Chapter 6

E-Commerce Payment Systems

E-commerce sites use electronic payment, where electronic payment refers to paperless monetary
transactions. Electronic payment has revolutionized the business processing by;
 reducing the paperwork,
 Transaction costs and labor cost.
 Being user friendly and
 less time-consuming than manual processing,
 It helps business organization to expand its market reach/expansion.
Business to consumer e-payment systems
A. Credit Card
Payment using credit card is one of most common mode of electronic payment. Credit card is
small plastic card with a unique number attached with an account. It has also a magnetic strip
embedded in it which is used to read credit card via card readers. When a customer purchases a
product via credit card, credit card issuer bank pays on behalf of the customer and customer has a
certain time period after which he/she can pay the credit card bill. It is usually credit card
monthly payment cycle. Following are the actors in the credit card system.
 The card holder − Customer
 The merchant − seller of product who can accept credit card payments.
 The card issuer bank − card holder's bank
 The acquirer bank − the merchant's bank
 The card brand − for example, visa or Master card.

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Credit Card Payment Process

Step Description

Step 1 Bank issues and activates a credit card to the customer on his/her request.

Step 2 The customer presents the credit card information to the merchant site or
to the merchant from whom he/she wants to purchase a product/service.

Step 3 Merchant validates the customer's identity by asking for approval from the
card brand company.

Step 4 Card brand company authenticates the credit card and pays the transaction
by credit. Merchant keeps the sales slip.

Step 5 Merchant submits the sales slip to acquirer banks and gets the service
charges paid to him/her.

Step 6 Acquirer bank requests the card brand company to clear the credit amount
and gets the payment.

Step 6 Now the card brand company asks to clear the amount from the issuer
bank and the amount gets transferred to the card brand company.
B. Debit Card
Debit card, like credit card, is a small plastic card with a unique number mapped with the bank
account number. It is required to have a bank account before getting a debit card from the bank.
The major difference between a debit card and a credit card is that in case of payment through
debit card, the amount gets deducted from the card's bank account immediately and there should
be sufficient balance in the bank account for the transaction to get completed; whereas in case of
a credit card transaction, there is no such compulsion.
Debit cards free the customer to carry cash and cheques. Even merchants accept a debit card
readily. Having a restriction on the amount that can be withdrawn in a day using a debit card
helps the customer to keeps a check on his/her spending.
C. Smart Card
Smart card is again similar to a credit card or a debit card in appearance, but it has a small
microprocessor chip embedded in it. It has the capacity to store a customer’s work-related and/or
personal information. Smart cards are also used to store money and the amount gets deducted
after every transaction.

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Smart cards can only be accessed using a PIN that every customer is assigned with. Smart cards
are secure as they store information in encrypted format and are less expensive/provides faster
processing. Mondex and Visa Cash cards are examples of smart cards.
D. E-Money
E-Money transactions refer to situation where payment is done over the network and the amount
gets transferred from one financial body to another financial body without any involvement of a
middleman. E-money transactions are faster,convenient, and saves a lot of time.
Online payments done via credit cards, debit cards, or smart cards are examples of e-money
transactions. Another popular example is e-cash. In case of e-cash, both customer and merchant
have to sign up with the bank or company issuing e-cash.
D. Electronic Fund Transfer
It is a very popular electronic payment method to transfer money from one bank account to
another bank account. Accounts can be in the same bank or different banks. Fund transfer can be
done using ATM (Automated Teller Machine) or using a computer.
Nowadays, internet-based EFT is getting popular. In this case, a customer uses the website
provided by the bank, logs in to the bank's website and registers another bank account. He/she
then places a request to transfer certain amount to that account. Customer's bank transfers the
amount to other account if it is in the same bank, otherwise the transfer request is forwarded to
an ACH (Automated Clearing House) to transfer the amount to other account and the amount is
deducted from the customer's account. Once the amount is transferred to other account, the
customer is notified of the fund transfer by the bank.
F. Mobile Payments
Mobile payments are widespread in countries with a low credit card and banking penetration. For
example, some areas of Asia, Africa, and Latin America. Mobile payments allow customers to
purchase on e-commerce websites quickly and hassle-free. They are commonly used on
browser games, donation portals, and social media networks (dating sites, where customers
can pay with SMS. Keep in mind that regardless payment method you choose, opening an
internet merchant account is crucial.
G. E-Wallet
An e-wallet acts as a web treasury that stores a customer’s personal data and funds. The
money can later be used to purchase from online stores and websites. Getting an e-wallet is fast

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and easy, with customers demanded just to submit their information once for purchases. The
most popular e-wallets vary from country to country. To get an overall understanding of e-
wallets’ popularity, consider the fact that there are 7,600,000 active QIWI accounts in Russia.
How e-wallet functions once a merchant adds it as a payment method:
 On the checkout page, the consumer selects an e-wallet as a payment method.
 The user gets redirected to the e-wallet payment page.
 The user enters his password to log in and complete the payment.

Business to Business payment systems

Simply, B2B payments are payments made between companies for goods or services. For
example, a company might pay a supplier for office equipment, or a restaurant owner might pay
for vegetables, fruits, meats from their providers. In general, whenever one business invoices
another one, it creates a B2B payment scenario.
Business to business payments represents considerable opportunities. Here are the industries that
process the highest volume of B2B payments
 Manufacturing – $3.53 trillion (28.8 percent)
 Professional and business services – $2.60 trillion (21.2 percent)
 Finance, insurance, real estate, rental, and leasing – $2.19 trillion (17.8 percent)
 Mining – $685 billion (5.6 percent)
 Wholesale trade – $643 billion (5.2 percent)
In spite of such plenty of opportunities for disruption, B2B payment solutions are lagging behind
consumer payments, and paper checks are still the most popular way for business transactions.
So why does this happen?
That is because B2B payment is influenced by several factors that do not exert any impact on
consumer payment.
Volume: Payments between merchants convey higher values than payments between consumers
Frequency: The contracts between businesses often come with regular and recurring
transactions.
Industry: Certain industries have their own payment needs (which can be seen from the revenue
of industries listed above)
The number of people in the business cycles: There are many people involved in each B2B
transaction because of its complexity.

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Payment delay: B2B payment cycles often last 30-90 days. That is so much longer than the
personal transaction, which is right on-site or just a few minutes.

The different kinds of B2B payment

Cash Although businesses have used cash to pay each other over the years, this seems to be
gradually obsolete. Today, it seems weird to come and pay a supplier a briefcase full of bills.
How can you handle this if the contracts cost billions of dollars?
E-Checks: In the world of B2B business, paying by checks is relatively easy. Basically, this
category includes traditional paper checks and electronic checks issued by a purchaser to a seller.
Only after the check is deposited, the payment request from the buyer’s bank will be sent to the
seller’s bank.
Interestingly, while we are not using check much in our personal lives, they still dominate the
business world.
Wire transfers: Wire transfers were first introduced over 150 years ago by Western Union. The
fund transfers between the banks will be electronically routed through a financial network
like SWIFT and Fed wire. In spite of being quite expensive, this payment can process the
payment between businesses within hours.
Credit cards: Credit card adoption is not accepted by all vendors, especially small businesses or
startup because of the processing fee. While it allows the seller to receive the payment quickly,
the buyer can postpone their payment for more than one billing cycle.
Payment gateways: The payment gateways are such as PayPal, Stripe, Square and Bill. Come
allows the buyers to pay for good and services online during the checkout process.

The Obstacles for B2B Payments

Aside from the support of modern payment solutions to break old habits and facilitate millions of
requirements for invoicing, B2B companies still face a whole host of obstacles when using
finding and choosing the most suitable one.
Payment mediums variety
The availability of various payment methods for the B2B sector comes with its drawbacks.
Whether they choose to compare BNB to USD prices and use digital coins or send payment
cheques, possibilities are endless. Because every business has its own approach to payments, one
business may prefer to use the one that is not be accepted by the vendor. For example, a

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customer wants to pay you by wire transfer, but you do not want to absorb the high fees.
Obviously, the interoperability between different platforms makes business owners hesitate to
apply modern payment tools to consolidate payments.
Security issue
Data security remains an incredibly important concern when it comes to online payments,
especially in the world of B2B commerce, where transactions are made frequently, and any
breaches can open the door to fraud. A study conducted by Deloitte shows that 22% of the
middle market business have been attacked by payment fraud in recent years.
To avoid the loss of funds, more and more B2B businesses are moving to modern payment
systems.
Transparency
The ability to know the status of a transaction at any given time is paramount for any business to
control cash flow. The lack of visibility of digital transactions between firms will lead to errors,
inefficiencies, and higher headcount.
Time
Because of the complex process and the considerable numbers of B2B payment transactions
every day, sometimes, it is time-consuming to get all the payment made as expected.
On average, it takes more than 40 days to process a B2B payment. It is particularly difficult
when most organizations are managing payment cycles differently. For example, one company
may cut checks two times a month while the other payout accounts monthly.
Cost
The fee for transaction and account maintenance is one of the critical factors that business
owners consider when finding a way to pay to others. If you use wire transfer or credit cards, you
have to be willing to pay significant fees for payment services. Otherwise, if you choose to pay
with bills and collect checks as payment, it will cost you a considerable amount of time for
managing cash inflows and outflows. As we have seen that a large business might be able to
afford the cost, but most small ones won’t.

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 Chapter 7
E-commerce Security and Controls

What is e-Commerce or electronic commerce security?

E-Commerce security is the guidelines that ensure safe transaction through the internet. It
consists of protocols that safeguard people who engage in online selling and buying of goods and
services. You need to gain your customers’ trust by putting in place e-Commerce security basics.
Such basics include:
 Privacy
 Integrity
 Authentication
 Non-repudiation

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1. Privacy
Privacy includes preventing any activity that will lead to the sharing of customers’ data with
unauthorized third parties. Apart from the online seller that a customer has chosen, no one else
should access their personal information and account details.

A breach of confidentiality occurs when sellers let others have access to such information. An
online business should put in place at least a necessary minimum of anti-virus, firewall,
encryption, and other data protection. It will go a long way in protecting credit card and bank
details of clients.

2. Integrity

Integrity is another crucial concept of e-commerce Security. It means ensuring that any
information that customers have shared online remains unaltered. The principle states that the
online business is utilizing the customers’ information as given, without changing anything.
Altering any part of the data causes the buyer to lose confidence in the security and integrity of
the online enterprise.

3. Authentication

The principle of authentication in e-Commerce security requires that both the seller and the
buyer should be real. They should be who they say they are. The business should prove that it is
real, deals with genuine items or services, and delivers what it promises. The clients should also
give their proof of identity to make the seller feel secure about the online transactions. It is
possible to ensure authentication and identification. If you are unable to do so, hiring an expert
will help a lot. Among the standard solutions include client logins information and credit card
PINs.

4. Non-repudiation

Repudiation means denial. Therefore, non-repudiation is a legal principle that instructs players
not to deny their actions in a transaction. The business and the buyer should follow through on
the transaction part that they initiated. E-Commerce can feel less safe since it occurs in
cyberspace with no live video. Non-repudiation gives e-Commerce security another layer. It
confirms that the communication that occurred between the two players indeed reached the
recipients. Therefore, a party in that particular transaction cannot deny a signature, email, or a
purchase.

Common Ecommerce Security Issues

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1. Lack of trust in the privacy and e-Commerce security

Businesses that run e-Commerce operations experience several security risks, such as:

 Counterfeit sites– hackers can easily create fake versions of legitimate websites without
incurring any costs. Therefore, the affected company may suffer severe damage to its
reputations and valuations.
 Malicious alterations to websites– some fraudsters change the content of a website.
Their goal is usually to either divert traffic to a competing website or destroy the affected
company’s reputation.
 Theft of clients’ data– The e-Commerce industry is full of cases where criminals have
stolen the information about inventory data, personal information of customers, such as
addresses and credit card details.
 Damages to networks of computers– attackers may damage a company’s online store
using worm or viruses attacks.
 Denial of service– some hackers prevent legit users from using the online store, causing
a reduction in its functioning.
 Fraudulent access to sensitive data– attackers can get intellectual property and steal,
destroy, or change it to suit their malicious goals.
2. Malware, viruses, and online frauds
These issues cause losses in finances, market shares, and reputations. Additionally, the clients
may open criminal charges against the company. Hackers can use worms, viruses, Trojan horses,
and other malicious programs to infect computers and computers in many different ways. Worms
and viruses invade the systems, multiply, and spread. Some hackers may hide Trojan horses in
fake software, and start infections once the users download the software. These fraudulent
programs may:
 hijack the systems of computers
 erase all data
 block data access
 Forward malicious links to clients and other computers in the network.

3. Uncertainty and complexity in online transactions

Online buyers face uncertainty and complexity during critical transaction activities. Such
activities include payment, dispute resolution, and delivery. During those points, they are likely
to fall into the hands of fraudsters.
Businesses have improved their transparency levels, such as clearly stating the point of contact
when a problem occurs. However, such measures often fail to disclose fully the collection and
usage of personal data.
Ethics, Social and Political issues

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Defining the rights of people to express their ideas and the property rights of copyright owners
are just two of many ethical, social, and political issues raised by the rapid evolution of e-
commerce.

The ethical, social, and political issues raised in e-commerce, provide a framework for
organizing the issues, and make recommendations for managers who are given the responsibility
of operating e-commerce companies within commonly accepted standards of appropriateness.
Understanding Ethical, Social, And Political Issues in E-Commerce Internet and its use in e-
commerce have raised pervasive ethical, social and political issues on a scale unprecedented for
computer technology.

We live in an “information society,” where power and wealth increasingly depend on

information and knowledge as central assets. Controversies over information are often in fact
disagreements over power, wealth, influence, and other things thought to be valuable. Like other
technologies such as steam, electricity, telephones, and television, the Internet and ecommerce
can be used to achieve social progress, and for the most part, this has occurred. However, the
same technologies can be used to commit crimes, despoil the environment, and threaten
cherished social values. Before automobiles, there was very little interstate crime and very little
federal jurisdiction over crime. Likewise with the Internet: Before the Internet, there was very
little “cyber-crime.”

Many business firms and individuals are benefiting from the commercial development of the
Internet, but this development also exacts a price from individuals, organizations, and societies.
These costs and benefits must be carefully considered by those seeking to make ethical and
socially responsible decisions in this new environment.

Public Policy Issues in E commerce

The major ethical, social, and political issues that have developed around e commerce over the
past seven to eight years can be loosely categorized into four major dimensions: information
rights, property rights, governance, and public safety and welfare. Some of the ethical,
social, and political issues raised in each of these areas include the following:

 Information rights: What rights to their own personal information do individuals have
in a public marketplace or in their private homes, when Internet technologies make
information collection so pervasive and efficient? What rights do individuals have to
access information about business firms and other organizations?

 Property rights: How can traditional intellectual property rights be enforced in an

internet world where perfect copies of protected works can be made and easily distributed
worldwide in seconds?

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  Governance: Should the Internet and e-commerce be subject to public laws? And if so,
what law-making bodies have jurisdiction - state, federal, and/or international?

 Public safety and welfare: What efforts should be undertaken to ensure equitable access
to the Internet and ecommerce channels? Should governments be responsible for ensuring
that schools and colleges have access to the Internet? Is certain online content and
activities - such as pornography and gambling - a threat to public safety and welfare?
Should mobile commerce be allowed from moving vehicles?

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