E-commerce payment system

An e-commerce payment system facilitates the acceptance of electronic payment for online transactions. Also known as a sample of Electronic Data Interchange (EDI), e-commerce payment systems have become increasingly popular due to the widespread use of the internet-based shopping and banking.

Over the years, credit cards have become one of the most common forms of payment for e-commerce transactions. In North America almost 90% of online retail transactions were made with this payment type.^[1] Turban et al. goes on to explain that it would be difficult for an online retailer to operate without supporting credit and debit cards due to their widespread use. Increased security measures include use of the card verification number (CVN) which detects fraud by comparing the verification number printed on the signature strip on the back of the card with the information on file with the cardholder's issuing bank.^[2] Also online merchants have to comply with stringent rules stipulated by the credit and debit card issuers (Visa and MasterCard)^[3] this means that merchants must have security protocol and procedures in place to ensure transactions are more secure. This can also include having a certificate from an authorized certification authority (CA) who provides PKI(Public-Key infrastructure) for securing credit and debit card transactions.

Despite widespread use in North America, there are still a large number of countries such as China, India and Pakistan that have some problems to overcome in regard to credit card security. In the meantime, the use of smartcards has become extremely popular. A Smartcard is similar to a credit card; however it contains an embedded 8-bit microprocessor and uses electronic cash which transfers from the consumers’ card to the sellers’ device. A popular smartcard initiative is the VISA Smartcard. Using the VISA Smartcard you can transfer electronic cash to your card from your bank account, and you can then use your card at various retailers and on the internet.

There are companies that enable financial transactions to take place over the internet, such as PayPal. Many of the mediaries permit consumers to establish an account quickly, and to transfer funds into their on-line accounts from a traditional bank account (typically via ACH transactions), and vice versa, after verification of the consumer's identity and authority to access such bank accounts. Also, the larger mediaries further allow transactions to and from credit card accounts, although such credit card transactions are usually assessed a fee (either to the recipient or the sender) to recoup the transaction fees charged to the mediary.

The speed and simplicity with which cyber-mediary accounts can be established and used have contributed to their widespread use, although the risk of abuse, theft and other problems—with disgruntled users frequently accusing the mediaries themselves of wrongful behavior—is associated with them.

Methods of online payment

Credit cards constitute a popular method of online payment but can be expensive for the merchant to accept because of transaction fees primarily. Debit cards constitute an excellent alternative with similar security but usually much cheaper charges. Besides card-based payments, other forms of payment have emerged and sometimes even claimed market leadership. Wallets like PayPal and Alipay are playing major roles in the ecosystem. Bitcoin payment processors are a cheaper alternative for accepting payments online which also offer better protection from fraud.

Net banking

This is a system, well known in India, that does not involve any sort of physical card. It is used by customers who have accounts enabled with Internet banking. Instead of entering card details on the purchaser's site, in this system the payment gateway allows one to specify which bank they wish to pay from. Then the user is redirected to the bank's website, where one can authenticate oneself and then approve the payment. Typically there will also be some form of two-factor authentication.

It is typically seen as being safer than using credit cards, with the result that nearly all merchant accounts in India offer it as an option.

A very similar system, known as iDEAL, is popular in the Netherlands.

PayPal

PayPal is a global e-commerce business allowing payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to paying with traditional paper methods, such as cheques and money orders. It is subject to the US economic sanction list and other rules and interventions required by US laws or government. PayPal is an acquirer, a performing payment processing for online vendors, auction sites, and other commercial users, for which it charges a fee. It may also charge a fee for receiving money, proportional to the amount received. The fees depend on the currency used, the payment option used, the country of the sender, the country of the recipient, the amount sent and the recipient's account type. In addition, eBay purchases made by credit card through PayPal may incur extra fees if the buyer and seller use different currencies. On October 3, 2002, PayPal became a wholly owned subsidiary of eBay. Its corporate headquarters are in San Jose, California, United States at eBay's North First Street satellite office campus. The company also has significant operations in Omaha, Scottsdale, Charlotte and Austin in the United States; Chennai in India; Dublin in Ireland; Berlin in Germany; and Tel Aviv in Israel. From July 2007, PayPal has operated across the European Union as a Luxembourg-based bank

Paymentwall

Paymentwall, an e-commerce solutions providing company launched in 2010, offers a wide range of online payment methods that its clients can integrate on their website.

Google Wallet

Google Wallet was launched in 2011, serving a similar function as PayPal to facilitate payments and transfer money online. It also features a security that has not been cracked to date, and the ability to send payments as attachments via email.^[4]

Mobile Money Wallets

In developing countries the banked population is very less, especially in tier II and tier III cities. Taking the example of India, there are more mobile phone users than there are people with active bank accounts. Telecom operators, in such geographies, have started offering mobile money wallets which allows adding funds easily through their existing mobile subscription number, by visiting physical recharge points close to their homes and offices and converting their cash into mobile wallet currency. This can be used for online transaction and eCommerce purchases. Many payment options such as Airtel Money and M-Pesa in Kenya , ATW are being accepted as alternate payment options on various eCommerce websites.

See also

• Bitcoin
• Comparison of payment systems
• E-commerce credit card payment system
• Electronic data interchange
• Electronic funds transfer
• Payments as a platform
• Payment service provider

Further reading

• Lowry, Paul Benjamin, Taylor Wells, Gregory D. Moody, Sean Humpherys, and Degan Kettles (2006). "Online payment gateways used to facilitate e-commerce transactions and improve risk management," Communications of the Association for Information Systems, vol. 17(6), pp. 1–48 (http://aisel.aisnet.org/cais/vol17/iss1/6).
• Turban, E. King, D. McKay, J. Marshall, P. Lee, J & Vielhand, D. (2008). Electronic Commerce 2008: A Managerial Perspective. London: Pearson Education Ltd. p. 554

References