MIRPUR UNIVERSITY OF SCIENCE AND TECHNOLOGY (MUST), MIRPUR

DEPARTMENT OF COMPUTER SCIENCE & INFORMATION TECHNOLOGY

 E-COMMERCE
BIT - 3604

Lecture 05 : E-Commerce - Payment System

Ms. Saeeda Kouser

(Lecturer)

Date: _____________
 LECTURE CONTENTS

1. Introduction

2. E-Commerce Payment Systems

3. Underlying Procedures of each Payment Method

4. Authentication Process

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 INTRODUCTION

• The Electronic Payments allow sellers and consumers to clear payments, dues and
engage in cashless trading on the internet.

• Electronic payment is a financial exchange that takes place online between buyer
& seller.

• The information as a financial exchange is usually some form of digital financial

instrument (Electronic Cash, Electronic checks & encrypted plastic card numbers)
that is indirectly produced by a bank or an intermediary.

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 ELECTRONIC PAYMENT SYSTEM [EPS]

Electronic Payment System [EPS]

• Electronic Payment Systems are indispensable in today’s business process as companies
are looking for innovating ideas to serve customers faster and at low cost.

• Prompt and secure payment, clearing and settlement of credit or debit claims are the
important aspects of electronic payment system.

• E-commerce capability of reducing transaction time, its cost and providing security is the
main reason of its growth.

• E-commerce sites use electronic payment, where electronic payment refers to paperless
monetary transactions.
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 ELECTRONIC PAYMENT SYSTEM [EPS]

Issues while designing e-payment system

• Payment instruments must be secure, have a low processing cost and be accepted widely
as global currency tender.

• The forms and characters of payment instrument e.g. electronic cash, credit/debit cards
should be desirable to consumer.

• The issues regarding privacy, fraud, mistakes, bank features should be guarded by proper
security features as authentication / privacy etc.

• The issues regarding the protocols that connect one financial institution to the other.

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 ELECTRONIC PAYMENT SYSTEM [EPS]

Digital / Electronic Token based Electronic Payment System

1. Cash or real time: . The transactions are settled with the exchange of electronic currency

2. Debit or Prepaid: Users pay in advance for privilege of getting information.

3. Credit or Postpaid: The Customer purchases goods first, which is authenticated by

server. The value of purchase is deposited later in bank.

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 ELECTRONIC PAYMENT SYSTEM [EPS]

• Electronic payment has revolutionized the business processing by reducing the paperwork,
transaction costs, and labor cost.

• Being user friendly and less time-consuming than manual processing, it helps business
organization to expand its market reach/expansion.

• Listed below are some of the modes of electronic payments −

• Credit Card

• Debit Card

• Smart Card
• E-Money
• Electronic Fund Transfer (EFT)
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 E-COMMERCE - PAYMENT SYSTEMS
Credit Card
Payment using credit card is one of most common mode of electronic payment.
Credit card is a small plastic card with a unique number attached with an account. It has also a magnetic strip
embedded in it which is used to read credit card via card readers.
When a customer purchases a product via credit card, credit card issuer bank pays on behalf of the customer
and customer has a certain time period after which he/she can pay the credit card bill. It is usually credit card
monthly payment cycle. Following are the actors in the credit card system.
The card holder − Customer
The merchant − seller of product who can accept credit card payments.
The card issuer bank − card holder's bank
The acquirer bank − the merchant's bank
The card brand − for example , visa or Maste rcard.

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 E-COMMERCE - PAYMENT SYSTEMS

Steps Description

Step 1 Bank issues and activates a credit card to the customer on his/her request.

Step 2 The customer presents the credit card information to the merchant site or to the merchant from
whom he/she wants to purchase a product/service.
Step 3 Merchant validates the customer's identity by asking for approval from the card brand company.
Step 4 Card brand company authenticates the credit card and pays the transaction by credit. Merchant keeps
the sales slip.
Step 5 Merchant submits the sales slip to acquirer banks and gets the service charges paid to him/her.

Step 6 Acquirer bank requests the card brand company to clear the credit amount and gets the payment.

Step 7 Now the card brand company asks to clear the amount from the issuer bank and the amount gets
transferred to the card brand company.

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 E-COMMERCE - PAYMENT SYSTEMS

Debit Card
• Debit card, like credit card, is a small plastic card with a unique number mapped with the
bank account number.
• It is required to have a bank account before getting a debit card from the bank.
• The major difference between a debit card and a credit card is that in case of payment
through debit card, the amount gets deducted from the card's bank account immediately
and there should be sufficient balance in the bank account for the transaction to get
completed;
• Whereas in case of a credit card transaction, there is no such compulsion.
• Debit cards free the customer to carry cash and cheques. Even merchants accept a debit
card readily.
• Having a restriction on the amount that can be withdrawn in a day using a debit card helps
the customer to keep a check on his/her spending.
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 E-COMMERCE - PAYMENT SYSTEMS

Smart Card
• Smart card is again similar to a credit card or a debit card in appearance, but it has a
small microprocessor chip embedded in it.
• It has the capacity to store a customer’s work-related and/or personal information.
• Smart cards are also used to store money and the amount gets deducted after every
transaction.
• Smart cards can only be accessed using a PIN that every customer is assigned with.
• Smart cards are secure, as they store information in encrypted format and are less
expensive/provides faster processing.
• Mondex and Visa Cash cards are examples of smart cards.

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Smart Cards
Smart Cards are credit, debit cards & other card products enhanced with microprocessors
capable of holding information. E.g. (Metro Card)
Smart Cards are basically of two types.
1. Relationship Based Smart Cards: A relationship based smart card is an enhancement
of existing card service that a financial institution delivers to its customers via a chip
based card. The new services may include.
• Access to Multiple Financial Accounts.
• Value Added Market etc.
• A Variety of functions, such as cash access, bill payments, balance inquiry or funds transfer.
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Smart Cards
2. Electronic Purses Based Smart Cards:
The Electronic Purses are Wallet size smart cards embedded with programmable
microchips that store sums of money for people to use instead of cash.

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E-Money
• E-Money transactions refer to situation where payment is done over the network and the
amount gets transferred from one financial body to another financial body without any
involvement of a middleman.

• E-money transactions are faster, convenient, and saves a lot of time.

• Online payments done via credit cards, debit cards, or smart cards are examples of e-
money transactions.

• Another popular example is e-cash. In case of e-cash, both customer and merchant have to
sign up with the bank or company issuing e-cash.
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Electronic Fund Transfer
• It is a very popular electronic payment method to transfer money from one bank account to
another bank account.

• Accounts can be in the same bank or different banks.

• Fund transfer can be done using ATM (Automated Teller Machine) or using a computer.

• Nowadays, internet-based EFT is getting popular. I

• In this case, a customer uses the website provided by the bank, logs in to the bank's website
and registers another bank account. He/she then places a request to transfer certain amount to
that account.

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Electronic Fund Transfer

• Customer's bank transfers the amount to other account if it is in the same bank,
otherwise the transfer request is forwarded to an ACH (Automated Clearing
House) to transfer the amount to other account and the amount is deducted from
the customer's account.

• Once the amount is transferred to other account, the customer is notified of the
funds transfer by the bank.

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 ACKNOWLEDGEMENTS

• Dave Chaffey :E-Business and E-Commerce Management Strategy, Implementation and

Practice 5th Edition ISBN: 978-0-273-71960-1

• https://www.tutorialspoint.com/e_commerce/e_commerce/htm

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THANKS