Internet Payment System

Introduction

The Internet Payment System plays a crucial role in the field of E-Commerce. It enables secure and convenient transactions between buyers and sellers over the internet. In this topic, we will explore the fundamentals of the Internet Payment System and its importance in E-Commerce.

Characteristics of Payment System

A payment system is a set of processes and technologies that facilitate the transfer of funds between parties. The Internet Payment System possesses several key characteristics that make it an essential component of E-Commerce:

1. Security and Encryption

The Internet Payment System employs robust security measures to protect sensitive financial information. Encryption techniques are used to ensure that data transmitted during transactions remains confidential and cannot be intercepted by unauthorized individuals.

1. Convenience and Accessibility

One of the primary advantages of the Internet Payment System is its convenience and accessibility. Users can make payments from anywhere and at any time, eliminating the need for physical presence or manual processes.

1. Speed and Efficiency

The Internet Payment System enables swift and efficient transactions. Payments can be processed in real-time, reducing the time and effort required for traditional payment methods such as cash or checks.

1. Scalability and Flexibility

The Internet Payment System is highly scalable and flexible, allowing businesses to handle a large volume of transactions and accommodate various payment methods.

4C Payment Methods

The Internet Payment System supports various payment methods, commonly referred to as the 4C payment methods:

1. Credit Cards

Credit cards are widely used for online transactions. They allow users to borrow money from a financial institution to make purchases and repay the borrowed amount at a later date. Some popular credit card providers include Visa, Mastercard, and American Express.

1. Debit Cards

Debit cards are linked to the user's bank account and allow direct payment from the available funds. Transactions made with debit cards are immediately deducted from the user's account balance. Examples of debit card providers include Maestro and Visa Debit.

1. Cash Cards

Cash cards, also known as prepaid cards, are loaded with a specific amount of money in advance. Users can make payments using the available balance on the card. Cash cards are commonly used for online purchases and can be reloaded with additional funds when needed.

1. Check Cards

Check cards, also known as electronic check cards or bank cards, are linked to the user's checking account. They allow users to make payments by electronically deducting the specified amount from their account. Check cards are commonly used for online bill payments and recurring transactions.

SET Protocol for Credit Card Payment

The Secure Electronic Transaction (SET) protocol is a secure method for processing credit card payments over the internet. It was developed by Visa and Mastercard to ensure the confidentiality and integrity of online transactions. The SET protocol involves the following steps:

1. Authentication

During the authentication phase, the merchant's server and the customer's browser establish a secure connection using digital certificates. This ensures that both parties can trust each other's identities.

1. Authorization

Once the connection is established, the customer's browser sends the credit card information to the merchant's server. The server then forwards the information to the payment gateway for authorization.

1. Payment Processing

After receiving authorization from the payment gateway, the merchant's server processes the payment and completes the transaction. The customer receives a confirmation of the successful payment.

The SET protocol offers several advantages, including enhanced security through encryption and digital signatures. However, it also has some limitations, such as the requirement for digital certificates and the need for merchant and customer participation.

E-Cash and E-Check

E-Cash and E-Check are digital payment methods that provide alternatives to traditional cash and check payments:

1. E-Cash

E-Cash, also known as electronic cash, is a digital form of currency that can be used for online transactions. It is designed to mimic the properties of physical cash, such as anonymity and untraceability. E-Cash is typically stored in digital wallets and can be transferred between users securely.

1. E-Check

E-Check, also known as electronic check, is a digital version of a paper check. It allows users to make payments electronically by providing the necessary check details, such as the account number and routing number. E-Check payments are processed through the Automated Clearing House (ACH) network.

Both E-Cash and E-Check offer advantages such as convenience, reduced transaction costs, and faster processing times. However, they also have limitations, including the need for digital infrastructure and potential security risks.

Micro Payment System

Micro Payment System refers to the ability to make small-value transactions over the internet. It is particularly useful for purchasing digital content, such as e-books, music, or online articles. The characteristics of a Micro Payment System include:

1. Low Transaction Costs

Micro Payment Systems typically have low transaction costs, allowing users to make small payments without incurring significant fees.

1. Fast and Efficient

Micro Payment Systems enable quick and efficient transactions, making them suitable for purchasing low-cost items or accessing pay-per-view content.

1. Micropayment Aggregators

Micropayment Aggregators act as intermediaries between content providers and consumers, facilitating the collection and distribution of micro payments.

1. Prepaid Systems

Some Micro Payment Systems use prepaid accounts, where users deposit funds in advance and make payments from their account balance.

Micro Payment Systems have gained popularity in the digital content industry, enabling content creators to monetize their work effectively.

Smart Card and Mondex

Smart Card is a plastic card embedded with a microchip that can store and process data. It offers a secure and convenient method for making payments. Some advantages of Smart Cards include:

1. Enhanced Security

Smart Cards use encryption and authentication mechanisms to ensure the security of transactions. They can also store additional information, such as personal identification details or medical records.

1. Contactless Payments

Smart Cards can support contactless payments, allowing users to make transactions by simply tapping or waving the card near a compatible payment terminal.

1. Multi-functionality

Smart Cards can be used for various purposes beyond payment, such as access control, public transportation, or loyalty programs.

Mondex is a specific implementation of a Smart Card-based payment system. It was developed by Mastercard and offers several advantages, including offline transactions, peer-to-peer transfers, and global interoperability.

Conclusion

In conclusion, the Internet Payment System is a vital component of E-Commerce, enabling secure and convenient transactions over the internet. It supports various payment methods, such as credit cards, debit cards, cash cards, and check cards. The SET protocol ensures secure credit card payments, while E-Cash and E-Check provide alternatives to traditional payment methods. Micro Payment Systems and Smart Cards offer specialized solutions for specific payment needs. Understanding the characteristics and functionalities of these payment systems is essential for businesses and consumers in the digital age.

Summary

The Internet Payment System is crucial for E-Commerce, providing secure and convenient transactions over the internet. It possesses characteristics such as security, convenience, speed, and scalability. The 4C payment methods include credit cards, debit cards, cash cards, and check cards. The SET protocol ensures secure credit card payments. E-Cash and E-Check offer digital alternatives to cash and checks. Micro Payment Systems enable small-value transactions, while Smart Cards provide enhanced security and multi-functionality. Mondex is a specific implementation of a Smart Card-based payment system.

Analogy

Imagine the Internet Payment System as a digital wallet that allows you to securely and conveniently make purchases online. Just like a physical wallet holds your cash, credit cards, and identification, the Internet Payment System holds your digital payment methods and facilitates transactions with online merchants. It's like having a virtual cashier that handles your payments with ease and efficiency.