Electronic Payment Systems
On-line Payment System can be defined as the method used to pay for the purchases of goods and services over the internet. On-line shopping and on-line banking are both good examples of On-line payment Systems. Nowadays it is very important to have these services as they are convenient and people do not have to leave the comfort of their house to make purchases. It is now a necessity for companies to have On-line systems available to their competitors will gain advantage over them.
It is also important that these companies have a secure online payment system for the security of their customers. History of the On-line Payment System Online payment system has a very short history which only expands to about seventeen years and is still changing to this day. In 1991, Tim Berners-Lee created the World Wide Web and in 1994 “Stanford Federal Credit Union” was the first financial institution to offer online internet banking services to all of its members (http://en. wikipedia. org/wiki/Onlinebanking#History).
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The internet banking of Stanford Federal would have been the first online payment system to exist to customers. Also, in 1994, Pizza Hut set up the first online delivery system. By having the first online delivery system, Pizza Hut gained an advantage over its competitors. Being the first, Pizza Hut will always be one step ahead while other organisations in the same field try and get their version of the payment system up. In 1995 is where Commercialization of the internet began with the introduction of online shopping sites like Amazon. com.
Once Amazon began to grow so did the importance of online payment systems. E-bay was the second business to follow the On-line Payment System. They seem to grow together with success as time went on. Now they are the two biggest online shopping sites on the web. The development of SSL (secure socket layer) encryption in 1995 by Netscape had made the internet a more secure place for online payments and this in turn brought the rise of online shopping. As the internet got more popular, so have online businesses and now its most defiantly part of everyday life.
Even though the history of online payments is short, a lot has happened in that short period of time. Payment Service Providers The first commercial online service known as E-commerce was introduced in 1979 by H&R Block and was considered the first major online service created to serve the market of personal computer users. Nowadays, people are more likely to have access the Internet 24/7 due to high-speed broadband facilities; therefore a new class of online service providers began to provide highly reliable access to the Internet to accommodate vast amounts of online buyers.
These online service providers’ perform by accepting electronic payment methods such as credit card and E-wallets, they also accommodate online bill payments and money transfers such as Western Union, bank transfers, and PayPal which all focus on making it simple for customers to purchase goods online or transfer money at any time via the Internet. Credit cards Credit card is a plastic money card provider, which is controlled by worldwide bank companies to allow customers to make quick and convenient payments online on their favourite purchasing websites.
The use of credit cards as a method of payment has had an impact on the massive growth of online service providers. These online service providers are now trusted by millions of online customers, thus legit websites are now backed by well-known brands or banks such as Visa, MasterCard, American Express and other credit cards providers. These brands or banks provide a secure way of registering your card by applying on these secure websites to obtain a username and a restricted password to gain customers trust without any risk of fraud to discourage online potential buyers.
E-wallet The E-wallet, also known as digital wallet is an online means of storing ‘e-cash’ which aids online transactions with ease. The E-wallet involves a once-off set up and the customer’s personal information is then stored for future purchases. Although the E-wallet is less hassle than using credit cards to purchase goods, in regards to inputting personal information and payment details, the E-wallet is the least popular form of the online payment systems. This is largely due to the lack of knowledge people have about this system. According to Biz-Rate. om, in 2001 only 38 percent of online shoppers understood how digital wallets worked, 25 percent knew about digital wallets but were unfamiliar with how they worked and 37 percent of online buyers had never heard of digital wallets at all. Meanwhile, only 22 percent of online shoppers had actually used a digital wallet at least once, and a humbling five percent used them frequently. This last figure, in fact, was equal to the percentage of customers who had used digital wallets at least once and swore they would never use one again. Such results clearly were a concern to vendors and merchants alike. Online Bill Payments
Online bill payments permit people to pay their utility bills via the Internet. This is a quick and easy method of keeping on top of their bills and ensuring that they are paid in a timely manner. This is a very effective method of online payment as it accommodates the payment of bills at any time of the day or week and so people do not have to rely on the opening hours of banks and post offices to pay their bills. All of their personal bills can be paid by the click of a button. Online Bank Transfers Online bank transfers provide an efficient system of transferring money between bank accounts, domestically and internationally.
These bank accounts can be accessed online globally. Western Union banks allow you to transfer money online into a named account. The account holder can then collect the money from any Western Union agent located around the world. This is a secure transaction method as all transferred money can be tracked using the tracking number on the receipt given. PayPal PayPal is an e-commerce business that allows online bank transfers and payments worldwide. PayPal is used by online businesses such as auction websites, namely eBay, to accommodate secure payments for products bought online.
Auction websites can be used by members of the public to auction off their personal belongings; this can be seen as a security threat for people who wish to buy these products as the seller’s intentions may not be to actually fulfil the proposed agreement. When customers use PayPal as a method of payment, they can purchase goods with a sense of security should a transaction fall through as the payment can be securely traced. Electronic payment transactions are the heart of e-commerce, offering a broad range of payment methods which ensures the long-term success of e-commerce businesses.
The future of e-commerce is bright with the introduction of Smartphone applications giving access to processing bill payments, bank transfers and online shopping which all can be done on the go. As technology continues to grow, this in turn will contribute to the growth and sustainability of e-commerce. As the diagram shows below, how far online payments service providers will contribute and continue to provide a large variety of services to give access to online potential shoppers. As the Online business is getting bigger and bigger, so are the risks nvolved of online frauds. Online shoppers are becoming more prudent about online security and to re-assure them that their purchases are completely secure, there are few ways retailers can ameliorate their sites that will eventually increase the confidence of its customers. The following recommendations approved at the PayPoint. net initiated that focusing on customers’ experience will not only satisfy customers but will also maximise online conversions and increase the customer base. Benefits of using E-Payment:
E-Payment holds many benefits for customers such as in matters of choice, convenience, cost reduction, control and trust. Some of these features are not earned by conventional payment methods. E-Payment is beneficial for more sectors of businesses like the economy, where it promotes economic growth through fundamental benefits as increasing levels of security and customer empowerment. For bank system, it enhances transactional efficiency and also expanding the payment channels. For customers, it is more convenient as they do not need to carry cash or cheques all the time and it also saves their time.
Payments for some particular bills or businesses can be scheduled thus giving more control and flexibility over payment activities. Customer confidence in Payment systems There are certain steps which are vital for an online business to follow in order to achieve the confidence of its customers. From many of them, some are as follows: •The display of any security or accreditation logos as well as a clear link to your security policy will attract a certain number of customers. From a survey carried out, it has been found that 98% of customers check for security assurance across the site before deciding on making any purchase.
Security padlock is among the top listed in customers’ browsers. •The use of a reputable online payment processor. Most of the online customers look for reputable payment providers and card schemes; for example, Verified by Visa and MasterCard Secure Code. •Become an ISIS Accredited e-Retailer. Consumers most often look for the ISIS logo which is the Internet Shopping Is Safe for security assurance. ISIS is accredited through the IMRG which is the leading industry for global e-Retailing. •The utilization of Business Addresses
Online shoppers would be attracted to an on line retailer that provide its business address along with a telephone number rather than one using PO address. •Simplify payment pages Online shoppers most frequently would use established sites where payment system is clear and easy. From a survey carried out it has been noted that more women than men would probably think about how effective payment pages are. •Offer refunds, returns and exchanges. While making purchases online, mostly all customers would check if they are entitled to refunds, returns and exchanges.
These policies are mostly expected in all online businesses. •The necessity of having aftersales policies. Online businesses should make sure to have a clear link to their aftersales policies as well as satisfaction guarantees as most customers shop with established brands because of their aftersales care. •Blow your own trumpet Shoppers will usually take into consideration testimonials made by previous customers. Thus they should be re-assured as it is important if your brand has not been established yet. Reliable protection when using Payment Systems
All the personal details of online shoppers are well-protected. PayOnline System used by online businesses conformed to the requirements of the Standard security PCI, DSS, and uses the latest and most efficient methods of protecting confidential data. Due to the advanced scoring system of monitoring transactions through PayOnline system, it minimises the risks associated with fraudulent clients, without leading customers to lengthy check. How do customers benefit? Every day, consumers around the world benefit from Online Payment System in one way or the other. Some of the advantages are: •Convenience
Due to the fact that cards are accepted by mostly every business, consumers can buy simply everything from everyday items in stores to emergency expenditures and services. The use of cards leave the customers care free, as they do not need to worry about small change needed or not having enough cash for an emergency purchase. •Safety Cards are not only convenient but more secured compared to be use of cash and cheques. A cardholder’s liability to lost or stolen card is limited. Many network brands including MasterCard and Visa generally offer “zero liability” protection for unauthorised use. Access to Credit Credit card holders are relatively entitled to obtain unsecured lines of credit with ease. Consumers don’t really need to worry about applying for credit again and again over years. •Grace periods Cardholders are commonly provided with grace periods before any payment is due. The cardholder usually will have an interest free loan for a period of time, usually between the time of purchase and the time the payment has to be made to the card issuing bank. •Online Functionality MasterCard can relatively be used for any purchase made over the internet.
As the number of consumers is increasing for time payment products, consumers can shop whenever and wherever they want. •Better record keeping The advantages of using cards allow consumers to review transactions, manage expenses and retain their transaction records with convenient and detailed statements. •Participation in the Global Economy As Online businesses link institutions financially, customers can shop and spend just anywhere around the globe. For example, a consumer with a Bank of Ireland card can make a purchase at Amazon in USA without leaving their house.
This method has also proved to be beneficial for travelers having no access to cash. •Consumer choices On a worldwide basis, financial institutions issue cards through online payment systems, enhancing strong issues competition and variation. Consumers can therefore choose from thousands of debit, credit, and prepaid payment products. •Innovation The huge innovation or cards namely healthcare payment cards, “tap and go” cards are making payments generate faster and more securely, meeting the dynamical needs of today’s consumers. •Rewards
Card Issuers offer rewards which are mainly in the form of cash backs, college savings or the frequent flier miles to its cardholders. Affinity cards even allow the customers to make donations to a particular charity, college or cause of their choice. Drawbacks of On-line Payment Systems Any business has drawbacks which play against the reputation and financial status of the business. Below are the disadvantages for On-line Payment Systems: •Providing personal details Most of the online banking sites require you to open an online account with them.
You need to register to the service in order to be authorised to perform money transactions with them. This involves a username and a password, which implies the need of password protection. You also need to maintain an account per organisation. For secure online transactions, the site that hosts your account should follow strict security policies. If the passwords are susceptible to being hacked, it can mean a serious financial loss for you. Banks or financial institutes, which maintain your personal information, cannot afford to expose it to hackers.
There is a potential risk of your personal and account details being stolen. •Theft of Identity The available security measures can prevent the sensitive information from being exposed. But it is important to use virus protection or firewalls for your computer. It is important to carry out money transactions over a secure server. There is a great risk involved in the theft or the losing of the smart cards. In case the cards fall in unsafe hands, there is a danger of the expenditure of your entire bank balance. There are measures to inform the concerned authorities about the loss of the card.
But, the time between losing the card and informing the authorities is critical. Unauthorized users may carry out transactions in your name during this period of time. Mostly, electronic cash is based on cryptographic systems. The transactions are encoded by means of numeric keys while the transaction details travel across the net though electronic payments are resistant to forgery, the keys are vulnerable to attack. This was not to discourage you from taking to electronic payments. It was rather to make you aware of the disadvantages of electronic payment systems. Anon n. d. ) Card Holder Based On Biometrics: When this disadvantage is combined with biometrics reader one can see at present there is no encouraging business case for biometrics at least in electronic payment systems. It is also important to mention that an attacker that successfully recorded the biometrics captured a terminal during its transmission to the chip card for comparison can mount any attack as those describe for wire tapped pin. In order to avoid this attack several project were launched for adapting the biometrics reader directly on the card.
This is actually the case for finger prints which becomes the favourite biometrics for this type of card holder verification mechanism(Radu 2003) •Bad reputation of the business In cases like, Ulster bank computer system crashed, customers from all 236 branches could not withdraw or deposit their money into their accounts. This payment system error caused the owners of Ulster bank over 100 million euros and drove customers away to their competitors. ONLINE BANKING SERVICES Disadvantages of Banking Services The biggest problem is that most people lack trust.
How many times have you performed transactions online and wondered whether you did the right thing or not? Of course, you can overcome any uneasiness by printing the transaction receipt. This receipt will confirm whether or not your transaction has gone through successfully. Online banking can be difficult to learn for a beginner and a site could take time to start up. Some sites ask for photo identification, which can be very inconvenient. However, most online banking sites provide tutorials for online banking.
Some sites provide live online customer support to provide solutions for any problems. The number of cases of banking frauds is considerably low so you do not have to worry about the safety of your money. Clearly, the whole concept of online banking has its fair share of advantages as well as disadvantages. For some people, online banking simplifies life, while for the others it is intimidating and complex. Taking into consideration these perceptions, most banks have now started offering online banking services and a viable option to their clients.
Some people prefer talking personally to a person in case of a problem. They prefer the ‘personal touch’ aspect of customer service. If you are this kind of a person, then you’ll probably never feel comfortable with Internet banking. On the other hand, if unlimited access to your bank accounts and convenience is highest on your list of banking priorities, then nothing can beat online banking. What with the security of the FDIC standing like a fortress behind them, it is very clear that online banking is here to stay Small and Big companies in On-line Payment System
The current data content of payments system has been squeezed down due to old communication and data storage restrictions, which have disappeared completely. Payments could include a lot of beneficial data for the customers, with invoicing data connected to the payments being the most important. This would reduce reconciling needs considerably and customers would get an integrated e –achieve for payments and invoices. Just establishing a good e –invoicing service will save about 10- 30 $ per invoice and in the European union there are more than 60 billion invoices processed every year.
The potential for the savings are therefore considerable. The development of payment systems can be made more rapid by reducing the impact of the negative factors described in the previous section. However, doing this will generally require some external push, because the current market is in a market failure trap. The push could come from the BIG COMPANIES service users and big multinational companies as their internal costs would decrease considerably with more efficient payment methods.
However even for the big companies it seems to be true that the user community for payment is so scattered and fragmented that a strong international countries push is difficult to master. The main focus in these companies is their own production and development facilities and not that of the banking or other sectors, where they will not be able to generate a competitive edge. The push could be from non-bank competitors like Tesco’s, merchant chains or special service providers like Pay-pal. The main business focuses of the companies are in other areas.
Although there have been several trials in almost all countries, the network barriers (chicken-and-egg situation) have been at least until now too high to cross. The trials have generally been with specialised payment instructions for given environments and usages lacking the possibilities for establishing general purpose payment schemes attracting large volumes. (Millard et al. 2008) RISK Each of these payment systems however creates security vulnerabilities and already we have seen instances of fraud being perpetrated electronically and funds bring stolen online.
In the telephone survey of 1006 online consumers conducts for national consumers league in the United States between April and May 1991 24% of those surveyed said that they had purchased goods and services online 7% which represents six million people how ever said that they had experienced fraud or unauthorized use of credit cards or personal information In Risk a develop a search –theoretic model of a payment system in which the introduction of the cash benefits the economy for the same reason as in Wallace that is it solves the problem of lack of commitment and the inability to monitor your trading partner.
But they note that the use of cash itself carries costs; it needs to be verified and can be stolen. In their model they allow agents to against the RISK of Theft by depositing their cash in banks and making payment system they call Cheques. They find that the introduction of the payment system expands the range of parameter values consistent with their being an equilibrium in which money is accepted as a medium of exchange – in other words, that the presence of the payment system enables money to solve the imperfections discussed by khan and Roberts (2006) but the payment system in he et al. 2005) is RISK free. Two more imperfections that need to be considered in a model of payments systems are the RISK that the members of the system default on their obligations –
CREDIT RISK – and the RISK that the system itself breakdown operational RISK Lester (2005) extends the he et al. model to allow for the credit risk while Millard and will son (2006) extend the model to allow for operational RISK in Payment systems. In both cases the authors show how one might begin to quantify that welfare benefits of reducing the RISKS brought about by these frictions. Grabosky et al. 2001) Theft: In On-line Payment System are key component of the e commerce infrastructure. Current e- commerce technology relies on user identification and encryption to safeguard business transactions. Actual payments are made in a variety of ways including electronic cash, electronic wallets, and smart, credit, charge and debit cards. Web sites that accept multiple payment types convert more visitors to purchasing customers than merchants who offer only a single payment method.
All online shoppers fear the theft of credit card numbers and banking information to help prevent this type of identity theft thus the secure sockets layer communications protocol is used to secure sensitive data. The SSL communications protocol includes handshake stage data which may be transferred. The data is always encrypted, ensuring that your transactions are not subject to interception or “sniffing” by the third party although SSL handles the encryption part of a secure e –commerce transaction a digital certificate is necessary to provide server identification.
Although some of these systems have yet to commence on large- scale operation, security flaws have already been identified by which offenders are able to steal fund electronically. Although the following discussion describes the nature of the risk in general terms it would be inappropriate to indicate precisely how some fraudulent activities are perpetrated. The present book seeks to inform the discussion of these issues constructively and not to assist potential offenders in carrying out their activities.
Online payment system offer criminals and criminal enterprises an attractive arena in which to operate. The average consumers who engage in online payment transactions are easy prey for expert criminals. The large amounts of money involved make online payment systems tempting targets. (Grabosky et al. 2001; Radu 2003)(Schneider & Perry 2000) Internet has a great impact in today’s environment both professionally and personally. It gives its user the opportunity to browse and obtain information according to customers’ search requirement.
Internet also provides the online service facility through the e-commerce, to both the sender and recipient in various fields of life for example between a company and its customer for transactions or even to raise awareness to promote itself. Along with the benefits that accrues from this modern way of an organisation’s dealings the security, fraud and theft issues should be taken into consideration too. Initially the advantages that can be derived from an online facility are numerous.
A company will reduce quite a lot of its expenses by having not to employ too many staff and the physical location of the business will not matter as long as a good website is available to do the same work which a branch used to perform in earlier days. For instance Argos is profitable in this domain. Regarding the customer no need to bother to go to the shop when the products wished can be gain accessed by staying at home without any hassle of waiting in the queue at the cashier in a rather busy day.
However, in a customer’s point of view, if an On-line site is attractive, customers will not worry about the output most of the times but will venture into the transaction by having the card ready for payment. The security option available can be a dodgy one and the money paying out is gone for good thus the customer will lose it to cheaters waiting for such golden moments to happen. Sometimes between the company and the customer there is a third-party involved too which takes the payment, the later should be a reliable source else the amount can be pervaded.
Moreover, the security questions asked before stepping in a transaction can be rather noticeable and identifiable. Eventually at times even to remember the secure passwords cannot be remembered as they are mandatory and 10 characters long as well. Another factor which is quite unpreventable is fraud meaning hereby that information about a client can be handed to other organisation without the latter’s knowledge and can be used in a bad way such as to gain access to someone else’s bank account or confidential information can be in contact.
Apart from the attainment of data, payment can be made for illegal practices such as terrorism with a click of a button which is somehow difficult with the traditional mode of payment. An additional factor can be the act of vandalism by just corrupting the data of an individual in the electronic system. Last but not the least is the element theft which is prevalent in an online transaction. The stealing is not meant literally only ‘money’ here but personal data altogether. It implies setting up credit cards accounts or any other accounts from this information on behalf of the offender, this is known as Identity theft.
Other than using someone’s confidentialities to own advantage there is the chance of the wrongdoer doing shopping by clearing the individual’s entire bank balance and the latter has to incur the damages evolved. It can be concluded that we should make the best use of an online facility and still at the same time be conscious of the disadvantages which are inclusive. To minimise some of the negative impact, anti-virus software should be installed to prevent unauthorised access to our confidential data and be aware of the company we are dealing with for the time between something unfavourable is detected and it is reported can be critical.
How can the On-line Payment Systems improve? There are many ways businesses might adopt to improve their On-line Payment System. Among them are: •Certificates and awards Online merchants can promote their businesses by obtaining and displaying certificates and awards. They do not necessarily need a large amount of them, as a few widely recognized one would be of great advantage to the business. •Security and protection On-line businesses should apply enough security and protection measures for both businesses and its customers, and also invest to improve the security.
Visa Account Information Security (AIS) and MasterCard’s SDP programs have been designed specifically to improve data security against risk of unauthorised access to financial details. •Education and internet experience To improve the running of On-line businesses, it is vital that customers understand and are aware that transactions made online are not vulnerable to misuse in all cases. Frequent access to the internet will allow customers to make decisions on On-line businesses, as they can read customer reviews and testimonials. Conclusion
On-line Payment Systems are provided by the traditional market participants, without them it would not be possible for them to stick in the market. Banks, credit card companies and others have made the On-line b
usiness successful and promising. Metro Herald article dated 3/12/12 made a statement that “Irish shoppers will splash €320,000 an hour on-line on ‘Cyber Monday’ today-the country’s biggest spending day in the shopping history. This statement eventually speaks out what On-line businesses mean to people and what place it holds in the marketplace.