Electronic Payment Systems (Lecture25)

ELECTRONIC PAYMENT SYSTEMS

Now
a days almost every person spends a lot of time on Internet. Internet
facilitates us a lot. kids play games on-line. House wives and spend
their time in chat and web browsing. Businessmen also bring their
business online. where in olden days our business life was limited in
country or city, now a days, we can run our business from home or you
can say from our bed room, and easily spread our business
internationally.

well where Internet attracts us a lot and we
completely stick with this new world, there also Internet allows us to
do shopping online and we also can pay online with out going outside
from our sweet bed room.

well in this lecture we will read about
online payment system in other words, we will see what is online
payment system? and how we can purchase our desired things from our
home?

Most of the payment systems on Internet are use
cryptography to ensure the security of the payment information. Some of
the popular payment systems on Internet include the credit-card based
payment systems, electronic checks, electronic cash, micro-payment
systems (milicent, payword etc.)

We will talk about these payment systems one by one.

Credit Card based payment systems:

A
credit Card is a small plastic card which is used to the users of this
payment system. Card holder has permission to buy goods and services
with this Card based on his/her promise to pay for these goods and
services later on to the issuer of the Card. The issuer of the card
grants a line of credit to the consumer(or the user of the card) from
which the user can borrow money for payment to a merchant.

In
credit card, the issuer of the card charge some amount as interest but
in case of debit card no interest amount will be charged. In credit
card, the user of the card pays his/her money later on to the issuer of
card till then issuer (bank) pays for buying his goods and services but
in the debit card, card holder already paid some amount to the
bank/issuer which he uses in his purchases via using debit card.

THE PROCESS OF USING CREDIT CARDS:

Getting the process of using credit card is very useful for you, hopes you enjoy after reading these steps:

1. 
   A card holder requests an issuing bank in the form of an application,
   in which he/she may have an account, the issuance of a card brand (like
   Visa or Master Card). The issuing bank approves (or denies) the
   application. If approved, a plastic card is physically delivered to the
   customer’s address by mail. The card is activated as soon as the card
   holder calls the bank for initiation and signs the back of the card.
   
2. The card holder shows the card to a merchant whenever he or she needs to pay for a product or service.
   
3. 
   The merchant then asks for approval from the brand company (Visa etc.)
   and the transaction is paid by credit. The merchant keeps a sales slip.
   
4. The merchant sends the slip to the acquirer bank and pays a fee for the service. This is called a capturing process.
   
5. The acquirer bank requests the brand to clear for the credit amount and gets paid.
   
6. 
   Then the brand asks for clearance to the issuer bank. The amount is
   transferred from issuer to brand. The same amount is deducted from the
   card holder’s account in the issuing bank.
   

Difference between Credit Card and Debit Card:


In
credit card, the issuer of the card charge some amount as interest but
in case of debit card no interest amount will be charged. In credit
card, the user of the card pays his/her money later on to the issuer of
card till then issuer (bank) pays for buying his goods and services but
in the debit card, card holder already paid some amount to the
bank/issuer which he uses in his purchases via using debit card.


Virtual PIN

Virtual
PIN, started in 1994 by a company called First Virtual Holding, was a
system for making credit card payments over the Internet without
exposing the credit card number to the merchant. It required no special
software for a customer to make a purchase.

To enroll, a
customer gives their credit card information and their e-mail address
to the First Virtual. After the credit card information has been
verified, the customer receives their PIN by e-mail.

The procedure for purchasing an item using Virtual PIN is as follows:

• The customer gives the merchant their Virtual PIN.
  
• The merchant sends the Virtual PIN and the amount of transaction to First Virtual.
  
• First Virtual sends an e-mail to the customer asking to confirm the purchase.
  
• The customer answered "Yes", "No", or "Fraud".
  
• 
  If the answer is "Yes", the merchant is informed that the charge has
  been accepted. If "No", the charge is declined. If the answer is
  "Fraud", the charge is investigated.
  

Even though no
encryption was involved, an eavesdropper could not use a virtual PIN
without being able to intercept and answer the e-mail message to
confirm the purchase.

Unlike credit cards which carry the
customer's name, Virtual PIN provided a customer's anonymity from the
merchant. The e-mail confirmation of the transaction served as a
protection against merchant's fraud.

ADVANTAGES OF VIRTUAL PIN PAYMENT SYSTEM:

Advantages of Virtual Pin payment system are as follows:

• Simplicity
  
• No encryption
  
• No special Software require
  
• User friendly front end
  
• In case of fraud only sales are lost
  

DISADVANTAGES OF VIRTUAL PIN PAYMENT SYSTEM

• Pre-registration with First Virtual
  
• Merchant assumes all risk!
  
• Extremely long waiting period between when a sale is made and when payment is deposited in the merchant's account.
  
• having a bank account for merchant is essential
  
• having a credit card for buyer is essential
  

well this system is almost finished in 1998 because the new encrypted system was introduced.

CENTRALIZED ACCOUNT PAYMENT MODEL:

You
may ever noticed, in the Internet world, everything is not free, we
have to pay for some things for example: I like to have a domain name
on my name like http://www.lakodajin.com
, then I can't get it free, I have to pay for my desired domain name.
Some times we like some songs and want to save them in our system for
this action some times we have to pay for those songs but mostly we
find free songs.

Again here a question arises that if we are ready to pay then how we can pay on Internet?

According
to centralized account payment model, both buyer and seller have
accounts on same centralized on-line financial institution. You may
have listen or read the word Pay Pal or E-gold or cybergold these all
are on-line financial institutions.

Well this is a popular
payment system on Internet. Yahoo! Pay Direct, Amazon.com Payments etc
these all are examples of this system.

Well I try my best to explain how this system works briefly.


To make a PayPal purchase:

• Select PayPal during checkout on a merchant website or eBay or whatever website you are using to purchase something.
  
• Choose to fund your PayPal purchase with a credit card, bank account, or other source
  
• Funds are transferred securely through PayPal and money is deposited into the seller's PayPal account
  

To make a PayPal payment:

• Buyer selects PayPal as a payment option on your website or eBay listing
  
• Buyer chooses to pay with a credit card, bank account, or other source
  
• Money is deposited into your PayPal account
  
• You can transfer money from your PayPal account to your bank account, or spend it online.
  

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JIN