Internet based E-Commerce

Electronic Payment Systems

Sanjay Verma

Figure and charts from

E-commerce
Kenneth C. Laudon
Carol Guercio Traver
Relationship with the Course
 What is E-Commerce
A modern business methodology that
addresses the needs of organization,
merchants, and consumers to cut costs while
improving the quality of goods and services
and increasing the speed of service delivery.
 Electronic Fund Transfer
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
to debit or credit an amount.
 What will we learn?
What form and characteristics of payment instruments will
consumers use?
electronic cheques
credit/debit/smart cards
electronic cash

How to manage the associated financial risks (fraud)?

Security features
Authentication
Privacy
anonymity

Step by step processes that link consumers to organizations

 Requirements of Payment
Systems

Confidentiality
Integrity
Availability
Authenticity
Non-Repudiability
Auditability
 What an E-Payment System
Should Have?

Scalability
Acceptability
Interoperability (Different payment systems and their
technical counterparts)
Open Systems
Possibility of micro-payments
Costs
 Problems with Any Payment
System
Traditional means of payments are not devoid of
problems
Counterfeit
Forged signature
Bounced checks

Electronic money has same problems
Easy to copy
Digital signature can be reproduced by anybody who
knows the secret cryptographic signing key.
The buyers name is associated with payment lack of
anonymity.
Means of Electronic Payment (1)

Banking and Financial Payments

Large-scale or wholesale payments (e.g., bank-to-bank
transfers)
Small-scale or retail payments (e.g., ATM and cash
dispensers)

Retailing Payments
Credit cards (e.g. VISA and MasterCard)
Private label credits/debit cards (e.g., dinners card)
Charge cards (e.g., American Express)
Means of Electronic Payment (2)

On-Line electronic commerce payments

Token based Payment System
Digital Cash
Electronic Cheque
Smart cards

Credit Card based Payment System

Encrypted credit cards (e.g., WWW form-based encryption)
Third-party authorization numbers (e.g, First Virtual)
Examples of e-Payments
 Digital Token Based Electronic
Payment System

Cash or Real Time

Debit or Pre-paid

Credit or Post-paid
 Digital Token Based Electronic
Payment System
Issues

Nature of transaction

Means of Settlement

Approach to security, anonymity, and authentication

Question of risk
 Benefits of Cash
Legal tender

Bearer instrument

Do not require an account

No risk on the part of acceptor

No clearing time
 Cash Vs. Cards
Cards cannot be given away

Not a legal tender

They are not bearer instruments

Usage require account relationship and

authorization system
 Cheque Vs. Cash
Requires personal knowledge of the payer

Cheque guarantee system

 Dimensions of Payment Systems
Table 6.1, Page 312: Loudan and Travor

Copyright 2007 Pearson Education, Inc. Slide 6-19

 Why Electronic Cash is
Desirable?
Large role of Cash transactions

Legal tender (Embedding monetary value)

Possession is prima facie proof of ownership

No risk to acceptor
 Electronic Cash

A string of digits

A bank might issue these strings of digits and

debits your account with a withdrawal equal to the
value of currency issued.

Based on cryptographic systems (asymmetric)

Digital Cash
 Problems to Tackle in Electronic Cash

Interoperability (different banks, currencies)

Security (Double spending)

Country Specific

Black Money
 Mechanism

Actors : Banks, Buyer and Seller

Steps
Bank distributes its public key to the buyer and sellers
Customers establish account with bank and initialize
account
Customers ecash software on browser decides how many
coins need to be generated and in what denomination
 Mechanism

Ecash software will generate random serial numbers for these coins
along with a blinding number.

Encode these with the Banks public key

The Bank signs it with its secret key and sends it back to the
customer. Debits buyers account.

The ecash software at customer site removes the blinding Number

and stores the authenticated notes

Note since blinding number is random number, the bank cannot

determine the original serial number
 ALICE SEND UNSIGNED
BLINDED COINS TO THE BANK
Withdrawal WALLET
SOFTWARE
(Minting):
ALICE BUYS DIGITAL
COINS FROM A BANK
BANK SIGNS COINS, SENDS THEM BACK. ALICE UNBLINDS THEM

BOB VERIFIES COINS ALICE PAYS BOB

NOT SPENT

Spending:
BOB DEPOSITS

CINDY VERIFIES COINS ALICE TRANSFERS COINS TO CINDY

NOT SPENT
Personal
Transfer:
CINDY GETS COINS BACK
Wallet/ Use E-commerce Bookings Deliveries Taxi Offline shops P2P Recharges
Paytm,
IRCTC,
BookMyShow, Swiggy,
MakeMyTrip, Zomato Order,
Paytm, eBay, Cleartrip, PVR Grofers,
Paytm Croma Cinemas BigBasket Uber, Meru Yes Yes Yes
Snapdeal, IRCTC, Swiggy,
FreeCharge Jabong BookMyShow Zomato Order Meru Yes Yes Yes
MobiKwik,
IRCTC,
BookMyShow, Swiggy,
MakeMyTrip, Zomato Order,
eBay, Jabong, Cleartrip, PVR Grofers,
MobiKwik Myntra Cinemas BigBasket Meru Yes Yes Yes
BookMyShow,
eBay, Voonik, Cleartrip, Oyo Box8,
Ola Money HealthKart Rooms Doormint Ola Yes Yes Yes
eBay, Jabong, MakeMyTrip, Zomato Order,
Myntra, BookMyShow, Grofers,
PayUMoney Croma Cleartrip BigBasket - Yes Yes Yes
BookMyShow,
IRCTC, Yatra,
Cleartrip,
ItzCash Yebhi Redbus - - Yes Yes Yes
IRCTC,
BookMyShow,
Oxigen eBay, Croma PVR Cinemas - - Yes Yes Yes
Vodafone eBay, WalMart
mPesa India BookMyShow - - Yes Yes Yes
http://gadgets.ndtv.com/apps/features/freecharge-paytm-ola-money-mobikwik-and-others-whats-the-deal-with-all-these-wallets-1623811
Airtel Money eBay, Myntra BookMyShow - - Yes Yes Yes
Jio Money eBay BookMyShow - - Yes Yes Yes
 Electronic Cheques

Register with Third Party server (Account Server +

billing). May require a bank account.

Buyer sends a cheque (all details) to seller.

Encoding for account origination and signatures

On receiving, the seller presents it to accounting

server. Accounting server verifies the signatures,
and converts it to an order to bank for payment
How E-Cheque works
 Example of E-Cheque
PayPal (www.papal.com)
 Issues

Traditional Model

Better suited for micropayments than ecash

Risk acceptance by accounting server

Example : NetCheque, Compaqs Payment systems

 Smart Cards and Electronic Payment Systems

Electronic Purses : Smart Card Readers

Recharging, multiple uses

Programmibility (different environments, interfaces)

 Smart Cards

Cost in comparison to handling cash

Annonymity (Prepaid),
 Credit Cards Based Internet Payment Systems

Details based on
Plain Credit Card Details

Encrypted Credit Card Details

Online Credit Cards Transactions
Digital Credit Card
 What is a Payment Gateway

Service that provides a bridge between your on-line store front and
your banks credit processing company( Verisign)

Third party network that acquires transactions from a E commerce

portal and passes them through banking or credit card systems
 Payment Gateway

Payment gateways link several banks etc together

Customers interact with the E commerce site.

E commerce sites need to have agreement with bank and

payment gateways.

Payment gateways link several banks etc together

PayPal Overview
PayPal, a global leader in online payments
What is PayPal?
PayPal is a leading global online payment solution that enables
businesses and individuals with email addresses to securely,
conveniently, and cost-effectively send and receive money online.

Founded in December 1998.

International headquarters in Singapore. Corporate headquarters in San Jose (US).
188M active accounts* worldwide and available in 202 markets.
Accept payments in 25 currencies, including: USD, Australian Dollars, SGD, Euros,
Pounds Sterling, Japanese Yen and more.
How does PayPal work?

Buyers choose how Sellers choose how to use

they want to pay: the funds they receive:

Credit or debit cards

Bank account Bank account

PayPal protects sellers:

24/7, 2000+ fraud specialists

PayPal balance
We store sensitive customer data

PayPal helps to resolves issues

Flow of Payment
PayPal, a global leader in online payments
What is PayPal?
PayPal is a leading global online payment solution that enables
businesses and individuals with email addresses to securely,
conveniently, and cost-effectively send and receive money online.

Founded in December 1998.

International headquarters in Singapore. Corporate headquarters in San Jose (US).
188M active accounts* worldwide and available in 202 markets.
Accept payments in 25 currencies, including: USD, Australian Dollars, SGD, Euros,
Pounds Sterling, Japanese Yen and more.
How does PayPal work?

Buyers choose how Sellers choose how to use

they want to pay: the funds they receive:

Credit or debit cards

Bank account Bank account

PayPal protects sellers:

24/7, 2000+ fraud specialists

PayPal balance
We store sensitive customer data

PayPal helps to resolves issues

 Understanding Bitcoins
Why Bitcoins
Bitcoin consists of
A decentralized peer-to-peer network (bitcoin
protocol)
A public transaction ledger (the blockchain)
A decentralized mathematical and deterministic
currency issuance (distributed mining)
A decentralized transaction verification system
(transaction script)
 http://services.eliteral.com/payment-
gateway-india/
http://www.smartcardindia.org/what_is_sma
rtcard.html
http://www.4mywebecash.com/