1. ELECTRONIC PAYMENT SYSTEMS
Module 3
ELECTRONIC PAYMENT SYSTEMS

2. What is Payment System?
The payment system is the infrastructure (consisting of institutions, instruments, rules, procedures, standards, and technical means) established to effect the transfer of monetary value between parties discharging mutual obligations.

3. Definition of Payment System
According to Bank for International Settlements (BIS) “a payment system consists of instruments, banking procedures , and interbank fund transfer systems that ensure and facilitate the circulation of money”

4. Traditional Payment Systems
1. Cash
2. Cheques
A cheque is a document  that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued

5. Cheque transaction flow

6. Traditional Payment Systems
3. Credit Cards
A card issued by a financial company giving the holder an option to borrow funds, usually at point of sale. Credit cards charge interest and are primarily used for short-term financing
4. Charge Cards
Its is similar to a credit card , but the Charge Card holders must settle their outstanding amount in full by the due date every month. Since charge cards are often associated with prestige , the fee are generally higher than credit cards. It gives more privilege as compared to credit card.

7. Traditional Payment Systems
5. Debit Cards
A debit card (also known as a bank card or check card) is a plastic payment card that provides the cardholder electronic access to their bank account(s) at a financial institution.

8. Traditional Payment Systems
6. Stored Value
A stored-value card is a payment card with a monetary value stored on the card itself, not in an external account maintained by a financial institution and differs from debit cards where money is on deposit with the issue.

9. Traditional Payment Systems
7. Accumulated Balance
Accounts that accumulate expenditures and to which consumers make period payments
Some micro-payment systems will build an amount and then charge a larger sum for just that reason. These systems are called accumulated balance digital payment system. They will charge every month for the usage after the balance accumulates. An example of this is Vodafone.
Examples: utility, phone,

10. Traditional Payment Systems
Limitation of Traditional Payment System
1. Cheques and cash cannot be exchanged in real time.
2. Credit and Debit card information exchanged over the phone or by entails security risks.
3. Credit and Debit cards do not support individual to individual payment transactions.
4. Some individuals do not have access to credit cards or checking accounts because of credit history
5. Cash do not support low value transaction (Micropayments)

11. Electronic Payment Systems
EPS have become popular on account of the following reasons
1. Decreasing technology cost.
2. Reduced operational and processing Cost
3. Increasing Online Transaction.
4. Lower transaction fee or cost for e-payments
5. Variety of e-payment options are available to the customers
6. The seller is able to receive payment from any part of the world within a few minute
7. E-payment is convenient for both to the merchant and customer

12. Electronic Payment Systems
Requirements of E-Payment Systems
1. Security
2. Privacy
3. Integrity
4. Authentication
5. Reversible
6. Standardized
7. Economical
8. Scalable

13. Electronic Payment Systems
Benefits of Electronic Payment Systems
1. Speed and Convenience
2. Safety
3. Accept Online Payments
4. Cut Costs
5. Reduce Late Payments
6. Environment Friendly

14. Electronic Payment Systems
Limitations of Electronic Payment Systems
1. Lack of Security
2. Lack of Applicability
3. High Usage Costs for Merchants
4. Unsuitability

15. Types of Electronic Payment System
. Credit/Debit Card payment System
There are four parties involved in credit/debit card transactions
A customer who owns a Credit/Debit Card
A merchant who accepts a Credit/Debit Card
A bank which issues the card to the customer. The bank guarantees payment to merchants and collects money from its customers
An acquirer which is normally another bank which establishes an account with a merchant. The acquirer normally charges a commission of around 2% on each sale from the merchant.

16. Types of Electronic Payment System Credit/Debit Card payment System

17. What is SSL ?
SSL stands for Secure Sockets Layer. It provides a secure connection between internet browsers and websites, allowing you to transmit private data online. Sites secured with SSL display a padlock in the browsers URL and possibly a green address bar if secured by an EV Certificate
An Extended Validation Certificate (EV) is an X.509 public key certificate issued according to a specific set of identity verification criteria. These criteria require extensive verification of the requesting entity's identity by the certificate authority (CA) before a certificate is issued 

18. An Extended Validation Certificate in Mozilla Firefox

20. Electronic Payment Systems
The payment process using SSL protocol of Electronic Payment Systems
1. Lack of Security
2. Lack of Applicability
3. High Usage Costs for Merchants
4. Unsuitability

21. Types of Electronic Payment System
. Electronic Cheque Payment System
It is a system that transfers money electronically from buyer’s account to the seller’s bank account. An electronic cheque is an electronic version of a paper cheque.The payment process also resembles the functions of a paper cheque, but offers greater security and more features.

22. Electronic Cheque Payment System
In an E- cheque payment system five parties are involved
Purchaser
Vendor
Purchaser’s bank
Vendor’s bank
Automated Clearing House (ACH)
ACH is an intermediary in clearing electronic cheque .
They transfer funds from one bank to another. In India the Reserve Bank of India

23. Electronic Cheque Payment System
The process of Electronic Cheque Payment System
1. When the invoice of the items purchased is received online from the vendor , the purchaser prepares an e cheque. It contains name of the bank , his bank , his account number, name of the payee and amount of cheque. Instead of hand written signature , a Digital signature is added .It is a computer number authenticating the cheque’s account owner. Then the whole document is encrypted and sent to the vendor
2. The vendor decrypts the information to check the details. Then he digitally signs all the above information. This is encrypted with the public key of his bank and then forwarded to the bank

24. Electronic Cheque Payment System
The process of Electronic Cheque Payment System
3. The vendor’s bank decrypts the information. It takes out the e-cheque and sent to ACH in an encrypted form the whole document is encrypted and sent to the vendor
4. The ACH decrypts the cheque and forwards it to the purchaser’s bank encrypting with purchaser banks public key
5. The purchaser bank decrypts and authorises payment. If it is ok
6. ACH debits purchaser banks’s account and credits vendor bank’s account. It also informs the vendor bank that the cheque is cleared

25. Electronic Cheque Payment System
The process of Electronic Cheque Payment System
7. The vendor’s bank credits the amount to the vendor’s account
8. The purchaser’s bank deducts the amount from the purchase’s accounts.

26. Benefits of E-Cheque Payment System
1. Reduced Processing Cost
2. Faster
3. Safe
4. Reduced Fraud

27. Electronic Cheque Payment System

28. Electronic Cash Payment System
E-Cash or Digital Cash is a method that allows buyers to pay for goods or services online by transmitting over the internet a unique electronic number or other identifier that carries a specific value.
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 cash from the account to his computer and spends it in the internet. Theoretically , e-cash can be spent in very small increments, such as Rs.10, Rs.20, Rs.50 etc

29. Electronic Cash Payment System
E-Cash or Digital Cash is a method that allows buyers to pay for goods or services online by transmitting over the internet a unique electronic number or other identifier that carries a specific value.
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 cash from the account to his computer and spends it in the internet. Theoretically , e-cash can be spent in very small increments, such as Rs.10, Rs.20, Rs.50 etc.

30. Electronic Cash Payment System
1. A customer applies to a bank for e-cash by paying an amount in cash or by cheque. He requests the banks to issue e-coins in various denominations such as Rs.100, Rs.50, Rs.20, Rs.10 etc.
2. The bank issue e-coins from its currency server. It assigns a random number as ID to each coin. Bank digitally signs each coin with its private key. E-coin have an expiry date also. The bank maintains a data base also. The bank maintains a data base of all e-coins issued. E-coins are stored by the customer in an e-coin data base called e- purse.
3. When the customer buys products online he can pay
e-coin from his e-purse. The coin is send to the merchant using http protocol to ensure security. At the same time , the customer’s computer marks that coin as spent in its e- purse

31. Electronic Cash Payment System
4. The merchant sends the e-coin to the bank’s currency server using SSL connection. The currency server verifies the digital signature in the e-coin. Then the e-coin is accepted and merchant’s account is credited with the approved amount, after deducting commission.
5. Information passed on to the merchant, and the merchant in turn, delivers the goods to the customer.

32. Electronic Cash Payment Process flow

33. Electronic Cash Payment System
Advantages of E-Cash
Lower Transaction Cost
Convenient
Authorization not required
Suitable for small payments
Limitations of E-Cash
High financial risk as e-cash may be stolen by hackers
The vendors should have account in the same bank which issued the e-cash

34. CyberCash
Cyber Cash offers secure means through which credit card information can be exchanged over the internet. Cyber Cash payment system is designed to provide fast, secure, and efficient financial transaction over the internet. Cyber cash permits online payments without the fear of cyber fraud. Customers can make payment by credit card without revealing the credit card number to the vendor. To achieve this, the customers who intend to purchase online have to install software called “Cyber Cash Wallet” on their computer. When the software is installed , a public and private key pair is generated.

35. Credit card Transaction using Cyber Cash
In an online purchase , when the purchase is over the “Cyber Cash Wallet” displays the invoice amount and the name of the merchant.
When the credit card payment is approved by the customer, it is forwarded to the vendor in an encrypted format using the private key
The merchant can decrypt only the product list ,customer information and shipping address. The merchant cannot decrypt the credit card information. The vendor adds a copy of payment information ,affix digital signature and forwarded to the Cyber Cash Gateway, in encrypted form.
The Cyber Cash Gateway verifies the payment information submitted by both the vendor and the customer. If it matches , they perform the money transfer (Customer account is debited and Vendor account credited) and an approval message is forwarded to the vendor.

36. Electronic Banking (E- Banking)
E-Banking is defined as “the automated delivery of new and traditional banking products and services directly to customers through electronic , interactive communication channels”. It is also termed as I- Banking or Online banking.

37. Electronic Banking in India
In India Internet Banking products and services are categorized into three levels
Information Only System
Electronic Information Transfer System
Electronic Transactional System

39. Benefits of E-Banking Convenience Mobility No Fee Direct Deposit
Automatic Bill Payment
Anytime Money
Money Transfer
Online Statement

40. Limitations of E-Banking
Lack of trust
Forgery
Lack of Knowledge

41. Internet Banking Services
Fund Transfer
Bill Payment
Shopping
Mobile Recharge
Investment
Tax Payment
Online Reservation

42. ELECTRONIC FUND TRANSFER (EFT)
Electronic funds transfer (EFT) is the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, through computer-based systems and without the direct intervention of bank staff. EFTs are known by a number of names. In the United States, they may be referred to as electronic checks or e-checks

43. ELECTRONIC FUND TRANSFER (EFT)
The term covers a number of different payment systems, for example:
cardholder-initiated transactions, using a payment card such as a credit or debit card
direct deposit payment initiated by the payer
direct debit payments for which a business debits the consumer's bank accounts for payment for goods or services
wire transfer via an international banking network such as SWIFT
electronic bill payment in online banking, which may be delivered by EFT or paper check
transactions involving stored value of electronic money, possibly in a private currency.

44. NEFT
NEFT is a facility provided to bank customers to enable them to transfer funds easily and securely on a one-to- one basis. It is done via electronic messages. This is not on real-time basis like RTGS (Real Time Gross Settlement). This is a "net" transfer facility which is executed in hourly batches resulting in a time lag. NEFT facilities are available in 30,000 bank branches all over the country and work on a batch mode.

45. RTGS
The acronym 'RTGS' stands for Real Time Gross Settlement, which can be defined as the continuous (real-time) settlement of funds transfers individually on an order by order basis (without netting). 'Real Time' means the processing of instructions at the time they are received rather than at some later time; 'Gross Settlement' means the settlement of funds transfer instructions occurs individually (on an instruction by instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank of India, the payments are final and irrevocable.

46. DIFFERENCE BETWEEN NEFT AND RTGS
NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. In DNS, the settlement takes place with all transactions received till the particular cut-off time. These transactions are netted (payable and receivables) in NEFT whereas in RTGS the transactions are settled individually. For example, currently, NEFT operates in hourly batches. [There are twelve settlements from 8 am to 7 pm on week days and six settlements from 8 am to 1 pm on Saturdays.] Any transaction initiated after a designated settlement time would have to wait till the next designated settlement time Contrary to this, in the RTGS transactions are processed continuously throughout the RTGS business hours.

47. SMART CARD BASED PAYMENT SYSTEM
A smart card is a plastic card about the size of a credit card , with an embedded microchip that can be loaded with data. This chip contains memory as well as a processor. It can be used for telephone calling, electronic cash payments and other applications.

48. TYPE OF SMART CARDS MICRO PROCESSOR BASED SMART CARDS
Micro Processor based smart card have greater memory storage. The security of the data on the micro processor cards id greater than any other storage device because it has the micro processor embedded in the plastic card along with the memory. Such cards have an 8 bit processor and 512 bytes RAM and 16 KB ROM. Such cards use cryptography for securing digital identity. Some of the micro processor based cards have a COS for managing data.

49. TYPE OF SMART CARDS 2. MEMORY BASED SMART CARDS
Such cards need a card reader to manipulate the data on the card. Memory based cards have no processing power
and cannot manage the data stored in them. These cards
are widely used for access control
Smart card are divided into five
a) Contact Cards
These are the most common type of smart cards. They have gold plated terminals which come in contact with the connectors, when inserted in the card reader.
E.g. SIM cards

51. TYPE OF SMART CARDS b) Contactless Cards
Contactless card do not directly come with the card reader. They have an embedded antenna. When the card is taken near to the reader., it transfers data by wireless coupling to the reader. These cards employ a radio frequency between card and reader without physical incretion of the card.
E.g. Cards used for paying tall, Parking fee etc.

52. TYPE OF SMART CARDS c) Combination Smart Cards/ Dual Interface Cards
It is the combination of Smart cards and contact less smart cards. These cards can be read and written with contact or without contact with the reader. The same chip can be accessed through contact or contactless interface. These cards used for network security and access control.

53. TYPE OF SMART CARDS d) Proximity Smart Cards
Proximity Cards or Prox cards are contact less smart cards, but they are read only. Proximity cards communicate trough an antenna similar to contactless smart card except that they are read only. They are widely used for Identification, access control etc

54. TYPE OF SMART CARDS e) Hybrid Smart Cards
Hybrid Smart card have multiple chips in the same card . These are typically attached to each interface separately. These cards used in security, ID, access control. As e- wallet, e-passport.

55. THE END