Chapter-4

ELECTRONIC PAYMENT SYSTEM

4.1 Introduction:
 Electronic payment systems are proliferating in banking, retail, health care, on-line markets, and even
government-in fact, anywhere money needs to change hands. Organizations are motivated by the need
to deliver products and services more cost effectively and to provide a higher quality of service to
customers. A timeline showing the evolution of payment systems is presented in Table 12.1.
 EFT is defined as “any transfer of funds initiated through an electronic terminal, telephonic
instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to
debit or credit an account.”
 EFT utilizes computer and telecommunication components both to supply and to transfer money or
financial assets.
 Transfer is information-based and intangible. Thus EFT stands in marked contrast to conventional
money and payment modes that rely on physical delivery of cash or checks (or other paper orders to
pay) by truck, train, or airplane.
 Work on EFT can be segmented into three broad categories:

I. Banking and financial payments

1. Large-scale or wholesale payments (e.g., bank-to-bank transfer)
2. Small-scale or retail payments (e.g., automated teller machines and cash dispensers)
3. Home banking (e.g., bill payment)

II. Retailing payments

1. Credit cards (e.g., VISA or MasterCard)
2. Private label credit/debit cards (e.g., J.C. Penney Card)
3. Charge cards (e.g., American Express)

III. On-line electronic commerce payments

1. Token-based payment systems Electronic cash (e.g., DigiCash) Electronic checks (e.g., NetCheque)
Smart cards or debit cards (e.g., Mondex Electronic Currency Card)
2. Credit card-based payment systems Encrypted credit cards (e.g., World Wide Web form based
encryption) Third-party authorization numbers (e.g., First Virtual)

4.2 Digital Token-Based Electronic Payment Systems

 Entirely new forms of financial instruments are also being developed.
 One such new financial instrument is “electronic tokens” in the form of electronic cash/money or
checks.
 Electronic tokens are designed as electronic analogs of various forms of payment backed by a
bank or financial institution.
 Simply stated, electronic tokens are equivalent to cash that is backed by a bank.

Electronic tokens are of three types:

1. Cash or real-time. Transactions are settled with the exchange of electronic currency. An example of
on-line currency exchange is electronic cash (e-cash).
2. Debit or prepaid. Users pay in advance for the privilege of getting information. Examples of prepaid
payment mechanisms are stored in smart cards and electronic purses that store electronic money.
3. Credit or postpaid. The server authenticates the customers and verifies with the bank that funds are
adequate before purchase. Examples of postpaid mechanisms are credit/ debit cards and electronic checks.
The following sections examine these methods of on-line payment. But we must first understand the
different viewpoints that these payment instruments bring to electronic commerce.
4.3 Four dimensions those are useful for analyzing the different initiatives:
1. The nature of the transaction for which the instrument is designed
 Some-tokens are-specifically designed to handle micro payments, that is, payments for small
snippets of information. Others are designed for more traditional products.
 Some systems target specific niche transactions; others seek more general transactions.
 The key is-to identify the parties involved, the average amounts, and the purchase interaction.
2. The means of settlement used
 Tokens must be backed by cash, credit, electronic bill payments (prearranged and spontaneous),
cashier’s checks, lOUs, letters and lines of credit, and wire transfers, to name a few.
 Each option incurs trade-offs among transaction speed, risk, and cost.
 Most transaction settlement methods use Credit cards, while others use other proxies for value,
effectively creating currencies of dubious liquidity and with interesting tax, risk, and float
implications
1. Nature of transaction
for which the instrument 2. The means of
is used Settlement used

TYPES

3. The question of 4. Approach to security,

risk anonymity & authentication
.
3. Approach to security, anonymity, and authentication
Electronic tokens vary in the protection of privacy and confidentiality of the transactions.
Some may be more open to potentially prying eyes-or even to the participants themselves. Encryption can
help with authentication, non reputability, and asset management.
4. The question of risk
 Who assumes what kind of risk at what time?
 The tokens might suddenly become worthless and the customers might have the currency that
nobody will accept.
 If the system stores value in a smart card, consumers may be exposed to risk as they hold static
assets.
 Also electronic tokens might be subject to discounting or arbitrage.
 Risk also arises if the transaction has long lag times between product delivery and payments to
merchants.
 This exposes merchants to the risk that buyers don’t pay-or vice versa that the vendor doesn’t
deliver.
4.4 Electronic Cash (e-cash)
 Electronic cash (e-cash) which is a new concept in on-line payment systems because it combines
computerized convenience with security and privacy that improve on paper cash.
 Its versatility opens up a host of new markets and applications.
 E-cash presents some interesting characteristics that should make it an attractive alternative for
payment over the Internet.
 E-cash focuses on replacing cash as the principal, payment vehicle in consumer-oriented electronic
payments.
 Although it may be surprising to some, cash is still the most prevalent consumer payment
instrument even after thirty years of continuous developments in electronic payment systems.
Cash remains the dominant form of payment for three reasons:
(1) Lack of trust in the banking system,
(2) Inefficient clearing and settlement of non-cash transactions, arid
(3) Negative real interest rates paid on bank deposits.

Properties of Electronic Cash

Of the many ways that exist for implementing an e-cash system, all must incorporate a few common
features. Specifically, e-cash must have the following four properties: monetary value, interoperability,
irretrievability, and security.
 E-cash must have a monetary value: - Bank authorized credit, or a bank-certified cashier’s check.
When e-cash created by one bank is accepted by others, reconciliation must occur without any
problems. Stated, another way, e-cash without proper bank certification carries the risk that when
deposited, it might be returned for insufficient funds.
 E-cash must be interoperable: -That is, exchangeable as payment for other e-cash, paper cash, goods
or services, lines of credit, deposits in banking accounts, bank notes or obligations, electronic benefits
transfers, and the like. Most e- cash proposals use a single bank. In practice, multiple banks are
required with an international clearinghouse that handles the exchange-ability issues because all
customers are not going to be using the same bank or even be in the same country.
 E-cash must be storable and retrievable. Remote storage and retrieval (e.g., from a telephone or
personal communications device) would allow users to exchange e-cash (e.g., withdraw from and
deposit into banking accounts) from home or office or while traveling. The cash could be stored on a
remote computer’s memory, in smart cards, or in other easily transported standard or special-purpose
devices. One example of a device that can store e-cash is the Mondex card-a pocket-sized electronic
wallet.
 E-cash should not be easy to copy or tamper with while being exchanged; this includes preventing
or detecting duplication and double-spending. Counterfeiting poses a particular problem, since a
counterfeiter may, in the Internet environment, be anywhere in the world and consequently be difficult
to catch without appropriate international agreements.
Detection is essential in order to audit whether prevention is working. Then there is the tricky issue of
double spending. For instance, you could use your e-cash simultaneously to buy something in Japan,
India, and England. Preventing double spending from occurring is extremely difficult if multiple
banks are involved in the transaction. For this reason, most systems rely on post-fact detection and
punishment. Now we will see the concept of Electronic Cash actually works.

Electronic Cash in Action

 Electronic cash is based on Cryptographic systems called “Digital Signatures”.
 This method involves a pair of numeric keys (very large integers or numbers) that work in tandem:
 One for locking (or encoding)
 Other for unlocking (or decoding).
 Messages encoded with one numeric key can only be decoded with the other numeric key and none
other.
 The encoding key is kept private and the decoding key is made public.
 By supplying all customers (buyers and sellers) with its public key, a bank enables customers to decode
any message (or currency) encoded with the bank’s private key. If decoding by a customer yields a
recognizable message;” the customer can be fairly confident that only the bank could have encoded it.
 These digital signatures are as secure as the mathematics involved and have proved over the past two
decades to be more resistant to forgery than handwritten signatures. Before e-cash can be used to buy
products or ser-vices, it must be procured from a currency server.
Purchasing E-cash from Currency Servers
The purchase of e cash from an on-line currency server (or bank) involves two steps:
(1) Establishment of an account and
(2) Maintaining enough money in the account to back the purchase.
Some customers might prefer to purchase e-cash with paper currency, either to maintain anonymity or
because they don’t have a bank account. Currently, in most e-cash trials all customers must have an
account with a central on-line bank.

Customer generates ‘note’ with

required value & assign random no.
CUSTOMER CUSTOMER
(Payer) Bank
Bank validates the ‘note’ its
Customer
stamp s after ensuring it has
sends no. to
come from customer
merchant

MERCHANT Random No. MERCHANT

(Payer) Bank
Verifying No. & Credit
Merchant a/c
DB of spent
‘Notes’
How does this process work in practice?
i. In the case of DigiCash, every person using e-cash has an e-cash account at a digital bank (First
Digital Bank) on the Internet.
ii. Using that account, people can withdraw and deposit e-cash.
iii. When an e-cash withdrawal is made, the PC of the e-cash user calculates how many digital coins
of what denominations are needed to withdraw the requested amount.
iv. Next, random serial numbers for those coins will be generated and the blinding (random number)
factor will be included.
v. The result of these calculations will be sent to the digital bank.
vi. The bank will encode the blinded numbers with its secret key (digital signature) and at the same
time debit the account of the client for the same amount.
vii. The authenticated coins are sent back to the user and finally the user will take out the blinding
factor that he or she introduced earlier.
viii. The serial numbers-plus their signatures are now digital coins or tokens; their value is guaranteed
by the bank.
ix. Using the Digital Currency: Once the tokens are purchased, the e-cash software on the
customer’s PC stores digital money undersigned by a bank. The users than spends the digital-
money of any shop accepting e-cash, without having to open an account there first or-having to
transmit credit card numbers. As soon as the customer wants to make a payment, the software
collects the necessary amount from the stored tokens.
x. Two types of transactions are possible: bilateral and trilateral.
 Typically, transactions involving cash are bilateral or two-party (buyer and seller) transactions,
whereby the merchant checks the veracity of the note’s digital signature by using the bank’s public
key. If satisfied with the payment, the merchant stores the digital currency on his machine and deposits
it later in the bank to redeem the face value of the note.
 Transactions involving financial instruments other than cash are usually trilateral or three-party (buyer,
seller, and bank) transactions, whereby the “notes” are sent to the merchant, who immediately sends
them directly to the digital bank. The bank verifies the validity of these “notes” and that they have not
been spent before. The account of the merchant is credited. In this case, every “note” can be used only
once.

Drawback of E-cash:
1. One drawback of e-cash is its inability to be easily divided into smaller amounts.
2. One of the business issues while using Electronic Cash is that it can’t take tangible form.
3. The enormous currency fluctuations in international finance pose another problem in business
while using e-cash
4. Operational risk associated with e-cash can be mitigated by imposing constraints, such as limits
on
(1) The time over which a given electronic money is valid,
(2) How much can be stored on and transferred by electronic money
(3) The number of exchanges that can take place before a money needs to be redeposit with a
bank or financial institution, and
(4) The number of such transactions that can be made during a given period of time.
5. The use of e-cash can cause threat to the government’s revenue flow.

4.5 Electronic Checks

 Electronic checks are another form of electronic tokens.
 They are designed to accommodate the many individuals and entities that might prefer to pay on credit
or through some mechanism other than cash.
 In the model, buyers must register with a third-party account server before they are able to write
electronic checks. The account server also acts as a billing service. The registration procedure can vary
depending on the particular account server and may require a credit card or a bank account to back the
checks. Once registered, a buyer can then contact sellers of goods and services. To complete a
transaction, the buyer sends a check to the seller for a certain amount of money. These checks may be
sent using e-mail or other transport methods. When deposited, the check authorizes the transfer of
 account balances from the account against which the check was drawn to the account to which the
check was deposited. The e-check method was deliberately created to work in much the same way as a
conventional paper check.
Transfer
Payer Payee

Electronic Checks

Forward check for payer

authentication

Debit Checks
Bank Accounting
Server

An account holder will issue an electronic document that contains the name of the payer, the name of the
financial institution, the payer’s account number, the name of the payee and amount of the check. Most of
the information is in uncoded form. Like a paper check, an e-check will bear the digital equivalent of a
signature: a computed number that authenticates the check as coming from the owner of the account. And,
again like a paper check, an e-check will need to be endorsed by the payee, using another electronic
signature, before the check can be paid. Properly signed and endorsed checks can be electronically
exchanged between financial institutions through electronic clearinghouses, with the institutions using
these endorsed checks as tender to settle accounts.
The specifics of the technology work in the following manner:
On receiving the check, the seller presents it to the accounting server for verification and payment. The
accounting server verifies the digital signature on the check using any authentication scheme. A user’s
digital “signature” is used to create one ticket-a check-which the seller’s digital “endorsement” transforms
into another-an order to a bank computer for fund transfer. Subsequent endorsers add successive layers of
information onto the tickets, precisely as a large number of banks may wind up stamping the back of a
check along its journey through the system.

Electronic cheques have the following advantages:

1. They work in the same way as traditional checks, thus simplifying customer education.
2. Electronic checks are well suited for clearing micro payments; their use of conventional
cryptography makes it much faster than systems based on public-key cryptography e-cash).
3. Electronic checks create float and the availability of float is an important requirement for
commerce. The third-party accounting server can make money by charging the buyer or seller a
transaction fee or a flat rate fee, or if can act as a bank and provide deposit accounts and make
money on the deposit account pool.
4. Financial risk is assumed by the accounting server and may result in easier acceptance. Reliability
and scalability are provided by using multiple accounting servers. There can be an inter account
server protocol to allow buyer and seller to “belong” to different domains, regions, or countries.

4.6 Smart Cards or Debit Cards and Electronic Payment Systems

Smart cards have been in existence since the early 1980s and hold promise for secure transactions using
existing infrastructure.
Smart cards are credit and debit cards and other card products enhanced with microprocessors capable of
holding more information than the traditional magnetic stripe.
The chip, at its current state of development, can store significantly greater amounts of data, estimated to
be 80 times more than a magnetic stripe.
Industry observers have predicted that, by the year 2012, one-half of all payment cards issued in the
world will have embedded microprocessors rather than the simple magnetic stripe.
Smart cards are basically of two types:
1. Relationship-based smart credit cards
 2. Electronic purses.
SMART-CARDS

Relationship based Electronic Purses

Smart Card

Electronic purses, which replace money, are also known as debit cards and electronic money.
Relationship-Based Smart Cards
Financial institutions worldwide are developing new methods to maintain and expand their services to
meet the needs of increasingly sophisticated and technically smart customers, as well as to meet the
emerging payment needs of electronic commerce. Traditional credit cards are fast evolving into smart
cards as consumers demand payment and financial services products that are user-friendly, convenient,
and reliable.
A relationship-based smart card is an enhancement of existing card ser-vices and/or the addition of new
services that a financial institution delivers to its customers via a chip-based card or other device. These
new services may include access to multiple financial accounts, value-added marketing programs, or
other information cardholders may want to store on their card. The chip-based card is but one tool that
will help alter mass marketing techniques to address each individual’s specific financial and personal
requirements. Enhanced credit cards store cardholder information including name, birth date, personal
shopping preferences, and actual purchase records.
This information will enable merchants to accurately track consumer behavior and develop promotional
programs designed to increase shopper loyalty. Relationship-based products are expected to offer
consumers far greater options, including the following:
1. Access to multiple accounts, such as debit, credit, investments or stored value for e-cash, on one
card or an electronic device
2. A variety of functions, such as cash access, bill payment, balance inquiry, or funds transfer for
selected accounts
3. Multiple access options at multiple locations using multiple device types, such as an automated
teller machine, a screen phone, a personal computer, a personal digital assistant (PDA), or
interactive TVs Companies are trying to incorporate these services into a personalized banking
relationship for each customer. They can package financial and non financial services with value-
added programs to enhance convenience, build loyalty and retention, and attract new customers.

Electronic Purses and Debit Cards

Despite their increasing flexibility, relationship-based cards are credit based and settlement occurs at the
end of the billing cycle. There remains a need for a financial instrument to replace cash.
To meet this need, banks, credit card companies, and even government institutions are racing to introduce
“electronic purses,” wallet-sized smart cards embedded with programmable microchips that store sums
of money for people to use instead of cash for everything from buying food, to making photocopies, to
paying subway fares.

The electronic purse works in the following manner. After the purse is loaded with money, at an
ATM or through the use of an inexpensive special telephone, it can be used to pay for, say, candy in a
vending machine equipped with a card reader. The vending machine need only verify that a card is
authentic and there is enough money available for a chocolate bar. In one second, the value of the
purchase is deducted from the balance on the card and added to an e-cash box in the vending machine.
The remaining balance on the card is displayed by the vending machine or can be checked at an ATM or
with a balance-reading device. Electronic purses would virtually eliminate fumbling for change or small
bills in a busy store or rush-hour toll booth, and waiting for a credit card purchase to be approved. This
allows customers to pay for rides and calls with a prepaid card that “remembers” each transaction. And
when the balance on an electronic purse is depleted, the purse can be recharged with more money. As for
 the vendor, the receipts can be collected periodically in person—or, more likely, by telephone and
transferred to a bank account.

4.7 Credit Card-Based Electronic Payment Systems

There is nothing new in the basic process. If consumers want to purchase a 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.

We can break credit card payment on on-line networks into three basic categories:

Category of Credit Cards

Payment using Payment using Payment using

Credit Cards details Encrypted Card details Third Party Verification

1. Payments using plain credit card details. The easiest method of payment is the exchange of
unencrypted credit cards over a public network such as telephone lines or the Internet. The low level of
security inherent in the design of the Internet makes this method problematic (any snooper can read a
credit card number, and programs can be created to scan the Internet traffic for credit card numbers and
send the numbers to its master). Authentication is also a significant problem, and the vendor is usually
responsible to ensure that the person using the credit card is its owner. Without encryption there is no
way to do this.
2. Payments using encrypted credit card details. It would make sense to encrypt your credit card details
before sending them out, but even then there are certain factors to consider. One would be the cost of a
credit card transaction itself. Such cost would prohibit low-value payments (micro payments) by adding
costs to the transactions.
3. Payments using third-party verification. One solution to security and verification problems is the
introduction of a third party: a company that collects and approves payments from one client to another.
After a certain period of time, one credit card transaction for the total accumulated amount is completed.
Entities involved in Credit card Transaction
1. Consumer (Buyer or Card holder)
2. Merchant (Seller)
3. Card Issuer (Consumers’ Bank)
4. Acquirer or Principal (Merchant’s Bank)
5. Card Association (Visa, Master Card etc)
6. Third party processor
How an Online Credit Transaction Works
4.8 Encryption and Credit Cards
Encryption is instantiated when credit card information is entered into a browser or other
electronic commerce device and sent securely over the net-work from buyer to seller as an
encrypted message. This practice, however, does not meet important requirements for an
adequate financial system, such as non refutability, speed, safety, privacy, and security.
Customer Send Encrypted Merchant’s Server
Credit Card No.

Send Information

Monthly
Purchase Check for Credit
& Sufficient Funds Card authenticity
Statement
Verify

Authorize
Customer’s Bank
Online Credit Card Processor
To make a credit card transaction truly secure and non refutable, the following sequence of
steps must occur before actual goods, services, or funds flow:
1. A customer presents his or her credit card information (along with an authenticity signature
or other information such as mother’s maiden name) securely to the merchant.
2. The merchant validates the customer’s identity as the owner of the credit card account.
3. The merchant relays the credit card charge information and signature to its bank or on-line
credit card processors.
4. The bank or processing party relays the information tot the customer’s; bank for
authorization approval.
5. The customer’s bank returns the credit card data, charge authentication, and authorization to
the merchant.
In this scheme, each consumer and each vendor generates a public key and a secret key. The
public key is sent to the credit card company and put on its public key server. The secret key is
reencrypted with a password, and the unencrypted version is erased.

Third-Party Processors and Credit Cards

In third-party processing, consumers register with a third party on the Internet to verify
electronic micro transactions. Verification mechanisms can be designed with many of the
attributes of electronic tokens, including anonymity. They differ from electronic token
systems in that
(1) They depend on existing financial instruments and
(2) They require the on-line involvement of at least one additional party and, in some cases,
multiple parties to ensure extra security. However, requiring an on-line third-party connection
for each transaction to different banks could lead to processing bottlenecks that could
undermine the goal of reliable use.
Companies that are already providing third-party payment are referred to as On-line third-
party processors (OTPPs) since both methods are fairly similar in nature. OTPPs have
created a six-step process that they believe will be a fast and efficient way to buy information
on-line:
 CUSTOMER MERCHANT

REQUEST
CLIENT MERCHANT’s
BROWSER SERVER

Verification Authorization
PAYMENT

One third party

processor with
links to multiple
payment systems

1. The consumer acquires an OTPP account number by filling out a registration form. This
will give the OTPP a customer information profile that is backed by a traditional
financial instrument such as a credit card.
2. To purchase an article, software, or other information online, the consumer requests the
item from the merchant by quoting her OTPP account number. The purchase can take
place in one of two ways: The consumer can automatically authorize the “merchant” via
browser settings to access her OTPP account and bill her, or she can type in the account
information.
3. The merchant contacts the OTPP payment server with the customer’s account number.
4. The OTPP payment server verifies the customer’s account number of; the vendor and
checks for sufficient funds.
5. The OTPP payment server sends an electronic message to the buyer. This message could
be an automatic WWW form that is sent by the OTPP server or could be a simple e-
mail. The buyer responds to the form or e-mail in one of three ways: Yes, I agree to pay;
No, I will not pay; or Fraud, I never asked for this.
6. If the OTPP payment server gets a Yes from the customer, the merchant is informed and
the customer is allowed to download the material immediately.
7. The OTPP will not debit the buyer’s account until it receives confirmation of purchase
completion. Abuse by buyers who receive information or a product and decline to pay
can result in account suspension.
To use this system, both customers and merchant must be registered with the OTPP. An on-
line environment suitable for micro transactions will require that many of the preceding
steps be automated.

Third-party processing for credit cards entails a number of pros as well as cons these
companies are chartered to give credit accounts to individuals and act as bill collection agencies
for businesses. Consumers use credit cards by presenting them for payment and then paying
an aggregate bill once a month. Consumers pay either by flat fee or individual transaction
charges for this service. Merchants get paid for the credit card drafts that they submit to the
credit card company. Businesses get charged a transaction charge ranging from 1 percent to 3
percent for each draft submitted.

Credit cards have advantages over checks in that the credit card company assumes a larger
share of financial risk for both buyer and seller in a transaction. Buyers can sometimes dispute
a charge retroactively and have the credit card company act on their behalf. Sellers are ensured
that they will be paid for all their sales—they needn’t worry about fraud. This translates into a
convenience for the buyer, in that credit card transactions are usually quicker and easier than
check (and sometimes even cash) transactions.
One disadvantage to credit cards is that their transactions are not anonymous, and credit card
companies do in fact compile valuable data about spending habits.

Risk in using Credit cards

• Customer uses a stolen card or account number to fraudulently purchase goods or service
online.
• Many people who will be on the Internet have not even had their first Web experience.
• Hackers find the ways into an e-commerce merchant’s payment processing system and then
issue credits to hacker card account numbers.
• Many users are also likely to be younger and have less access to credit and debit cards
• Many purchases they make will be micropayments.
• Credit cards cannot be used for large sums of B2B transactions
• Customer falsely claims that he or she did not receive a shipment

Limitations of Online Credit Card Payment Systems

• Security – neither merchant nor consumer can be fully authenticated.
• Cost – for merchants, around 3.5% of purchase price plus transaction fee of 20- 30 cents per
transaction.
• People living in rural areas don’t have same access to computers and Internet that others do.
• Social equity – many people do not have access to credit cards (young and old age), disabled,
individuals who are not computer savvy and individuals who cannot afford cards (poor credit
risk).

4.9 Designing Electronic Payment Systems

1. Privacy. A user expects to trust in a secure system; just as the telephone is a safe and
private medium free of wiretaps and hackers, electronic communication must merit
equal trust.
2. Security. A secure system verifies the identity of two-party transactions through “user
authentication” and reserves flexibility to restrict information/services through access
control. Tomorrow’s bank robbers will need no getaway cars just a computer terminal,
the price of a telephone call, and a little ingenuity. Millions of dollars have been
embezzled by computer fraud. No systems are yet fool-proof, although designers are
concentrating closely on security.
 E-COMMERCE
3. Intuitive interfaces. The payment interface must be as easy to use as a telephone.
Generally speaking, users value convenience more than anything.
4. Database integration. With home banking, for example, a customer wants to play with
all his accounts. To date, separate accounts have been stored on separate databases.
5. The challenge before banks is to tie these databases together and to allow customer’s
access to any of them while keeping the data up-to-date and error free.
6. Brokers. A “network banker”-someone to broker goods and services, settle conflicts,
and facilitate financial transactions electronically-must be in place.
7. One fundamental issue is how to price payment system service. For example, should
subsidies be used to encourage users to shift from one form of payment to another,
from cash to bank payments, from paper-’based to e-cash. The problem with subsidies
is the potential waste of resources, as money may be invested in systems that will not
be used.
Thus investment in systems not only might not be recovered but substantial ongoing
operational subsidies will also be necessary. On the other hand, it must be recognized that
without subsidies, it is difficult to price all services affordably Standards. Without standards,
the welding of different payment users into different networks and different systems is
impossible. Standards enable interoperability, giving users the ability to buy and receive
information, regardless of which bank is managing their money. None of these hurdles are
insurmountable. Most will be jumped within the next few years. These technical problems,
experts hope, will be solved as technology is improved and experience is gained. The biggest
question concerns how customers will take to a paperless and (if not cashless) less-cash
world.