E-Payment Systems by Taimoor Zubair
INTRODUCTION E-payments can be widely defined as payments that are initiated,
processed & received electronically.
The payment transaction can be of three types: B2B B2C C2C
All the models discussed below are types of e-transactions and might allow one,
two or all of above transactions.
DIGITAL CREDIT CARD This system works like a conventional credit card but
extends the function of traditional credit cards and enables them to be used
for online transactions.
The consumer logs on to his e-account which is connected to the e-card server.
The digital credit card server verifies consumers, merchants and the consumers'
bank for authentication and approves transactions. The verification of consumer
is done through a special protocol such as SSL for e-card.
The credit card facility is useful in the sense that it enhances the consumer's
current purchasing power. This raises the present standard of living. With no
physical movement of cash, this system is also highly secure. Credit cards are
highly convenient and are the most common method of payments over the internet.
Most credit cards are supported internationally and are useful for payments
made in foreign countries. This saves consumers from converting cash into other
currencies.
The drawbacks of using credit cards are that there is high risk of fraud
involved in credit cards. Anyone gaining access to the card can get it charged.
The use of signature adds security to it, yet the risk of misuse is high. Over
the internet the risk is higher since the use of signature is no more there.
Secondly, since consumers have to pay later, they may be inadvertently forced
to over-spend. This may create difficulties in payment later.
PEER-TO-PEER PAYMENT SYSTEM Payment users tend to gravitate towards a model
where the payment transaction is conducted directly between the payer and the
payee. The payment could be an 'instruction', much like a cheque, or it could
be an actual transfer of value. To facilitate the upstream and downstream
e-commerce processes that occur before and after the payment transaction,
additional information needs to be sent with the payment to advise the payee of
the payment's context and how the amount payable was determined (e.g., invoice
number, shipping references or payment terms).
The advantage of this system is that the payment is being made directly between
the two parties or 'peers' involved. This restricts the number of
intermediaries in between. This reduces the payment processing time. Also the
low number of intermediaries saves costs for both the parties.
Despite this, the direct connection is subjected to the risk of fraud by either
party. The system is ideal for C2C transactions and can be extended in some
cases to B2B. However, it has limited or no use for B2C transactions.
STORED-VALUE PAYMENT SYSTEM Stored value cards are a type of transaction where
the customers pay before the transaction of goods and services. A card or
physical item is given as a representative for the money they have paid. It can
be for general products like a debit card or for specific items like a
telephone calling card. Stored value cards use magnetic stripe technology to
store information about funds that have been prepaid to the card.
There are two main categories of stored value cards in the marketplace: *
Prepaid Single-Purpose cards: Example: Gift cards, which can only be used to
purchase goods at particular retailers, and prepaid telephone cards, which can
only be used to make telephone calls. * Multipurpose 'open-loop' card This can
be used to make debit transactions at a wide variety of retail locations, as
well as for other purposes, such as receiving direct deposits and withdrawing
cash from ATMs. Some multipurpose cards are branded by Visa or MasterCard and
can be used wherever those brands are accepted.
The stored value cards are highly useful since the cards consumers can pay at a
large number of locations and not only at the payee's designated branches. Also
the consumer can obtain the card and charge according to his convenience.
Usually the stored value cards are pre-activated, such as telephone cards. This
speeds up the processing of transactions. Besides this, a fixed amount stored
value card is transferable and can be used as a medium of exchange.
However, with this system there are chances of fraud being carried out by the
middle-men involved. This includes forging of original cards and selling
expired cards. The cards are usually available for fixed denominations and
cannot be used to make payments for any other amount.
ACCUMULATED BALANCE PAYMENT This form of payment where the bill for
micropayments is accumulated and paid through different services a person has
subscribed to, periodically. An example is mobile transactions. Although mobile
commerce and mobile payment seem very attractive and convenient to users, after
a few years of research and different projects, their popularity is still far
from ubiquitous. First reason is that customers are very cautious about sending
confidential data via mobile technology. According Forrester Research, credit
card security concerns prevent 52 % of customers from adopting m-commerce via
phone and 47 % via PDA.
Another problematic issue is that the value a mobile payment has to be shared
among three participants : telecommunication operator, payment provider and
bank. It can happen that the bank provides a payment solution. If it is a case,
the number of participants is reduced to two. The lack of precise rules
describing the role of each of the parties in a particular business model
impedes the popularisation of mobile payment systems. However, strong pressure
towards so-called anytime, anywhere, with any device solutions increases the
chances for success of mobile payment platforms. Therefore, at the time being,
we can say that m-commerce and m-payments are at the critical point. If they do
not succeed during the next few years, it may experience gradual replacement by
other solutions.
The advantages associated with this method are that unlike other mediums of
electronic payment, the transaction costs usually do not outweigh the actual
costs. This increases the number of transactions that can be carried out. It is
also convenient for consumers since they are being billed through their
telephone or mobile bills and do not have to pay separately. With accumulated
balance payment, the payment involves the services of an already established
service provider. As a result the service is only available in limited areas.
There is no operator providing this service locally. Secondly the system is
only useful for micropayments. Payments for larger amounts require other
systems.
ELECTRONIC BILL PRESENTMENT & PAYMENT It is a Business-to-consumer payment
model where billings and invoices are presented electronically to consumers and
payment of goods and services to company or firm.
The payment mechanisms used by consumers in the EBPP process are essentially
the same as those used in traditional: check, ACH, credit card and debit card.
Consumers often authorize payments online rather then in paper form
There are two main categories of EBPP used: * Biller-direct model In this
model, there is a direct relationship between consumer and the biller. Both
interact directly; with the biller using software that manages n sends out
notifications and the consumer respond to that through electronic services such
as e-mail. * Consolidation/aggregation model The consumer and the biller do not
have direct contact and are linked through a third-party. The third party
manages billers' invoices and sends an aggregate version to consumers.
Since the billing is being done over email or mobile, this method of delivery
has lower costs than those involved in delivery through post office. There are
also less chances of delivery failure and with electronic delivery the system
becomes more reliable. Electronic delivery and payment processing is much
quicker than the traditional method. The prompt delivery gives extra time to
consumers and the quick payment processing remunerates the payee in lesser
time. With traditional 'paper-based' bill, the usage is limited and no other
processing can take place without carrying out data entry again. An electronic
bill can be reprocesses into multiple forms easily.
The drawbacks of EBPP are that a computer system or a mobile phone must be
possessed by the consumer to receive the electronic bill. With the traditional
system there is no such requirement. The electronic delivery cannot be
confirmed whereas with the traditional system the customer acknowledges receipt
with a signature. Besides this the billed information is subjected to the risk
of being misused if illegal access is gained on the consumer's account.
SUITABILITY OF E-PAYMENT SYSTEMS IN THE PAKISTANI BUSINESS ENVIRONMENT The
factors that determine suitability of any e-payment method are:
Simple The technological literacy is quite locally. Most people lack training
in handling sophisticated devices such as ATMs or Bill Payment Machines. The
ideal payment method should be the one that is simple and easy to use. It
should require minimum technological training and the process should be simple.
Secure Being a developing country, Pakistan has an overall high crime rate. The
chances of fraud in E-payment system are also quite high. The ideal payment
system should be secure from the risk of fraud and misusage.
Flexible Payments In some e-payment system the amount that can be paid is
either fixed or is limited. The ideal payment system should be flexible enough
to allow payments to be made for any amounts.
Low transaction costs Transaction cost is the additional cost involved in the
transfer of funds. Due to the high risk involved, the e-payment amount is
usually small. In such case an ideal payment system should minimize these costs
so that the e-payment method stays useful.
About the Author
I am currently doing my bcs. Also working parttime as an IT Manager
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