• The emergence of e-commerce has created

new financial needs that in many cases

cannot be effectively fulfilled by the
traditional payment systems. Recognizing
this, virtually all interested parties are
exploring various types of electronic
payment system and issues surrounding
electronic payment system and digital
currency
• The term electronic payment includes any
payment to businesses, bank or public
services from citizens or businesses, which
are executed through a telecommunications
or electronic networks using modern
technology. The payment that are executed
by the payer himself, whether the latter is a
consumer or a business, without the
intervention of the another natural person.
 Size Of Transactions
• Three classes of typical electronic
transactions:
• Tiny value transactions: below $1.
• Medium value transactions: between $ 1
and $ 1,000
• Large value transactions: above $ 1,000.
Systems that can support tiny value transactions
have to trade-off between conveniences of
transactions (the major part of a cost in an
extremely cheap transaction) vs. the security or
durability of transactions. On the other side of the
amount range, large value transactions will require
highly secure protocols whose implementations
are costly: be on-line and/or carry traceability
information. Finally, nearly all the system can
perform medium value transactions.
Conventional Payment System
A conventional process of payment and settlement
involves a buyer-to-seller transfer of cash or payment
information (i.e., cheque and credit cards). The actual
settlement of payment takes place in the financial
processing network. A cash payment requires a buyer's
withdrawals form his/her bank account, a transfer of cash
to the seller, and the seller's deposit of payment to his/her
account. Non cash payment7 mechanisms are settled by
adjusting i.e. crediting and debiting the appropriate
accounts between banks based on payment information
conveyed via cheque or credit cards.
• When we come to the e-commerce transaction, the lack of
face to face interaction makes some problems about the
security of the sensitive information and identity. As a
result, we need an intermediary party (Paypal, google
checkout…) to provide the security, identification as well
as payment support. In this process, the buyer don’t need
to transfer his sensitive information to the merchant but to
the intermediary and the intermediary will confirm the
identification of the buyer to the merchant (Noted that the
transaction between the intermediary and the banks can be
performed in another type of electronic payment or
conventional process)
 E-Payment System
Electronic payment systems have been in operations since
1960s and have been expanding rapidly as well as growing
in complexity. It was first electronic based payment
system, which does not depend on a central processing
intermediary. An electronic fund transfer is a financial
application of EDI (Electronic Data Interchange), which
sends credit card numbers or electronic cheques via
secured private networks between banks and major
corporations. To use EFT to clear payments and settle
accounts, an online payment service will need to add
capabilities to process orders, accounts and receipts. But a
landmark came in this direction with the development of
digital currency10The nature of digital currency or
electronic .money mirrors that of paper money as a means
of payment. As such, digital
currency payment systems have the same advantages as paper currency
• payment, namely anonymity and convenience. As in other electronic
payment
• systems (i.e. EFT based and intermediary based) here too security
during the
• transaction and storage is a concern, although from the different
perspective, for
• digital currency systems double spending, counterfeiting, and storage
become
• critical issues whereas eavesdropping and the issue of liability (when
charges are
• made without authorizations) is important for the notational funds
transfer.
• Figure 2 shows digital currency based payment system.
 Types of E-Payment system
Electronic payment system can be broadly
divided into four general types :
• Online Credit Card Payment System
• Electronic Cheque System
• Electronic Cash System and
• Smart Card based Electronic Payment
System
Online Credit Card Payment System
Basic process of Online Credit Card
Payment System is very simple. If
consumers want to purchase product or
service, they simply send their credit card
details to the service provider involved and
the credit card organization will handle this
payment like any other. This can be
understood very easily with the format of
Credit Card Payment Form.
 Advantages
• privacy
• integrity
• compatibility
• good transaction efficiency
• acceptability
• convenience
• mobility
• low financial risk and anonymity.
 Disadvantages
• lack of authentication,
• repudiation of charges and credit card
frauds.
• It also seeks to address consumer fears
about using credit card such as having to
reveal credit information at multiple sites
and repeatedly having to communicate
sensitive information over the Internet.
Electronic Cheque Payment System
An account holder will issue an electronic
document that contains the name of the financial
institution, the payer's account number, the name
of payee and amount of cheque. Most of the
information is in encoded form. Like a paper
cheques , echeques also bear the digital equivalent
of signature: a computed number that
authenticates the cheque from the owner of the
account. Digital chequing payment system seeks
to extend the functionality of existing chequing
accounts for use as online shopping payment tools
 Advantages
• they do not require consumers to reveal account
information to other individuals when setting an
auction
• they do not require consumers to continually send
sensitive financial information over the web
• they are less expensive than credit cards
• they are much faster than paper based traditional
cheque.
 Disadvantages
They have relatively high fixed costs, their limited
use only in virtual world and the fact that they can
protect the users‟ anonymity. Therefore, it is not
very suitable for the retail transactions by
consumers, although useful for the government
and B2B operations because the latter transactions
do not require anonymity, and the amount of
transactions is generally large enough to cover
fixed processing cost.
Electronic Cash Payment System
 Smart Cards based Electronic
Payment System
They are essentially credit card sized plastic
cards with the memory chips and in some
cases, with microprocessors embedded in
them so as to serve as storage devices for
much greater information than credit cards
with inbuilt transaction processing
capability
• Smart Cards/Plastic card containing an
embedded microchip Stores over 100 times
more information than a magnetic-stripped
plastic card.
• Contains user information such as financial
facts, account information, credit card
numbers, health insurance, etc.
• Smart card information is encrypted
 CSF of EPS
Success of e-commerce businesses, including both
the largest of corporations and small retailers, rely
on electronic payment system. Therefore,
understanding the various critical success factors
of e-commerce payment system is important.
There are various factors, which should be
considered by an ecommerce, firm before
introducing and implementing e-commerce
payment system.
Factors Discouraging Consumer for Online Payments
Factors Percentage
• Concern about security 70
• Difficulties to enter information 9
• Do not have credit cards/smart cards 7
• Do not like interest charge 6
• Purchase value too small 4
• Exceeded personal limit 4
• Thus the factors which are critical for the success of e-
commerce payment systems are multifaceted. These
include :
• Integrity: transaction data are transmitted and received
unchanged and as intended.
• Non-repudiation: transactions have the quality of non
deniable proof or
• receipts.
• Authentication: identities and attributes of parties engaged
in commerce are established at some tolerable level of risk.
• Authorization: individuals are established and recognized
as entitled to receive, send or view transactions.
• Confidentiality: transactions can be protected from view
except by those who are authorized.
• Reliability: probability of failure in the transaction-send,
receive, acknowledge-is low.