www.ijird.

com January, 2016 Vol 5 Issue 2

ISSN 2278 – 0211 (Online)

Issues and Challenges of Electronic Payment Systems

T. Vasudha Singh
Faculty, Department of Commerce, St. Ann's College for Women, Mehdipatnam, Hyderabad, Andhra Pradesh, India
N. Supriya
Faculty, Department of Commerce, St. Ann's College for Women, Mehdipatnam, Hyderabad, Andhra Pradesh, India
M. S. P. Joshna
Faculty, Department of Commerce, St. Ann's College for Women, Mehdipatnam, Hyderabad, Andhra Pradesh, India

Abstract:
E-commerce (electronic commerce or EC) is the buying and selling of goods and services, or the transmitting of funds or data,
over an electronic network, primarily the Internet. These business transactions occur business-to-business, business-to-
consumer, consumer-to-consumer or consumer-to-business. The success of electronic commerce depends upon effective
electronic payment systems. The Internet and on-line businesses are growing exponentially. Due to this explosive growth,
electronic commerce on the Internet uses various electronic payment mechanisms that can cater for much diversity of
applications. Electronic payments are financial transactions made without the use of paper documents such as cheques.
Electronic payments include debit card, credit card, smart card, e-wallet, e-cash, electronic cheques etc. E-payment systems have
received different acceptance level throughout the world; some methods of electronic payments are highly adopted while others
are relatively low. The present paper is focused on the issues and challenges in e payment and to examine the problems faced by
consumers during e payments.

Keywords: E-commerce, electronic payments, net banking, plastic cards and payment gateways.

1. Introduction
Electronic payment system is a mode of payments over an electronic network such as the internet. In other words we can say that e-
payment is a method in which a person can make online payments for his purchase of goods and services without physical transfer of
cash and cheques, irrespective of time and location. Electronic Payment Systems are becoming central to online business process
innovations as companies look for ways to serve customers faster and at lower cost. Emerging innovations in the payment for goods
and services in electronic commerce promise to offer a wide range of new business opportunities. Electronic payment systems and e-
commerce are intricately given that online consumers must pay for products and services. Clearly, payment is an integral part of the
mercantile process and prompt payment or account settlement is crucial. If the claims and debits of the various participants-
individuals, companies, banks and non banks are not balanced because of payment delay or even worse default then the entire business
chain is disrupted. Electronic payment systems are proliferating in banking, retail, health care, online markets and even government.
Organizations are motivated by the need to deliver products and services more cost effectively and to provide a higher quality of
service to customers. Electronic payments first emerged with the development of wire transfers. Electronic funds transfer is an
electronic transfer of information that equates to moving funds from one financial institution to another. Electronic payment systems
are alternative cash or credit payment methods using various electronic technologies to pay for products and services in electronic
commerce. It involves many security issues.

2. Objectives
 To focus on the issues and challenges in e payment
 To examine the problems faced by consumers during e payments

3. Literature Review
Vassiliou (2004) defines electronic payment as a form of financial exchange that takes place between the buyer and seller facilitated by
means of electronic communication. According to (Cobb, 2004), the value of electronic payment goes way beyond the immediate
convenience and safety of cards to a greater sphere contributing to overall economic development. According to (Fiallos & Wu, 2005),

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the arrival of the internet has taken electronic payments and transactions to an exponential growth level. Consumers could purchase
goods online and send credit card numbers across secure network payments schemes that have been developed. According to (Cobb,
2005), efficient, safe and convenient electronic payments carry with them a significant range of macro-economic benefits. “The impact
of introducing electronic payments is akin to using the gears on a bicycle. Add an efficient electronic payments system to an economy,
and you kick it into a higher gear. Add better-controlled consumer and business credit, and you notch up economic velocity even
further” (Cobb, 2005). The emergence of credit, debit and prepaid card systems gives the unbanked an important option for bringing
cash into the formal economy. “prepaid cards are particularly interesting, because the funds are actually on deposits at a regulated
financial institutions, but the process of establishing and managing the accounts is much more cost effective and less risky that
traditional debit accounts for smaller levels of deposit”(Common Wealth Business Council & Visa, 2004). The use of Information
Communication Technology (ICT) products to simplify and speed up financial transactions has become a part of everyday life in the
developed world. (Ackorlie, 2009). According to (Worku, 2010), e-payment and e-banking applications represent a security challenge
as they highly depend on critical ICT systems that create vulnerabilities in financial institutions, businesses and potentially harm
customers. “It is imperative for banks to understand and address security concerns in order to leverage the potentials of ICT’s in
delivering e-banking applications” (Worku, 2010)

3.1. Net banking

Internet Banking Is The Latest Wave In Information Technology. It Is Another Electronic Delivery Channel. In Simple Terms
Internet Banking Means Any User With A Personal Computer And A Browser Can Get Connected To His Bank’s Website To
Perform Any Of The Virtual Banking Functions.(Electronic Delivery Of Services).It Is Thus Of Facility Provided By Banks That
Enable The User To Execute Bank Related Transaction Through Internet. The Greatest Advantage of Internet Banking Is the People
Sitting At Home Can Transact business.

3.2. Electronic Cheques

An electronic cheque is an electronic copy (scanned image) of a real cheque, which is then transferred by email. In addition to the
cheque's 'real' signature, the transfer must be digitally signed using the sender's private key to authenticate the transfer.

3.3. E-cash
E cash is used over the Internet, email, or personal computer to other workstations in the form of secured payments of "cash" that is
virtually untraceable to the user. It is backed by real currency from real banks. The way e cash works is similar to that of electronic
fund transfers done between banks. The user first must have an e cash software program and an e cash bank account from which e
cash can be withdrawn or deposited. The user withdraws the e cash from the account onto her computer and spends it in the Internet
without being traced or having personal information available to other parties that are involved in the process. The recipients of the e
cash send the money to their bank account as with depositing "real" cash.

3.4. E-wallet
E-wallet is an online prepaid account where one can stock money, to be used when required. As it is a pre-loaded facility, consumers
can buy a range of products from airline tickets to grocery without swiping a debit or credit card.

3.5. Plastic cards

3.5.1. Debit Card

A debit card is basically a better way of carrying cash or a cheque book. It is an electronic card that one can use as a convenient
payment mechanism. The card is generally issued by the bank and is connected through the ATM. Debit cards allow the holder to
spend only what is in his account and purchases should be kept track of just as if one is writing a cheque.
Types of debit cards
 Direct debit cards
 Deferred debit cards

3.5.2. Credit Card

A credit card is part of a system of payments. It is a small plastic card issued to customers. The most point is that the banker who
issues card grants a line of credit – a sanctioned limit, up to which the customer can use the card. It is also known as a debt instrument.
Its operation is through electronic fund transfer (EFT) installations and interbank network. The objective is to provide convenience
and security to eliminate cumbersome cash transactions and protects the holder from the danger of theft of cash.

3.5.3. Smart Card

Smart card is an electronic information carrier system that uses plastic cards, about the size of a credit card, with an embedded
integrated circuit that stores and process information. It can be used to store personal identification, medical history and insurance
information because it has its own micro processing chip; a smart card can store more bits information than a magnetic stripe card,
although it requires a special card – reading device.

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3.6. Payment Gateways

A payment gateway is an e-commerce service that allows merchants to accept credit card and other forms of Internet
transactions securely via website.

A list of payment gateways are given below

1. Authorize.Net
Founded in 1996, Authorize.Net has come a long way to being known as one of the most sought-after payment gateways. More than
400,000 merchants worldwide use Authorize.Net payment gateway – that accepts online payments through credit cards and electronic
checks.

2. PayPal
Though, PayPal was incepted in December 1998, but it was developed and launched in 1999. It’s one of the most widely-used
payment gateways that accept both credit card or debit card payments.

3. SecurePay.com
This payment gateway began operating in August 1997. SecurePay.com offers online shopping cart, electronic check services (called
as Secure Pay), accepts mobile payments, and so on.

4. 2Checkout.com,Inc
2Checkout.com has been in business for 15 years, and was founded in 1999. It offer services in 196 countries and accept payments in
the form of: credit cards, PayPal, and debit cards. And, the best part! It doesn’t require you to pay any monthly and setup fees.

5. First Data Corporation

This is one of the oldest payment gateways having 30 years of payments industry experience globally. It was initially incepted in
1969, but started providing its transaction processing services in 1998 in US and markets worldwide. It includes credit card, debit
card, gift card, and many other prepaid card offerings.

6. BluePay Processing LLC

Although, BluePay Processing is a new payment gateway and started operating in 2002, but within a short span of time has earned
good reputation among merchants. BluePay accepts payments via credit card and e-checks. It claims to provide highest level of data
security in the payment gateway industry.

7. PaySimple
Accepting all major credit cards and e-checks payments on your iPhone or iPad, PaySimple can rightly be called the new-age payment
gateway. According to experts, PaySimple is a great payment gateway for small-and mid-size online stores.

3.7. Issues and Challenges Regarding Electronic Payment Systems

3.7.1. Lack of Usability

Electronic payment system requires large amount of information from end users or make transactions more difficult by using complex
elaborated websites interfaces. For example credit card payments through a website are not easiest way to pay as this system requires
large amount of personal data and contact details in web form.

3.7.2. Lack of Security

Online payment systems for the internet are an easy target for stealing money and personal information. Customers have to provide
credit card and payment account details and other personal information online. This data is sometimes transmitted in an un-secured
way, (Kolkata and Whinston, 1997). Providing these details by mail or over the telephone also entails security risks (Guttman, 2003,
Laudon and Traver, 2002).
Issues with e-Cash
The main problem of e-cash is that it is not universally accepted because it is necessary that the commercial establishment accept it as
payment method. Another problem is that when we makes payment by using e-cash, the client and the salesman have accounts in the
same bank which issue e-cash. The payment is not valid in other banks.

3.7.3. Lack of Trust

Electronic payments have a long history of fraud, misuse and low reliability as well as it is new system without established positive
reputation. Potential customers often mention this risk as the key reason why they do not trust a payment services and therefore do not
make internet purchases (Lietaer, 2002)

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3.7.4. Lack of Awareness

Making online payment is not an easy task. Even educated people also face problems in making online payments. Therefore, they
always prefer traditional way of shopping instead of online shopping. Sometimes there is a technical problem in server customers tried
to do online payments but they fails to do. As a result they avoid it.

3.7.5. Online Payments are not Feasible in Rural Areas

The population of rural areas is not very literate and they are also not able to operate computers. As they are unaware about
technological innovations, they are not interested in online payments. So the online payment systems are not feasible for villagers.

4. Conclusion
Electronic payment refers to the mode of payment which doesn’t include physical cash or cheques. It includes debit card, credit card,
smart card and E-wallet etc. e-commerce has its main link in its development on-line in the use of payment methods. The effectiveness
of electronic payment system depends largely on the availability of an efficient ICT infrastructure where reliable network connectivity,
durable hardware and high expertise in ICT are available. The risks in the online payments are theft of payments data, personal data and
frauds have become rejection on the part of customers. Therefore, until the use of electronic signatures is wide spread we must use the
technology available for the movement to guarenatee reasonable level of security. The successful implementation of electronic payment
system depends on how the security and privacy dimensions perceived by consumers as well as sellers.

5. References
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ix. www.google.com
x. www.wikipedia.com
xi. www.investopedia.com

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