Tuesday, May 25, 2010



An e-commerce payment system facilitates the acceptance of electronic payment for online transactions. Also known as financial electronic data interchange (FEDI), e-commerce payment systems have become increasingly popular due to the widespread use of the internet based shopping and banking. A payment gateway is an e-commerce application service provider service that authorizes payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. It is the equivalent of a physical point of sale terminal located in most retail outlets. Payment gateway protects credit card details encrypting sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and the merchant and also between merchant and payment processor. A payment gateway facilitates the transfer of information between a payment portal (such as a website, mobile phone or IVR interactive voice response)
From the traditional payment system, most businesses even the small e-businesses are migrating to the use of electronic payment systems namely: online credit card payment system, online electronic cash system, electronic cheque system, and smart cards based electronic payment system. The onset of e-commerce has given birth to electronic payment systems, which have answered new business needs that could no longer be fulfilled by the traditional payment systems. The use of cheques and credit cards in the traditional way has been revolutionized electronically. And the emergence of other systems to cater digital currency technology has also been greatly recognized with a lot of merchant account populating the e-business world.

Online credit card payment system

This is just an extension of the use of existing credit cards as an online shopping tool. Compared to its traditional use, it is seen to be more advantageous because of its privacy, integrity, efficiency and reliability in transaction and the convenience and mobility that it offers. The payment transaction can just happen in a breeze after sending your credit card details. This is by now the most popular method especially in retail markets.

Online electronic cash system

Commonly known as e-cash, this payment system is the computerized and improvised version of the paper cash. Digitally, it does value storage and value exchange but when it comes to converting it into other forms or value, it's got a limited capability. The convenience and low transaction cost that it has, makes it an attractive payment system to use online.

Electronic cheque system

This system is used by almost all e-businesses around the world replacing the need of traditional paper cheques. However, the functionality is much of the same way as the conventional cheque works. The electronic cheque document contains the name of financial organization, the account number of the payer, the name of the payee with the amount stated on the cheque. In replacement of the hand-written signature, a digital equivalent of signature is used. This is in the form of a computed number authenticating the cheque's account owner. This has now been globally used as one of the online shopping payment tools.

Smart cards based electronic payment system

This mode of payment has become highly recognized in many areas of e-business. Smart cards look pretty much the same as your credit cards but they've got memory chips and others even have microprocessors which store far greater information than credit cards do. This would mean that they have more security features compared to credit cards and even so with electronic cash system. Because of the encrypted information of smart cards, they are proven to be one of the most secured ways of doing online business.

Shopping on websites

In many countries the credit rating is a big issue, for those who don’t have any credit card or have bad credit or cannot afford a merchant account, they have different options, there are alternative methods of payments on e-commerce websites which can help you.

One of the most popular online e commerce payment methods is to pay via PayPal.
PayPal is an e-commerce business allowing payments and money transfers to be made through the Internet. PayPal serves as an electronic alternative to traditional paper methods such as checks and money orders. On October 3, 2002, PayPal became a wholly owned subsidiary of eBay A US action giant. Currently PayPal operates in 190 markets, and it manages over 175 million accounts (70 million active accounts). PayPal allows customers to send, receive, and hold funds in 19 currencies worldwide. PayPal operates locally in 13 countries. Residents in 190 markets can use PayPal in their local markets to send money online.

PayPal allows anyone to send and receive payments for both online and offline goods. The best thing about PayPal is its ease of use and no verification bounding of credit rating. All that one needs to do is verify their address and personal information. PayPal account holders can simply divert their customers to a PayPal order checkout page, or if the type of PayPal account allows it, payment can be done directly into a PayPal account using only the email address tied to the account like payments@abccompany.com.
Another e commerce website payment method is Google checkout. This service is run by Google, owner of the famous search engine. Google checkout is fast becoming a popular and favorite payment method for many e commerce website owners. The reasons, for starters are that the service is user friendly, easy to use and extremely reliable. When you think from the business owner's end, Google Checkout typically charges less merchant fees than PayPal.
Newer payment methods are also making their presence felt. One of such an innovative payment method available online is iKobo. The way iKobo works is that any customer can choose a payment source, which can be a bank account or a credit card, and tie up that payment source with an iKobo account.
When a customer wants to pay an online website/vendor, all that he needs to do is specify the amount and pay the service fees on top of that. The first time a customer does this with a particular vendor; the vendor gets a VISA debit card from iKobo shipped to him/her. This card issuance is a one time procedure. Then on, if anyone needs to pay an online vendor that has an iKobo debit card, all they need to do is specify the card number, and the payments gets transferred.
VeriSign Inc. is the leading provider of digital trust services that enable everyone everywhere to engage in commerce and communications with confidence. VeriSign’s digital trust services create a trusted environment through four core offerings - Web presence services, telecommunications services, security services and payment services. Sign was founded in 1995 as a spin-off of the RSA Security certification services business. The new company served as a certificate authority (CA) — a role it still fulfills --and its initial mission was "providing trust for the Internet and Electronic Commerce through our Digital Authentication services and products." VeriSign now has more than 3,000,000 certificates. It is the largest CA behind the encryption and authentication on the Internet. According to VeriSign, its payment gateway processed over $80 billion in payments in 2008. VeriSign is well known for the VeriSign Secured Seal, which is an outward expression of a Web site's authentication and encryption commonly posted to VeriSign SSL Certificate customers' Web sites.

Electronic Payment Schemes By Dr Phillip M. Hallam-Baker
Source: http://www.w3.org/ECommerce/roadmap.html

A Layered Protocol Model
Three layer model is used to compare payments schemes.

Policy -- The semantics of the payment scheme. This includes refunds policies, and the liabilities incurred by customers, merchants and financial institutions.

Data flow -- The requirements for storage of data by and communications between the parties. This includes not only the data flows for payments themselves but also for refunds, account enquiries and settlement.

Mechanism -- The methods by which the necessary security requirements for messages and stored data are achieved.

All three abstraction levels are tightly coupled since policy makes requirements of data flow and data flow makes requirements of mechanism.

Payment Protocol Models

Cash -- Cash consists of a token which may be authenticated independently of the issuer. This is commonly achieved through use of self authenticating tokens or tamper proof hardware.

Cheque -- Cheques are payment instruments whose validity requires reference to the issuer.

Card -- Card payment schemes provide a payments mechanism through the existing credit card payment infrastructure.

Such schemes have many structural similarities to cheque models except that solutions are constrained by that structure. A key feature of card payment systems is that every transaction carries insurance.

List of Internet Payments Schemes and Proposals

Anonymous Internet Mercantile Protocol, Anonymous Credit Cards AT&T Bell Labs
A card model protocol which implements a policy which balances strong guarantees of confidentiality with the needs of law enforcement. A formal approach is employed with comprehensive details of mechanism and data flow.
BankNet Electronic Banking Service Marketnet
Full electronic banking service offers ability to write cheques. Uses PKCS envelope formats.
BarclayNet Barclaycard
An electronic mall run by one of the worlds largest credit card companies. Preventing disclosure of the credit card number to the merchant is thus superfluous and a simple secure socket communication mechanism to prevent eavesdropping is sufficient.
A cash based scheme with strong guarantees of anonymity. Backed by a 13 member European consortium. Details are not avaliable at present.
e-Cash DigiCash
Anonymous digital cash. Few details are given about the specific scheme employed but voluminous archives of papers by the companies founder, David Chaum are provided. Mark Twain Bank have deployed this scheme.
Electronic commerce payments Financial Services Technology Consortium
No public details on this project are available at present.
Electronic cheque Financial Services Technology Consortium
A cheque scheme designed to provide an upgrade path from the existing cheque system.
Green Commerce First Virtual
First Virtual's Green Commerce payments model is one of the first payments schemes to become established on the internet. The major novel feature of this scheme is its `satisfaction guaranteed' policy which protects customers from dishonest merchants by allowing them an unconditional right to refuse payment for individual items. A statistical mechanism is used to identify over frequent use of this option and exclude habitual non-payers. Identification of customers is via an email call back loop scheme.
Internet Keyed Payment Protocols(iKP) IBM (Zurich & Watson Labs)
A card based model of payment which mainly addresses the questions of data flow and mechanism. Public key cryptography is used to ensure the privacy of a customer's card number and PIN number and provide non-repudiability. iKP has three options,, 1KP, 2KP and 3KP in which the acquirer alone, acquirer and merchant and acquirer merchant and customer respectively have a public key. See also the SEPP protocol which is based upon iKP.

It is evident by above that the electronic payment system is most prevailing and desired type of transaction mode. From the biggest corporations to the smallest retailers, almost everyone now is dependent in most electronic payment systems available online. It is best to have an in-depth knowledge on these things before jumping right away to any of them. It's always better safe than sorry in the end.


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