Most popular E-Payment Methods
The popular electronic payment methods are discussed below
1. Credit cards
Credit cards are the plastic cards that allow customers to carry transactions through electronic data processing system. A credit card is issued by an agency such as Master or Visa. It gives pre-determined spending limit to the holder of the card.
Credit cards can have revolving credit arrangements. Consumers actually pay after a transaction on a credit card. Revolving credit arrangements allow customers to make a minimum payment in each billing cycle.
2. Debit cards
Debit cards are issued by a bank or a financial institution in which the card holder has an account. The card enables consumers to access the account for a variety of transactions. The consumer actually pays immediately for a transaction in an on-line debit card.
A debit card is an alternative to carrying a checkbook or cash. Many ATM cards have the features of a debit card.
Advantages of Debit Cards
Advantages of using debit cards are listed below:
1. Obtaining a debit card is much easier than obtaining a credit card.
2. Using a debit card instead of writing cheques saves you from showing personal identification.
3. Using a debit card frees you from carrying cash, traveler’s cheques, or a cheque book.
4. Merchants accept debit cards more readily than cheques, especially in other countries.
Debit card purchases can have less protection than credit card purchases for items that are never delivered or defective. Returning goods or cancelling services purchased with a debit card is treated as if the purchases were made with cash or cheque. The merchant is not charged any fees when a customer uses debit card to pay for purchase. So merchants encourage customers to use debit card for payment.
3. Charge Cards
Charge cards have a short-term, fixed-period, credit arrangement. With charge cards, the consumer must fully pay the outstanding balance at the end of the one-month charge or billing period.
4. Smart cards
Smart cards are plastic cards with a microchip. A smart card is a stored value card. Smart card allows electronic money to be stored in a secure medium. It is a credit card with a built-in microprocessor and memory. It can store large amount of information.
A smart card can simultaneously be an ID, a credit card, a stored-value cash card, and a repository of personal information such as telephone numbers or medical history. Smart cards can be electronic key rings. They enable the bearer the ability to access information and physical places without, any need for online connections. The smart cards are portable.
Mondex Smart Card, for example, holds and dispenses electronic cash. It is developed by MasterCard International. It requires specific card reader, called Mondex terminal, for a merchant or a customer to use card over Internet. It also supports micro payments.
5. Stored Value Cards
Stored value cards are issued by financial and non-financial institutions. Consumers actually pay before the transaction on a stored-value card. It is a plastic card which has got magnetic strip on it. Some of the stored value cards are prepaid card and bus cards.
Some stored value cards may also be smart cards if they contain an integrated microchip. The integrated chip can store value and perform other functions, such as consumer authentication.
E-cash is equivalent to cash. It is issued by private entities. It acts as a substitution for physical currency. E-cash is the money available in an electronic account. It helps to carry out electronic business transaction on the internet.
E-cash provides convenience to customers as they do not have to carry cash with them. It is very advantageous for small cash transactions. E-cash is available in an E-Cash account. Money can be drawn from the account. Or it may be loaded onto smart card. The customer has to provide proof of identity like digital signature.
Functions of E-Cash
The functions of e-cash are quite similar to electronic fund transfers that take place between banks.
1. The user first must have a cash software program and a bank account.
2. From this account, he can withdraw or deposit e-cash.
3. The user can withdraw the ecash from the account with the help of computer.
4. The recipients of the ecash send the money to their bank account like depositing “real” cash.
Electronic cash involves lower transaction cost. It does not require any special authorization like credit cards. The disadvantage is that it can lead to money laundering.
7. Electronic cheques
Electronic cheques are also known as e-cheques. It can be used in any transactions where normal cheques are used. Electronic cheques can help to complete payments over the networks in a cost-effective manner.
1. The payer writes the e-cheque through a computer.
2. He uses a digital signature.
3. He sends it through the Internet.
4. The payee receives it. He verifies the signature and endorses it.
5. The endorsed cheque is then sent over internet to the payee’s bank for deposit.
6. The Bank official verifies the signatures and credits the deposit.
7. He clears and settles the endorsed e-check by sending it on to the payer’s bank.
7. The signatures are once again verified and the amount of the e-cheque is debited from the payer’s account.
The cryptographic certificates help a payee to determine the validity and identity of the signatures.
8. Electronic wallet
Electronic wallet is like physical wallet. An electronic wallet has the memory for storing the balance of an account in a financial institution. It can hold credit cards, e-cash, owner’s identification and address. Electronic wallets make online shopping a convenient one. A customer can click on electronic wallet to order items quickly.
Classification of E-Wallet
Electronic wallet has been classified into two categories. They are
1. Server side electronic wallet and
2. Customer side electronic wallet.
A client e-wallet stores customer’s information on user’s computer. A server e-wallet stores customer’s information on a remote server. The remote server may belong to a merchant or wallet publisher.
Security Schemes In Electronic Payment Systems
Four essential security requirements for safe electronic payments are:
1. Authentication: A method to verify the buyer’s identity before payment is authorized.
2. Encryption: A process of making messages unreadable except by those who have an authorized decryption key.
3. Integrity: Ensuring that information will not be intentionally or unintentionally altered or destroyed during transmission.
4. No repudiation: Protection against customers’ denying the orders placed and against merchants’ denying the payments made.