Electronic Payment

System
Unit -II
BRIEF HISTORY OF MONEY

 Barter
 Medium of Exchange
 Notational Money
 Credit System
Payment Cards

 Debit card
 Credit Card
Credit card

 A credit card is a payment card issued to users (cardholders) to enable the

cardholder to pay a merchant for goods and services based on the
cardholder's promise to the card issuer to pay them for the amounts plus the
other agreed charges.
Key participants in processing credit card payments online include:

 Acquiring bank
 Credit card association
 Customer
 Issuing bank
 Merchant
 Payment processing service
 Processor

5
Paying with Credit Cards

 A merchant must accept credit cards

 You must first open a merchant account with your bank
 Merchant needs to pay some charges for making transactions.
 The Web merchant needs some form of secure and encrypted line, usually
(SSL)
 The merchant needs a shopping cart program that allows users to collect their
purchases
Debit Cards

 Look exactly like credits cards, except they directly tap your checking
account every time you make a purchase or a withdrawal
 Using a debit card frees you from having to carry cash or a checkbook
 Debit cards are more readily accepted by merchants than are checks
 It is generally easier to get a debit card than a credit card
 Use of PIN creates identified & online transaction
 Hard to dispute!
Debit Cards (Cont’d)

 Returned debit card purchases are treated just like returns for items
purchased by cash or check
 The debit card is a quick pay now process
 Using a debit card may mean less protection for items that are never
delivered, for defective items, or for items that were mis-represented
 Cardholders might overspend their limit before anyone finds out
 Smart Cards
 Magnetic stripe
 140 bytes
 Memory cards
 1-4 KB memory, no processor
 Optical memory cards
 4 megabytes read-only (CD-like)
 Microprocessor cards
 Imbedded microprocessor
 (OLD) 8-bit processor, 16 KB ROM, 512 bytes RAM
 32-bit processors now available
 Intelligent, active devices with defenses
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 individual’s claim of personal
identification
 Authorization for things like drug prescription fulfillment
and voting purposes
 Transaction processing
 Provides encryption and decryption of messages to ensure security, integrity,
and confidentiality
 Acts as a carrier of value
 Smart Card Structure
Contacts:

Microprocessor

Contacts
Card
(Upside-down)

SOURCE: SMART CARD FORUM

Smart Card Applications

 Government
 Identification
 Health care
 Loyalty
 Telecommunications
 Transportation
 Financial
Payment Gateway

 It is an online payment processing technology which helps businesses to

accept credit cards and electronic checks.
 payment gateways are “Man in-the-middle” which are located between e-
commerce platforms and clients
Payment Gateway allows to :

 Make and take payments quickly and easily.

 Keep your customer's data (information) and money secure.
 Gain trust of your customers, so they are willing to hand over their money.
Guidelines for choosing Payment
Gateway
 You should finalize that payment gateway which is supported in your country, not all
them operate globally.
 You should check what payment gateways are supported better from your ecommerce
platform.
 Payment gateway should be of 3.0 PCI data security standards.
 Do you need payment gateway and merchant account or an all-in-one payment service
provider?
 You must see the charges and fees that will be deducted per transaction.
 What payment method do they support? For example, VISA is a payment method,
Master Card is another.
 Do they support your type of business? For example, some of them don’t deal with
businesses that sell adult materials, betting, gambling, firearms selling, narcotics, etc
Some Payment Gateway providers :

 PAYPAL − You can find all the terms and conditions of their business model on their URL
– https://www.paypal.com/. PayPal is one of the longest established and probably the best-
known service for transferring money online.
 Amazon Payments − The URL of this immensely popular payment getaway provider is
– https://payments.amazon.com/. It was created in 2007, Amazon Payments provides your
customers with the same checkout experience they get on Amazon.com
 Stripe − The URL of this payment getaway is – https://stripe.com/. No monthly fees, no extra
charges for different cards and different payment methods, also for different currencies.
 Authorize Net − The URL for this popular payment getaway provider
is https://www.authorize.net/. It is among the most powerful and well-known payment
gateways.
 2Checkout − The URL for this payment getaway provider is
– https://www.2checkout.com/. 2checkout is one of the most simple and affordable credit
card gateways
PayPal
 Pay anyone, anywhere via email
 Draws funds from user’s bank account, places credit
hold on credit card for guarantee
 16 million users
 Bank of America has 3.3. million
 Accounts insured up to $100,000
 Based on automated clearinghouse
 Withdraw funds anytime, or send to someone else
 Mobile payments (WAP)
 PayPal
1. A PAYS X VIA 6. PAYPAL NOTIFIES
PAYPAL (A HAS X OF PAYMENT. X
ENOUGH IN PAYPAL CHOOSES PAYMENT
ACCOUNT) METHOD
ACCOUNT INTERNET PAYPAL EMAIL
ACCOUNT
HOLDER A HOLDER X
ACCOUNT A
... 5. PAYPAL CREDITS
ACCOUNT X’S PAYPAL ACCOUNT
ACCOUNT X
HOLDER A’S 2. OR: PAYPAL
CHARGES X’S
CREDIT CARD CREDIT CARD

3. OR: PAYPAL
INITIATES ACH
DEBIT
ACCOUNT 7. OR: PAYPAL ACCOUNT
ACH INITIATES
HOLDER A’S HOLDER X’S
PROCESSOR ACH CREDIT
BANK BANK

4. FUNDS ARE PAYPAL’S

8. OR: PAYPAL MAILS CHECK TO X
DEPOSITED IN BANK
PAYPAL’S BANK
Net Banking

 NEFT
 RTGS
 IMPS
 Other Services
E cash (Electronic Cash)Overview

 eCash was an electronic platform created to transfer funds anonymously. It

was a pioneer in cryptocurrency.
 eCash was created by Dr. David Chaum and implemented via his company,
DigiCash, in 1990.
 eCash worked on the premise of blind signatures where message content is
invisible before signing, resulting in no user being able to link withdrawal and
spend transactions.
 Despite the initial interest and bringing large banks on board to use the
system, eCash never fully took off and DigiCash filed for bankruptcy in 1998.
 Chaum launched a new startup in 2018 focused on cryptography.
E-Cash contd..

 It is a digital money product that provides a way to pay for products and
services without resorting to paper or coin currency.
 To design an e-cash, we need to identify how to represent and move the e-
cash.
 There are two ways:
a) Electronic money: electronic store of monetary value on a technical
device that may be used for making payments. For example: currency that
is stored in banking computer system.
b) Stored-value cards: is a type of electronic bank debit card. Stored can
have a value pre-loaded to them. For example: gift cards.
APPLICATIONS
 Debit cards

 Parking systems

 Automatic Toll Collection

 Teleshopping
Advantages
 High fees for small payments are avoided
 Convenience
 Support for multiple currencies across borders
 Security
 Long distance transaction

Disdavantages
 Not Traceable
 Forgery
eCash and Online Security Today

 Despite the failure of DigiCash and with it eCash, online security is an ongoing
issue in the digital realm to this day.
 Financial information, stored on a computer or electronic device, or the
Internet more generally (e.g., the cloud) is vulnerable to hackers.
 Cryptocurrencies are extremely popular today and owe their foundations to
eCash.
 The most popular cryptocurrency is Bitcoin, which was created in 2009 by an
anonymous creator and had a better luck gaining traction quickly.
 Overall, many consider Dr. Chaum to be the father of digital currency.
E-cheque

 An electronic check is a form of payment made via the internet that is designed to
perform the same function as a conventional paper check.
 Since the check is in an electronic format, it can be processed in fewer steps.
 Generally, the costs associated with issuing an electronic check are notably lower
than those associated with paper checks.
 An electronic check has more security features than standard paper checks
including authentication, public key cryptography, digital signatures, and
encryption.
 Electronic checks can be used to make a payment for any transaction that a paper
check can cover, and are governed by the same laws that apply to paper checks.
 This was the first form of Internet-based payment used by the U.S. Treasury for
making large online payments.
Contd..

 The account holder writes an e-check using an electronic device and

transmits to the payee electronically.
 E-checks are affixed with digital signatures, using a combination of smart
cards & digital certificates.
 The payee deposits the e-check receives credit.
 The payee’s bank clears the e-check to the paying bank.
Advantage

 The costs associated with issuing an electronic check are notably lower than
those associated with paper checks.
Automated Clearing House (ACH)

 A nationwide batch-oriented electronic funds transfer system that provides

for the interbank clearing of electronic payments for participating financial
institutions
Digital Wallet

 A digital wallet (or e-wallet) is a software-based system that securely stores

users' payment information and passwords for numerous payment methods
and websites.
 By using a digital wallet, users can complete purchases easily and quickly
with near-field communications technology.
 Digital Wallets are like a virtual Pre-Paid Card where you can store value the
money for usage also it allows access to link your bank account, Credit card or
Debit Card to make transactions in an easy, effortless manner.
Components

 A digital wallet has two major components:

 one is the software application and the other is the information storage.
 The software part is responsible for security, encryption and the actual
transaction.
 The other component, which stores the information, is actually a database
containing user input information. The user information includes items such
as billing address, shipping address and payment methods.
Example

 Payzapp
 Paypal
 Paytm
 Phonepe
 Google Wallet
 Android Pay