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An Analysis and Comparison of Different Types of Electronic Payment System

Zon Yau Lee, Hsiao-Cheng Yu, Pei-Jen Kuo Institute of Management and Technology,

Chiao Tung University, Taiwan

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Introduction

• Worldwide proliferation of internet led to the birth of electronic commerce.

• Electronic money is money that is exchanged electronically. This involves the use of computer networks, the Internet and digital stored value systems.

• Must be popular , secure and work well with existing business

• Facilitates real time online facilities.• The main concern is level of security.• Four major categories of electronic payment system• Advantages and Limitation of each Payment system.

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Objectives

• Which payment method is mostly used.• Requirement of merchants and consumers• The appropriate business environment for

each system to function• Potential for future expandability.

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Assessment criteria of different types of Payment system

A. Technological aspect B. Economic aspectC. Social aspectD. Regulatory aspect

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Technological aspect• Authenticity (also referred as validity)• Privacy• Integrity(also known as accuracy)• Non-repudiation.Economic aspect• Cost of transaction• Atomic exchange• User reach• Financial risk.

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Social aspect•Anonymity•User-friendliness•MobilityRegulatory aspect•Digital signature•Digital fund transfer•Technical standard•Custom and tax

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METHODOLOGY

Research is based on extensive literature reviews and experts.

Information from market surveys, technical journals, company reports, product catalogs, research reports, newspapers, and magazines were analyzed.

• Assessment Criteria: Technological aspect, Economical Aspect, Social Aspect and Regulatory.

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LITERATURE REVIEW

“A Risk Perception Analysis on the use of Electronic Payment Systems by Young Adult “, Noor Raihan Ab Hamid & Aw Yoke Cheng, Malaysia. Identify young adult’s perception of e -payment risk and their behavior towards different payment methods.

findings showed significant difference in perceived risk between cash and E-Payment but less significant in terms of volume of purchase

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Electronic Payment System Evaluation”, Shiva Zokaee, Seyed babak Ebrahim, Mostafa Ghazizadeh, Iran.•Examine and evaluates the current e-payment systems, and rank they based on the experts opinions.

“Electronic Payment System”, Srivalli Arkalgud, United States•Presents and overview of each architecture, and describes two commercial implementations of the architecture.•The paper also analyses and compares the payment methods and reveals their advantages and disadvantages.

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Comparison of Electronic Payment SystemsOnline credit card payment

Electronic Cash Electronic Checks

Smart Cards

Actual payment time

Paid later Prepaid Paid later Prepaid

Transaction Information Transfer

Store & bank checks the status

Free transfer Payment indication must be endorsed

Smart card of both parties make transfer

Online & offline transaction

Online online Offline allowed Offline allowed

Bank A/C Involvement

Credit card a/c No involvement Bank a/c Smart card a/c

Users Any legitimate credit card users

Anyone Anyone with bank a/c

Anyone with bank or credit card a/c

Party to which payment is made

Distributing bank

Store Store Store

Mobility Yes No No Yes

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Consumer’s transaction risk

Most borne by distributing bank

Consumer at risk of stolen or misused

Consumers bears risk but can stop check

Consumers-risk of stolen, lost or misused

Current degree of popularity

Credit card org. checks for certification and total the purchases. Thus, used internationally

Unable to meet internet standards in the areas of potential expansion & Intl.

Cannot meet international standards, so not popular

Similar to online credit card and is becoming more widely used

Anonymity Partially or entirely

Entirely No anonymity Entirely, but if needed by central processing agency can ask

Small payments Transaction cost high. Not suitable

Low transaction costs. Suitable

Allows stores to accumulate debts until it reaches limit before paying for it.

Transaction costs are low. Similar to electronic checks

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Database safeguarding

Safeguards regular credit card information

Large database and records serial no's of used electronic cash

Safeguards regular account information

Safeguards regular account information

Transaction information face value

Can be signed & issued freely in compliance with the limit

Face value is often set, and cannot give change

Can be signed & issued freely in compliance with the limit

Can be deducted freely in compliance with the limit

Real/Virtual world

Can be partially used in real world

Can only be used in virtual world

Limited to virtual, but share checking a/c in real world

Can be used in real or virtual

Limit on transfer amount

Depend on limit of credit card

Depend on how much is prepaid

No limit Depend on how much money is saved

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Online Credit card Payment

VCC SLL InstaBuy SET

Authenticity VCC card & PIN –identity (G)

Only consumer’s a/c information (F)

InstaBuy a/c no. & PIN (G)

SET certification & consumer’s a/c

Privacy No actual card sent no. VCC card no. limited (G)

Uses actual card no., faces risk (F)

Same as SLL, risk of information stolen(F)

(F), uses actual card no.

Integrity Hash function Hash function Digital signature Digital signature

Anonymity Co's unable to attain information about VCCs a/c & spending habits (G)

Credit card a/c only not spending habits(F) by distributors

Credit card a/c only not spending habits(F) by distributors

Co's unable to attain information about VCCs a/c & spending habits (G)

Transaction efficiency

Good Good Golden key added security increases transaction time (F)

Golden key added security increases transaction time (F)

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Online Credit card Payment

VCC SLL InstaBuy SET

Convenience Credit card a/c plus VCC a/c required (F)

Only Credit card a/c (G)

Credit card plus InstaBuy e-purse install (F)

Need to apply SET certification (F)

Mobility No limit where it can be used (G)

No limit where it can be used (G)

No limit where it can be used (G)

Computers that have SET certification installed (P)

Transaction Costs

Similar to regular credit card transactions

Similar to regular credit card transactions

Bit high-Fixed cost for public golden key patent

Bit high-Fixed cost for public golden key patent

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Electronic Cash System

Ecash Mondex Visa Cash

Authenticity Uses PIN for identity(F)

Uses PIN for identity(F)

Uses PIN for identity(F)

Privacy Store or 3rd parties online have no way of having consumers bank a/c Information (G)

Store or 3rd parties online have no way of having consumers bank a/c Information (G)

Store or 3rd parties online have no way of having consumers bank a/c Information (G)

Integrity Uses blind signatures (Y)

Uses signatures (Y) Uses signatures (Y)

Anonymity No way of finding out consumer’s a/c information, & distributors have no access to consumer Ecash spent (G)

If necessary, CPU can ask for store to provide consumers transaction records (G)

If necessary, CPU can ask for store to provide consumers transaction records (G)

Transaction efficiency

Need to enter large database to make comparisons (P)

Good Good

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Electronic Cash System

Ecash Mondex Visa Cash

Convenience Must install Ecash purse (F)

Consumers must apply for smart card (F)

Consumers must apply for smart card (F)

Mobility Computers must have Ecash purse installed (P)

Can only be used with smart card magnetic strip reader(F)

Can only be used with smart card magnetic strip reader(F)

Transaction Costs Low Relatively low but Fixed costs of smart cards & magnetic strip readers

Fixed costs of smart cards & magnetic strip readers

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Electronic Check System FSTC

Authenticity Digital signatures and digital certification (G)

Privacy Asymmetrical golden keys to calculate & send information but consumer’s payment a/c information is at risk (F)

Integrity Information certification number and asymmetrical golden keys (G)

Anonymity None: everyone who writes out and transfers a check need to sign their names

Transaction efficiency Good : but may decrease if offline

Convenience Consumers need to apply for an electronic checkbook from a bank(F)

Mobility Includes signing , certification, and signing temporary saving checks, checking the check’s legitimacy and uniqueness (G)

Transaction Costs Normal transaction cost low, but responsible for checkbooks(smart cards), digital certification & other FC

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Micro Payment system

Millicent MPTP IBM small payments

Authenticity Serial no. of temporary currency & certification to check identity (G)

Consumers identification certificate (G)

Day’s electronic certification (G)

Privacy Consumer’s serial no. to complete (G)transaction, a/c information not sent

All information passes through DSS & EI Gamal & other offline security(G)

Personal a/c information not send through internet(G)

Integrity None: doesn’t use signatures or Hash function to compare information in database

Good: at the time all information passes through DSS & EI Gamal & other offline security

None: doesn’t use signatures or Hash function to compare information in database

Anonymity Can use user’s serial no.’s to replace users' name(G)

Can use MPTP a/c no. to replace real a/c no. & user’s name(G)

Can use blind signatures to ensure anonymity of stores & a/c server (G)

Transaction efficiency Good Good Good

Transaction Cost Low Low Low

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Micro Payment system

Millicent MPTP IBM small payments

Convenience Consumers must apply for a special certificate from a broker per transaction; to preserve temporary currency different stores might give out. Apply for another if expires (P)

Consumers must attain identity certification from a broker(F)

Must extract “Day’s electronic certification “from IBM small payment a/c server every time a transaction is about to be made S(P)

Mobility Only be used with computers that have Millicent cash purse installed (P)

Computers that support MPTP agreement (P)

IBM small payment cash purse must be installed (P)

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Conclusion

• Online credit card payment systemwidely accepted and most popular method of

payment in retail market.Among different online credit cards, virtual

credit card (VCC) is secure, protects the user’s privacy and is not limited to use at a fixed location.

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Electronic cash systems

Smart card based electronic-cash systems have some advantages over traditional electronic cash systems like- anonymity, transfer payment between individual parties and low transaction handling fees.

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Electronic check systems

Include relatively high fixed cost and cannot protect user’s anonymity.

Not suitable for retail transactions by consumers.

Useful for government and B2B operations.

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Micro payment systems

Existing micro-payment system not established by any of the international financial organization

Alliances with banks, internet portals, ISPs, telecommunications service operators, content providers, and customer service providers are essential for survival

Inconvenient for consumers to use for micro transaction, as requires to switch another payment system for larger transaction

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Recommendations

• Future electronic payment system must work well with personal computers, mobile phones, digital TV, and personal digital assistance.

• To increase penetration and popularity alliances with other industries such as telecommunications, cable television etc will be synergetic.

• Electronic payment systems in one country must provide currency exchange for electronic payment systems in another country.