EMERGENCE OF PAYMENT SYSTEMS IN THE AGE OF ELECTRONIC COMMERCE: THE STATE OF ART Singh Sumanjeet1 University of Delhi, India

E-mail: sumanjeetsingh@gmai !"#m

A$STRACT
The emergence of e-commerce has created new financial needs that in many cases cannot be effectively fulfilled by the traditional payment systems. Recognizing this, virtually all interested parties are exploring various types of electronic payment system and issues surrounding electronic payment system and digital currency. roadly electronic payment systems can be classified into four categories: !nline "redit "ard #ayment $ystem, !nline Electronic "ash $ystem, Electronic "he%ue $ystem and $mart "ards based Electronic #ayment $ystem. Each payment system has its advantages and disadvantages for the customers and merchants. These payment systems have numbers of re%uirements: e.g. security, acceptability, convenience, cost, anonymity, control, and traceability. Therefore, instead of focusing on the technological specifications of various electronic payment systems, the researcher have distinguished electronic payment systems based on what is being transmitted over the networ&' and analyze the difference of each electronic payment system by evaluating their re%uirements, characteristics and assess the applicability of each system. %e& '#()s: E-"ommerce, #ayment, (ebit "ards, "redit "ards, )nternet *EL C#)es: E*+' ,-+' !./, !..

I! INTRO+,CTION
0s payment- is an integral part of mercantile process, electronic payment system is an integral part of e-commerce. The emergence of e-commerce 1table +2 has created new financial needs that in many cases cannot be effectively fulfilled by traditional payment systems. 3or instance, new types of purchasingrelationships-such as auction between individuals online-have resulted in the need for peer-to-peer . payment methods that allows individuals to e-mail payments to the other individual. Recognizing this, virtually all interested parties 1i.e. academicians, government, business community and financial service providers2 are exploring various types of electronic payment system and issues surrounding electronic payment system and digital currency. $ome proposed electronic payment systems are simply electronic version of existing payment systems such as che%ues and credit cards, while, others are based on the digital currency technology and have the potential for definitive impact on today4s financial and monetary system. 5hile popular developers of electronic payment system predict fundamental changes in the financial sector because of the innovations in electronic payment system 16ala&ota 7 Ravi,

+ (r. $uman8eet is an 0ssistant #rofessor, (epartment of "ommerce, Ram8as "ollege 9niversity of (elhi, :orth
"ampus, (elhi-;, ):()0 - #ayment represents both cash and non-cash financial transactions, which ta&e place between two or more parties. ut, in a strict sense of word 4payment4 represents only non-financial transaction. )t is more common for two parties exchanging value to hold accounts with alternative ban&s, in which both ban&s become the parties of payment. . #eer-to-peer refers to the design of a service that does not rely on centralized networ&ing services such as (.:.$. 1(omain :ame $ystem-a uni%ue name of collections of computers connected to networ&s such as )nternet2 to connect and users4 computers and accounts for the unpredictable accessibility of these end nodes in ma&ing connections between the users. #articipants in the peer-to-peer networ&, whether individual or companies, exchange information directly with one another, bypassing central exchanges. )n short, peer-to-peer is more of a bazaar what customers will find until he<she get there.

+==>2. Therefore, electronic payment systems and in particular, methods of payment being developed to support electronic commerce cannot be studied in an isolation. 0 failure to ta&e place these developments into the proper context is li&ely to result in undue focus on the various experimental initiatives to develop electronic forms of payment without a proper reflection on the broader implications for the existing payment system.
Ta- e 1: $.C E/C#mme("e Sa es0 in the Se e"t C#unt(ies 1,S $i i#n2 ______________________(Asia Pacific Region, 2006-2011 ___________________ C#unt(ies .334 .335 .336 .337 .313 .311 0ustralia =.? +..> -/.* ->.* -@.; .+.+ "hinaAA -.* ..@ >.* ++.+ +>.= -*.+ )ndia /.@ +.+.= -.@ *.+ ?.> Bapan .>.@ *..; ?>.> >=.= @/./ =/./ $outh 6orea =.> +/.= +-.* +*./ +?.= +;.= 0sia-#acific ?=.+ ;... =;.; +-*.+ +*?.? +>@.;
:ote: "onverted at average annual exchange rates 1pro8ected for future year2: Total -" sales include all purchase made on a retail website, regardless of device used to complete the transaction' A)ncludes online travel, event tic&ets and digital download sales' AAexcludes Cong 6ong $ource: eDar&eter, Banuary -//@

A! C#n"e8t an) Si9e #: E e"t(#ni" Pa&ment #ayment systems that use electronic distribution networ&s constitute a fre%uent practice in the ban&ing and business sector since +=>/s*, especially for the transfer of bigamounts of money. )n the four decades that have passed since their appearance, important technological developments ? have ta&en place, which on the one hand have expanded the possibilities of electronic payment systems and on the other hand they have created new business and social practice, which ma&e the use of these systems necessary. These changes, naturally, have affected the definition of electronic payments >, which is evolving depending on the needs of each period. )n its, most general form, the term electronic payment includes any payment to businesses, ban& or public services from citizens or businesses, which are executed through a telecommunications or electronic networ&s using modern technology. )t is obvious that based on this definition, the electronic payments that will be the ob8ects of present result, are the payment that are executed by the payer himself, whether the latter is a consumer or a business, without the intervention of the another natural person. 3urthermore, the payment is made from distance, without the physical presence of the payer and naturally it does not include cash. y providing such definition for the electronic payment system, researcher include the transfer of information concerning the accounts of the parties involved in the e-commerce transactions, as well as the technological means of distribution channels through which the transactions is executed. !i"e of #lectronic Pay$ents% Electronic payment system is conducted in different e-commerce categories such as usiness-to- usiness 1 - 2, usiness-to-"onsumer 1 -"2, "onsumer-to- usiness 1"- 2 and "onsumer-to-"onsumer 1"-"2. Each of which has special characteristics that depend on the value of order. (anial, 1-//-2 classified electronic payment systems as follows:

an&0merica, in 3resno, "alifornia, executes the first mass mailing of credit cards in 1+=>/2' 5estminister an& installs first automated teller machine 10TD2 at Eictoria, ,ondon ranch in +=>;. ?)n the year, +=>;, the :ew For& "learing Couse launched "C)#$ 1"learing Couse )nterban& #ayment $ystem2 which provides 9$ (ollar funds -transfer and transactions settlements online and in real time. )n the late +=;/s, "hemical an& launched its #ronto system providing .,/// computer terminals to customers4 home lin&ed to its central computers by telephone. )t offers a range of facilities: balance in%uiries, money transfer between "hemical an& accounts, and bill payments to selected local stores. The stumbling bloc&s for the first generation home building system in general was who is to pay for terminals at home. )n the year +=@?, E() 1Electronic (ata )nterchange2 extensively used in ban&-to-ban& payment systems. )n +==*, digital cash trails by (igi"ash of Colland conducted online. 0nd in the year +==?, Dondex electronic currency trails begin in $weden, England. > 0 real revolution in the meaning of electronic payment system came with the development of E3T 1Electronic 3und Transfer2 technology. E3T is a technology 1one of the electronic commerce technologies2 that allows the transfer of funds from the ban& account of the one person or organization to that another. E3T is also used to refer to the action of using this technology. )t is an important addition in organization that implements E() in their organization. "onse%uently, the online remittance of funds appeared to be the next logical step in a progressive move towards the electronic funds transfer and ban&ing, a process that had begun long before the )nternet itself. There is, however, a crucial distinction between the pre-)nternet electronic fund transfer system and the online payment system being used and developed in the con8unction with e-commerce. The former too& place almost exclusively over proprietary networ&s, which the latter occur over a publicly accessible electronic medium.

Dicro #ayment 1less than G +/2 that is mainly conducted in "-" and -" e-commerce. "onsumer #ayment that has a value between G +/ and G ?//. )t is conducted mainly in -" transactions. usiness #ayment that has the value more than G ?//. it is conducted mainly in e-commerce . - transactions account about =?H of e-commerce transactions, while others account about ?H 1Turban et al, -//*2. #-#, which is related to the "-" category transactions, isrelatively small due to its stiff usability. 3urther, "avarretta and de $ilva 1+==?2, identify three classes of typical electronic transactions: I Tiny value transactions: below G+. I Dedium value transactions: between G + and G +,/// I ,arge value transactions: above G +,///. $ystems that can support tiny value transactions have to trade-off between conveniences of transactions 1the ma8or part of a cost in an extremely cheap transaction2 vs. the security or durability of transactions. !n the other side of the amount range, large value transactions will re%uire highly secure protocols whose implementations are costly: be on-line and<or carry traceability information. 3inally, nearly all the system can perform medium value transactions. $! C#n;enti#na ;s! E e"t(#ni" Pa&ment S&stem To get into the depth of electronic payment process, it is better to understand the processing of conventional or traditional payment system. 0 conventional process of payment and settlement involves a buyer-to-seller transfer of cash or payment information 1i.e., che%ue and credit cards2. The actual settlement of payment ta&es place in the financial processing networ&. 0 cash payment re%uires a buyer4s withdrawals form his<her ban& account, a transfer of cash to the seller, and the seller4s deposit of payment to his<her account. :on-cash payment ; mechanisms are settled by ad8usting i.e. crediting and debiting the appropriate accounts between ban&s based on payment information conveyed via che%ue or credit cards.

3igure + is simplified diagram for both cash and non-cash transactions. "ash moves from the buyers4 ban& to sellers4 ban& through face-to-face exchange in the mar&et. )f a buyer uses a non-cash method of payment, payment information instead of cash flows from the buyer to the seller,and ultimate payments are settled between affected ban&s, who notationally ad8ust accounts based on payment information @. C! P(#"ess #: E e"t(#ni" Pa&ment S&stem Electronic payment systems have been in operations since +=>/s and have been expanding rapidly as well as growing in complexity. 0fter the development of conventional payment system, E3T 1Electronic 3und Transfer2 based

;:on-cash payment re%uires three separate elements. The buyer must have an agreed means of payment authorization
and instructuring its ban& to affect a transfer of funds. The seller4s ban& and buyer4s ban& need an agreed method of exchange payment instructions. This is referred to as payment clearing.

@)n real mar&ets, this clearing process involves some type of intermediaries such as credit card services or che%ue processing clearing
companies. $chematically most payment systems are based on similar process.

payment system came into existence. )t was first electronic based payment system, which does not depend on a central processing intermediary=. 0n electronic fund transfer is a financial application of E() 1Electronic (ata )nterchange2, which sends credit card numbers or electronic che%ues via secured private networ&s between ban&s and ma8or corporations. To use E3T to clear payments and settle accounts, an online payment service will need to add capabilities to process orders, accounts and receipts. ut a landmar& came in this direction with the development of digital currency+/. The nature of digital currency or electronic money mirrors that of paper money as a means of payment. 0s such, digital currency payment systems have the same advantages as paper currency payment, namely anonymity and convenience. 0s in other electronic payment systems 1i.e. E3T based and intermediary based2 here too security during the transaction and storage is a concern, although from the different perspective, for digital currency systems double spending, counterfeiting, and storage become critical issues whereas eavesdropping and the issue of liability 1when charges are made without authorizations2 is important for the notational funds transfer. 3igure - shows digital currency based payment system.

)n this figure, it is shown that intermediary acts as an electronic ban&, which converts outside money 1e.g. Rupees or 9$ G2, into inside money 1e.g. to&ens or e-cash2, which iscirculated within online mar&ets. Cowever, as a private monetary system, digital currency has wide ranging impact ++ on money and monetary system with implications extending far beyond more transactional efficiency.

II! TYPES OF ELECTRONIC PAYMENT SYSTEMS

5ith the growing complexities in the e-commerce transactions, different electronic payment systems have appeared in the last few years. 0t least dozens of electronic payment systems proposed or already in practice are found 1Durthy, -//-2. The grouping can be made on the basis of what information is being transferred online. Durthy 1-//-2 explained six types of electronic payment systems: 1+2 #"- an&ing 1-2 "redit "ards 1.2 Electronic "he%ues 1i-che%ues2 1*2 Dicro payment 1?2 $mart "ards and 1>2 E-"ash. 6ala&ota and 5hinston 1+==>2 identified three types of electronic payment systems: 1+2 (igital To&en based electronic payment systems +-, 1-2 $mart "ard based electronic payment system +. and 1.2 "redit based electronic payment systems+*. (ennis 1-//+2 classified electronic payment system into two categories: 1+2

= )n this case, intermediary acts as a centralized commerce enabler maintaining membership and payment information for both sellers
and buyers. 0 buyer need only send the seller his identification number assigned by the intermediary.

+/ (evelopment in cryptography 1science of disguising message to only the writer and the intended receivers are able to read them2
has brought a new &ind of money: the digital currency 1e.g. (igi"ash $ystem J"haum, 1+==-2K, the "03E #ro8ect J oly et al&, 1+==*2K and Dondex. The digital currency, encoded strings of digits, can be carried on a smart card or stored on a computer dis&. ,i&e a travelers4 chec%ue, a digital coin is a floating claim on a ban& or other financial institution that is not lin&ed to any particular account..

++ 0lready digital currency has spawned many types of new businesses: software vendors for currency server system'
hardware vendor for the smart cards readers and other interface devices' technology firms for security, encryption and authentication and new ban&ing services interfacing accounts in digital currency and conventional currency. +- )t includes: 1+2 Electronic To&ens, Electronic "ash and Electronic "he%ues.

+. )t includes: 1+2 Relationship based $marts "ards 1-2 Electronic #urses and (ebit "ards and $mart "ards Readers
and $mart #hones. +* )t includes: Encryption and "redit "ards and third party processors and "redit "ards.

Electronic "ash and 1-2 Electronic (ebit-"redit "ard $ystems. Thus, electronic payment system can be broadly divided into four general types 10nderson, +==@2: I !nline "redit "ard #ayment $ystem I Electronic "he%ue $ystem I Electronic "ash $ystem and $mart "ard based Electronic #ayment $ystem On ine C(e)it Ca() Pa&ment S&stem: )t see&s to extend the functionality of existing credit cards +? for use as online shopping payment tools. This payment system has been widely accepted by consumers and merchants throughout the world, and by far the most popular methods of payments especially in the retail mar&ets 1,audon and Traver, -//-2. This form of payment system has several advantages, which were never available through the traditional modes of payment. $ome of the most important are: privacy, integrity, compatibility, good transaction efficiency, acceptability, convenience, mobility, low financial ris& and anonymity. 0dded to all these, to avoid the complexity associated with the digital cash or electronicche%ues, consumers and vendors are also loo&ing at

+? "redit card is made of plastic whose holder has been granted a revolving credit lines. This enables the holder to
ma&e purchase and< or cash advances upto a pre arranged limits. The credit granted can be settled in full by the end of a specific period or in part, with the balance ta&en as extended credit. )nterest may be charged on the transaction amounts from the date of each transaction or only the extended credit where the credit granted has not been settled in full. 1http:<<www.rba,gov.in<Llosssary<textMonly.asp2. The card normally contains the cardholders name and account number and many other information encoded on the magnetic strip. $ome credit cards may be used in 0TD 1http:<<www.treas.gov<glossar<gloss-c.htm2. "redit cards began in the late */4s when ban&s began giving out paper certificates that could be used li&e cash in local stores. 3ran&line :ational an& of :ew For& used the first real credit card in +=?+.

credit card payments on the internet as one of possible time-tested alternative. ut, this payment system has raised several problems before the consumers and merchants. !nline credit card payment see&s to address several limitations of online credit card payments for merchant including lac& of authentication, repudiation of charges and credit card frauds. )t also see&s to address consumer fears about using credit card such as having to reveal credit information at multiple sites and repeatedly having to communicate sensitive information over the )nternet. asic process of !nline "redit "ard #ayment $ystem is very simple. )f 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 li&e any other. This can be understood very easily with the format 13igure .2 of "redit "ard #ayment 3orm. Figu(e <: C(e)it Ca() Pa&ment F#(m 1Sam8 e2

)n the comment field please enter the service you are ordering, the domain or username this information should be applied to, or further information to help up speed and assist your order.MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM CHARGE A,THORI=ATION: Do you authorize us to charge your credit card? y clic&ing >Yes> or signing below 1type in your name if submitting online2 you hereby authorize (any 'artic(lar co$'any to use the above credit card to bill you for products ordered or services rendered 1which includes setup fees, normal monthly fees and any future services you re%uest2 until such time as you cancel such services, and you hereby state that you have the legal authority to use this credit card: Yes N# ? SIGNAT,RE:

6ala&ota 5hinston 1+==>2, brea& credit card payment on online networ&s into threebasic categories: 1+2 payment using clean credit card details 1-2 payment using encrypted credit card details and 1.2 payment using third party verification. E e"t(#ni" Che@ue Pa&ment S&stem: Electronic che%ues+> address the electronic needs of millions of businesses, which today exchange traditional paper che%ues with the other vendors, consumers and

+>Electronic che%ue also &nown as e-che%ue and )-che%ue are used to ma&e electronic payment between two parties
through an intermediary and not very much different from the traditional or current che%ue processing system. Electronic che%ues are generated and exchanged online. The intermediary will debit the customer account and credit the merchant account.

government. The e-che%ue method+; was deliberately created to wor& in much the same way as conventional paper che%ue. 0n account holder will issue an electronic document that contains the name of the financial institution, the payer4s account number, the name of payee and amount of che%ue. Dost of the information is in uncoded form. ,i&e a paper che%ues e-che%ues also bear the digital e%uivalent of signature: a computed number that authenticates the che%ue from the owner of the account. (igital che%uing payment system see&s to extend the functionality of existing che%uing accounts for use as online shopping payment tools. Electronic che%ue system has many advantages: 1+2 they do not re%uire consumers to reveal account information to other individuals when setting an auction 1-2 they do not re%uire consumers to continually send sensitive financial information over the web 1.2 they are less expensive than credit cards and 1*2 they are much faster than paper based traditional che%ue. ut, this system of payment also has several disadvantages. The disadvantage of electronic che%ue system includes their relatively high fixed costs, their limited use only in virtual world and the fact that they can protect the users4 anonymity. Therefore, it is not very suitable for the retail transactions by consumers, although useful for the government and - operations because the latter transactions do not re%uire anonymity, and the amount of transactions is generally large enough to cover fixed processing cost. The process +@ of electronic che%uing system can be described using 1figure *2 the following steps. . $tep +: a purchaser fills a purchase order form, attaches a payment advice 1electronic che%ue2, signs it with his private &ey 1using his signature hardware2, attaches his public &ey certificate, encrypts it using his private &ey and sends it to the vendor. $tep -: the vendor decrypts the information using his private &ey, chec&s the purchaser4s certificates, signature and che%ue, attaches his deposit slip, and endorses the deposit attaching his public &ey certificates. This is encrypted and sent to his ban&. $tep .: the vendor4s ban& chec&s the signatures and certificates and sends the che%ue for clearance. The ban&s and clearing houses normally have a private secure data networ&. $tep *: when the che%ue is cleared, the amount is credited to the vendor4s account and a credit advice is sent to him. $tep ?: the purchaser gets a consolidated debit advice periodically. Figu(e A: C ea(ing Che@ue 8a&ment e e"t(#ni"a &

+; Electronic che%ue is different from the electronic fund transfer 1E3T2 in several ways. 3or electronic che%uing,
electronic versions of che%ues are issued, received and processed. $o, the payee issues an electronic che%ue for each payment. 3or E3T, automatic withdrawals are made for monthly bills or other fixed payments' no charges are issues. +@ Thus, a complete electronic che%ue transaction may consist of several basic steps and these steps are executed in three distinct and optionally separate phases. )n the first phase, the consumer ma&es a purchase' in the second phase, the merchant sends the electronic che%ues to its ban& for the redemption. )n the third phase, the merchant4s ban& approaches the clearinghouse or consumer4s ban& to cash the electronic che%ues.

E-che%ue provide a security rich )nternet payment option for businesses and offer an easy entry into electronic commerce without a significant investment in new technologies or legal systems. E e"t(#ni" Cash Pa&ment S&stem: Electronic cash 1e-cash2+= is a new concept in online payment system because it combines computerized convenience with security and privacy that improve on paper cash. )ts versatility opens up a host of new mar&ets and applications. E-cash is an electronic or digital form of value storage and value exchange that have limited convertibility into other forms of value and re%uire intermediaries toconvert. E-cash presents some characteristics li&e monetary value-/, storability and irretrievability-+, interoperability-- and security-.. 0ll these characteristics ma&e it more attractive payment system over the )nternet. 0dded to these, this payment system offers numerous advantages li&e authority, privacy -*, good acceptability, low transactions cost,

+=E-cash portability means that it must be freely transferable between any two parties in all forms of e-commerce
transactions. )n contrast, credit cards do not possess this property of portability or transferability between every combination of two parties. )n credit card transactions, the credit card payment recipient must already have a merchant account established with a ban&- a condition that is not re%uired with electronic cash. -/e-cash must have monetary value' it must be bac&ed by either cash 1currency2,. an& authorized credit, or a ban&4s certified cashier che%ue. -+ E-cash must be storable and retrievable. Remote storage and retrieval 1e.g., from a telephone or personal communication device2 would allow users to exchange e-cash from home, office or while traveling. The cash could be stored on a remote computer4s memory in smart cards, or in other easily transported standard or special purpose devices. -- )t must be interoperable-that is, exchangeable as payment for other e-cash, paper cash' goods or services, lines of credit, deposits in ban&ing accounts, ban& notes or obligations etc. -. E-cash should not be easy to copy or tamper with during exchange' this includes preventing and detecting duplication and double spending. -* The store or third parties online have no way of attaining the consumer4s ban& account information.

convenience and good anonymity-?. ut, this system of payment also has many limitations li&e poor mobility->, poor transaction efficiency -; and high financial ris&, as people are solely responsible for the lost or stolen. Lary and #erry 1-//-2, 8ust li&e real world currency counterpart, electronic cash is susceptible to forgery. )t is possible, though increasingly difficult, to create and spend forged e-cash. #-)ash !tr(ct(re% e-cash structure could be identified as a string of bits that represents certain values such as reference number and digital signature, which could be used for the security purpose to prevent forgery and criminal use 15right, -//-2. ut, the structure proposed by 5right 1-//-2 needs some extension to ma&e e-cash more secure. Therefore, the present model 13igure ..?2 adds a digital watermar& to e-cash structure to protect it from the illegal copy and forgery activities further, the model modified the structure of the reference number to support tractability as shown in the figure ?. +igita Cu((en"&
.6

+igita 'ate(ma(C<.

Ba ue

.7

Re:e(en"e

<3

Signatu(e<1

-? "ompanies have no way of finding out the consumer4s account information, and the distributors of e-cash have no
way of finding out how e-consumers spend the e-cash. -> "onsumers can only use computers that have the e-cash purse system.

-; :eeds to enter a large database to ma&e comparison. -@ "urrency that defines the issued currency to sport multi currencies e-cash. -= Ealue that determines the value of e-cash. ./ Reference number that allows the issuer or any other authorized party to trace e-cash movement. )t has the
following four sub types a. )ssuer part, which is used as a reference to the issuer. b. "lient part, which is used as a reference to the customer who orders the e-cash for the first time. c. !wner part, which is used to represent the )( of the new owner of the e-cash each time. d. 3inal part, which is used to chec& the generated digit each time. .+ (igital signature is used to authenticate the identity of the issuer as an authorized party.

.- (igital watermar& is used for copyright protection. )t inserts invisible data into the digital file. )n the present model,
e-cash structure uses the digital watermar& to prevent forgery or illegal copy of the e-cash.

The proposed e-cash structure is comparatively better than suggested by 5right 1-//-2, because security issue is given importance of top most priority in the present model. ut, still there are certain concerns to be addressed for an electronic cash system ... 3or example, who has the right to issue electronic cashN "an every ban& issue its own moneyN )f so how do you prevent fraudN 0nd who will monitor the ban&ing operations to protect consumersN Dany of these concepts relate to the legal and ban&ing regulatory aspects. Cowever all these issues are beyond the scope of the study and therefore, cannot be included here. ut, these issues must be addressed before establishing a complete e-cash based payment system. Sma(t Ca()s -ase) E e"t(#ni" Pa&ment S&stem: 4$mart cards4 are receiving renewed attention as a mode of online payment. They are essentially credit card sized plastic cards with the memory chips and in some cases, with microprocessors embedded in them so as to serve as storage devices for much greater information than credit cards.* with inbuilt transaction processing capability 1"ha&rabarti and 6ardile, 1-//-2. Figu(e 4: Sma(t Ca() Image

This card also contains some &inds of an encrypted &ey that is compared to a secret &ey contained on the user4s processor. $ome smart cards have provision to allow users to enter a personal identification number 1#):2 code. $mart cards have been in use for well over the two decades now and have been widespread mostly in Europe and 0sian "ountries. !wing to their considerable flexibility, they have been used for a wide range of functions li&e highway toll payment, as prepaid telephone cards and as stored value debit cards. Cowever, with the recent emergence of e-commerce, these devices are increasingly being viewed as a particularly appropriate method to execute online payment system with considerably greater level of security than credit cards. "ompared with traditional electronic cash system, smart cards based electronic payment systems do not need to maintain a large real time database. They also have advantages, such as anonymity, transfer payment between individual parties, and low transactional handling cost of files. $mart cards are also better protected from misuse.? than, say conventional credit cards, because the smart card information is encrypted. "urrently, the two smart cards based electronic payment system- Dondex .> and Eisa "ash are incompatible in the smart cards and card reader specification. :ot &nowing which smart card system will

..#rocessing of electronic payment system: a consumer first had to establish an account at a ban& that was using ecash system. !nce the account is established, the consumer then downloaded the e-wallet software onto his<her computer4s hard drive. Then consumer could re%uest a transfer of digital cash. !nce the dig ital wallet had cash, the consumer could spend that cash at merchants who were willing to accept it. The software would deduct the cash from digital wallet and transfer it to the merchant. The merchant could then transfer the cash bac& to the ban& to confirm that it had not been double spent. The ban& would cancel the e-coins or credit the merchant account at ban&. .* "redit cards store a single charge account number in the magnetic strip on the bac&, smart cards can hold +// times more data, including multiple credit card numbers and information regarding health insurance, transportation, personal identification, ban& accounts and loyalty programs, such as fre%uent flyer accounts. This capacity ma&es them attractive alternatives to carrying a dozen or so credit and )( cards in a physical wallet. .?3or example conventional credit cards clearly show your account number on the face of the card. The card number along with a forged signature is all that a thief needs to purchase items and charge them against your card. 5ith smart card, credit theft is practically impossible because a &ey to unloc& the encrypted information is re%uired, and there is no external number that a thief can identify and no physicals signature that a thief can forge. )n addition, smart cards provide the advantages of portability and convenience. .> Dultifunctionary is one of the most exceptional features of the Dondex, a system that intends become Oan electronic e*(ivalent of cash +& )t is based on a smart card that can hold money and transfer it in both ways. The Dondex card is a debit card in the sense that can only be used to spend as long as it holds previously loaded money. The Dondex technology, in the development since +==/s, is exclusively runs by Dondex )nternational, a ,ondon based firms in which Daster cards holds ?+H of share since the end of +==>.

become mar&et leader' ban&s around the world are unwilling to adopt either system, let alone other smart card system. Therefore, establishing a standard smart card system, or ma&ing different system interoperable with one another is critical success factors for smart card based payment system. 6ala&ota and 5hinston 1+==>2, classified smart cards based electronic payment system as 1+2 relationship based smart cards and electronic purses. Electronic purses, which may replace money, are also &nown as debit card.;. 3urther (iwan and $ingh 1-///2 and $harma and (iwan 1-///2, classified .@ smart cards into four categories. These are: 1+2 memory cards: this card can be used to store password or pin number. Dany telephone cards use these memory cards 1-2 shared &ey cards: it can store a private &ey such as those used in the public &ey cryptosystems. )n this way, the user can plug in the card to a wor&station and wor&station can read the private &ey for encryption or decryption 1.2 signature carrying card: this card contains a set of pregenerated random numbers. These numbers can be used to generate electronic cash 1*2 signature carrying cards: these cards carry a co-processor that can be used to generate large random numbers. These random numbers can then be used for the assignment as serial numbers for the electronic cash.

III! ,SAGE OF ELECTRONIC PAYMENT SYSTEMS

)t is observed that different countries prefer the different forms of electronic payment system. The mar&et has been from the start dominated by traditional financial intermediaries offering conventional electronic payment services augmented with minor innovations to adapt to the )nternet. )n -//., =*.+ percent of all worldwide e-commerce transactions were conducted using credit cards 1#ago, -//.2. Even today, "redits cards are dominant form of online payment all over the world. This is especially true about the developed and fastest developing countries. This fact can be supported by the Research conducted by Bupiter Dedia Datrix 1-///2. The research revealed that credits cards are the most dominant methods of online payment in 9$. )n the year -///, credit cards accounted =? H of online payments and accounted G*; billion of credit cards transactions in the 9$. This figure rose to G-? trillion in the year -//* 13ederal Reserve #ayment $tudy, -//*2. Cowever, according to Bupiter Dedia Datrix Research $urvey, some consumers would prefer to other payment system, such as e-cash, debit cards and e-che%uing. !nly ?/ H of consumers outside the 9$ use credit cards for online purchase 1,andon and Traver, -//-2. 0ccording to the O an&ing on the )nternet ReportO, 0ustralia has a strong platform for e-payment growth, with .;.; per cent of the population willing to engage in online payment. )n Europe 1especially in 962 and other countries of developed world li&e "anada, :ew Pealand, and in some of the 0sian (eveloping "ountries li&e "hina. Thailand, Bapan and $ingapore, smart cards based electronic payment system is popular. Dost of the developing countries li&e )ndia rely much more on electronic funds transfer and smart cards based electronic payment system. Eery few percent of people have credit cards and use of e-che%ue is in vogue. ut according to $uman8eet 1-//@2 credit card is most popular method of payments in )ndia 1Table -2 E-"ommerce #ayment $ystems #ercentage Ran& "redit "ard .? + (ebit "ard 1$mart "ard2 ->.? "ash on (elivery -..? . an& Transfer = * Doney Transfer ? ? #ostal Transfer + > #repaid "ard / / #ayment Through "onvenience $tore / / Total +// / $ource: $uman8eet 1-//@2 )nterestingly, this fact is supported by a recent study of :ielsen. 0ccording to a global online survey conducted by leading research firm :ielsen, at @*H. )ndian netizens

.; 5allet 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 ma&ing photocopies, to paying subways fares. The electronic purse wor&s in the following manners. 0fter the purse is loaded with money, at an 0TD or through the use of an inexpensive special telephone, it can be used to pay for, say, candy in a vending machine e%uipped with the card reader. The vending machine needs only to verify that a card is authentic and there is enough money available for the chocolate bar. )n one second, the value of purchase is deducted from the balance on the card and added to e-cash box in the vending machine. The remaining balance on the card is displayed by the vending machine or can be chec&ed at an 0TD or with a balance ready device. .@ roadly these classifications are based on the technologies used in the smart cards based payment system.

have emerged as the third biggest credit card users globally for online purchasing, next only to the Tur&ish 1=+H2 and )rish e-shoppers 1@>H2. The survey found that credit cards are by far the most common method of payment for online purchases with >/ per cent of global online consumers having used their credit card for a recent online purchase. 0mong the various credit cards, more than half or about ?. per cent used a Eisa card. #oor countries still rely on traditional cash and che%ue system' they are not very much familiar with the electronic payment system because of poor infrastructure, poor economic conditions, lac& of education etc. rate of adoption of e-payment system is not very encouraging in these country. The data

and " 6 0nnual report 1-//;2 revealed that, 6enya had less than +,/// 0TDs in the country. Cowever, the trend is increasing rapidly. Type Table .: E- an&ing $tatistics in 6enya -///-//+-//--//.-//*-//?-//>0TD-.=///->-+//-*@-*;->>@++..-/+ ?*->++/@-==>-"redit+>?.++@?--+@-+??;+*>?=+>*>=*;@;?//@?(ebit>--?>+ ?=*=@-/-/+@..///;.?>=@=*=>>*;;.-.@$mart-;@*./>@../+.>=...;+.+*-. ;>=Total.-/?;+**.+@@*;+;@+>?;>?;;?+?.===?.;;+>?;/?*

from :ational payments $ystem survey !utside the 9$, electronic payment system is heavily influenced by the host country4s financial infrastructure 1,awarence, -///2. 0dded to these, legal regimes, )T )nfrastructure, economic and social conditions, are the strong determinants of the methods of online payment and all these vary from country to country and even within the country. ut, overall "redit card is the most popular methods of payment over )nternet. )nternet buyers seem to prefer credit cards to other electronic payment system that have been made available to them. !ne reason may be the simple familiarity with the credit card, as it is the oldest form of electronic payment system. Ecommerce is still new and intimidating to many. )t is easier for the buyers to ma&e purchase on the )nternet when they can use the familiar payment method, li&e credit card. Cowever, this payment system suffered from many limitations li&e security .=, merchant ris&*/, high costs*+ and affordability*-. 3or sellers4 side, credit card has strategic disadvantages li&e: 1+2 credit cards are sub8ect to percentage fees and these charges erode the profits margin, particularly on the inexpensive goods and services' 1-2 a buyers who uses a credit card may refuse to pay the issuer on the grounds that he< she has a claim or defense arising out of the underlying transactions. 5hen this happens, the issuer may pass the loss bac& to the seller. 0bove all, credit cards have highest possibilities of frauds. Therefore, both buyers and sellers are shifting from credit cards to other innovative payment products, such as smart cards and electronic money. ut, still it is expected that the buyers may continue to prefer credit card system, particularly when ma&ing expensive purchase.

IB! CRITICAL S,CCESS FACTORS OF E/COMMERCE PAYMENT SYSTEM

.=:either the merchant nor the consumer is authenticated. The existing system offers very poor security. The
merchant could be a criminal organization designed to collect credit cards numbers, and the consumers could be using stolen or fraudulent cards. */ The ris& facing merchant is high- consumers can repudiate charges even through the goods have been shipped or the product downloaded. *+ "osts for merchants are also very significant- roughly ..? H of the purchase plus a transaction fees of -/ to ./ H per transactions, plus other set up costs. The high costs ma&e it undesirable to sell on the web for less than G +/ 1,audon and Traver, -//-2 *- :ot everyone has the access to credit cards. Dillions of people between the ages of +/ to -? do not have the capacity to have credit cards. Even in 0merica about ;/ to +// million adult cannot afford credit cards because of low incomes.

$uccess of e-commerce businesses, including both the largest of corporations and small retailers, rely on electronic payment system. Therefore, understanding the various critical success factors of e-commerce payment system is important. There are various factors, which should be considered by an e-commerce, firm before introducing and implementing e-commerce payment system. 3rom the business perspective, new payment products are notoriously difficult to introduce as the barriers to entry 1,ee, +=@=' Fin, +==*2, acceptance, and ubi%uity are high 10brazhevich, -//-2.
3actors "oncern about security (ifficulties to enter information (o not have credit cards<smart cards etc. (o not li&e interest charge #urchase value too small Exceeded personal limit #ercentage ;/ = ; > * *

Ta- e A: Fa"t#(s +is"#u(aging C#nsume( :#( On ine Pa&ments Table * shows some factors, which are obstacles in the online payment systems. 0 good payment system should also consider these factors. 0dded to this, new payment products must be low margin to compete, high volume to build critical mass and be profitable, receive favorable press treatment, be well branded to gain customer confidence, achieve rapid upta&e, and be differentiated from chec& and credit card so that consumers and merchants find reason to prefer and use them. $tudies also revealed that simplicity 1$chwartz, -//+' Truman et. al, -//.2, trust 1Cerzberg, -//.' Buang, -//>2, security and mutuality 1#eha and 6hamitow, -//*' addeley, -//*' !h et al, -//>2 of sta&eholder benefits are all of importance to the adoption of e-commerce payment system. Thus the factors which are critical for the success of e-commerce payment systems are multifaceted. These include integrity, non-re'(diation, a(thentication, a(thori"ation, confidentiality and relia,ility, which are discussed below: )ntegrity: transaction data are transmitted and received unchanged and as intended. I :on-repudiation: transactions have the %uality of non deniable proof or receipts. 0uthentication: identities and attributes of parties engaged in commerce are established at some tolerable level of ris&. 0uthorization: individuals are established and recognized as entitled to receive, send or view transactions. "onfidentiality: transactions can be protected from view except by those who are authorized. Reliability: probability of failure in the transaction-send, receive, ac&nowledge-is low. 3unctionally, money technologies also need to achieve these operating characteristics: privacy, scalability, ease of use, personalize-able, seamlessness, interoperability, write one-apply anywhere and cost effective.

B! COMPARISON OF ELECTRONIC PAYMENT SYSTEMS

The electronic payment system- the ability to pay electronically for goods and services purchased online- are an integral part of e-commerce and an essential infrastructure for e-commerce models. !ne of the ma8or reasons for the widespread of e-commerce transactions is perhaps the rapid development and growth of various electronic payment systems. )n the developed countries, credit cards have been used even before the advent of )nternet. The present part of the study revealed many electronic payment systems and broadly these electronic payment system can be grouped or classified into four categories: 1+2 !nline "redit "ard #ayment $ystem 1-2 !nline Electronic "ash $ystem 1.2 Electronic "he%ue $ystem and 1*2 $mart "ards based Electronic #ayment $ystem. These payment systems have numbers of re%uirements: e.g. security, acceptability, convenience, cost, anonymity, control, and traceability. Therefore, instead of focusing on the technological specifications of various electronic payment systems, the researcher have distinguished electronic payment systems based on what is being transmitted over the networ&' and analyze the difference of each electronic payment system by evaluating their re%uirements, characteristics and assess the applicability of each system. 3igure ; presents the comparison of various electronic payment systems.

Featu(es Actual Payment Time Transaction information transfer

On ine C(e)it Ca() Pa&ment #aid later

E e"t(#ni" Cash #repaid

E e"t(#ni" Che@ue #aid later

Sma(t Ca()s #repaid

The store and ban& chec&s the status of the credit card

3ree transfer. :o need to leave the name of parties involved !nline transactions :o involvement

Electronic chec&s or payment indication must be endorsed !ffline transfers are allowed The ban& account ma&es the payment 0nyone with a ban& account $tore

The smart card of both parties ma&e the transfer

Online and offline transactions Bank account involvement sers

!nline transactions

"redit card account ma&es the payment

!ffline transfers are allowed The smart card account ma&es the payment 0nyone with a ban& or credit card account $tore

0ny legitimate credit card users (istributing an&

0nyone

Party to !hich

$tore

Dost of the ris& is "onsumer is at "onsumer bears "onsumer is at ris& borne by the distributing ris& of the electronic most of the ris&, of the smart card ban&, consumers only cash getting stolen, but the consumer getting stolen, lost or have to bear part of the lost, or misused can stop chec& misused ris& payments at any time Current degree of "redit card organizations 9nable to meet "an not meet "redit card popularity chec& for certification financial internet international organizations then total the purchases. standards in the areas standards, chec& for Therefore, it can be used of expansion therefore its not certification then

payment is made out Consumer's transaction risk

internationally, and is the most popular payment type

Anonymity

"mall payments

Data#ase safeguarding

total the purchases. Therefore it can be used internationally, and is becoming more widely used. :o anonymity Entirely anonymous, #artially or entirely Entirely but if needed, the anonymous anonymous central processing agency can as& stores to provide information about a consumer 0llows stores Transaction costs Transaction costs are Transaction costs are to are high. :ot suitable for low, suitable for low. 0llows stores to accumulate debts small payments small payments accumulate until it debts until it reaches reaches a limit a limit before paying before paying for for it. Therefore, it is it. $uitable for suitable for small small payments payments $afeguards regular credit :eeds to safeguard a $afeguards $afeguards regular card account information large database, regular account account information

potential and internationalis m.

very popular

and maintain records of the serial numbers of used electronic cash.informationTransaction information face value"an be signed and issued freely in compliance with the limit3ace value is often set, and cannot be changed"an be signed and issued freely in compliance with the limit"an be deducted freely in compliance with the limitReal<Eirtual world"an be partially used in real world"an only be used in the virtual world,imited to virtual world, but can share a chec&ing account in the real world."an be used in real or virtual worlds.,imit on transfer(epends on the limit of the credit card(epends on how much is prepaid:o limit(epends on how much money is saved.

Dobility

Fe s

: o

: o

Fe s

0fter analysis and comparison of various modes of electronic payment systems, it is revealed that it is %uite difficult, if not impossible, to suggest that which payment system is best. $ome systems are %uite similar, and differ only in some minor details. 3urther, all these systems have ability or potential to displace cash. 0dded to this, widely different technical specifications ma&es it difficult to choose an appropriate payment system. !n the basis of above analysis it is concluded that, smart cards based electronic payment system is best. )t has numerous advantages over the other electronic payment systems. Therefore,

establishing a standard smart card based system, or ma&ing different system interoperable with one another is critical success factor for the smart cards based payment system. $mart card organizations around the world must establish a smart card interface standard and a conformance testing organization to ma&e all smart card system compatible' otherwise smart card related products will not develop fully.

BI! CONCL,+ING REMAR%S

Technology has inarguably made our lives easier. )t has cut across distance, space and even time. !ne of the technological innovations in ban&ing, finance and commerce is the Electronic #ayments. Electronic #ayments 1e-payments2 refers to the technological brea&through that enables us to perform financial transactions electronically, thus avoiding long lines and other hassles. Electronic #ayments provides greater freedom to individuals in paying their taxes, licenses, fees, fines and purchases at unconventional locations and at whichever time of the day, .>? days of the year. !n the basis of present study, first remar& is that despite the existence of variety of e-commerce payment systems, credit cards are the most dominant payment system. This is conse%uences of advantageous characteristics, most importantly the long established networ&s and very wide users4 base. $econd, alternative e-commerce payment systems are some countries are debit cards. )n fact, li&e many other studies, present study also reveals that the smart card based e-commerce payment system is best and it is expected that in the future smart cards will eventually replace the other electronic payment systems. Third, given the limited users bases, e-cash is not a feasible payment option. Thus, there are number of factors which affect the usage of e-commerce payment systems. 0mong all these user base is most important. 0dded to this, success of e-commerce payment systems also depends on consumer preferences, ease of use, cost, industry agreement, authorization, security, authentication, non-refutability, accessibility and reliability and anonymity and public policy.

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