaid Phone.
7. Shopping at Fingertips.

 Emerging Challenges of Internet banking
in India:
1. Demand side pressure due to increasing
access to low cost electronic services.
2. Emergence of open standards for banking
functionally.
3. Growing customer awareness and need for
transparency.
4. Global players in the fray.

in India:
5. Close integration of bank services with web
based E-commerce or even disintermediation
of service through direct electronic payments
(E-cash).
6. More convenient international transactions
due to the fact that the Internet along the
general deregulation trends, eliminate
geographic boundaries.

in India:
7. Move from one stop shopping to ‘Banking
Portfolio’, i.e., unbundled product purchases.

 Main Concerns in Internet Banking:
 In a recent survey conducted by the Online
Banking Association, member institutions
rated security as the most important issue of
online banking.
 Thus there is a dual requirement to protect
customers privacy and product against fraud.

 Besides, a multi-layered security architecture
comprising firewalls, filtering routers,
encryption and digital certification ensures
that customers account information is
protected fully from un-authorised access in
the following manner –
1. Firewalls and filtering routers ensure that only
the legitimate Internet users are usually
allowed to access the system.

2. Encryption techniques used by the bank
(including the sophisticated public key
encryption) would ensure that privacy of data
flowing between the browser and the Infinity
system is protected.
3. Digital certification procedures provide the
assurance that the data a customer receive is
from the infinity system.

 In order to attain long term success, in
respect of Internet banking, a bank may
follow:
1. Adopting a webs mindset.
2. Catching on the first mover’s advantage.
3. Recognising the core competencies.
4. Enabling handling multiplicity with simplicity.

 In order to attain long term success, in
respect of Internet banking, a bank may
follow:
5. Initiating senior management to transform the
organisation from inward to outward looking.
6. Aligning roles and value propositions with
customers segments.
7. Redesigning optimal channel port-folio.
8. Acquiring new capabilities through strategic
alliances.

Risks involved in e-payment
 Electronic payment systems are popular
because of their convenience. However, they
also may pose serious risks to consumers
and financial institutions.
1. Tax Evasion
2. Fraud
3. Impulse Buying
4. Payment Conflict

Reviews
 Models and methods of e–payments.
 Payment gateways, online banking.
 Risks involved in e-payments.
 Digital signatures.

Thank You!
RNB Global University, Bikaner. 70

E payment systems

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