Payment in E-commerce / M-commerce

Payment is one of the most important aspects of E-commerce as well as M-commerce. In traditional payment method, one does the payment using cash, cheque or credit card. Electronic payment systems are becoming more important to the online business processes as companies are looking for different ways to serve the customers faster and at low cost. Electronic payment is a financial exchange that takes place online between the buyer and the seller. These are various payment options available for payment in the market today.

The different types of electronic payment systems used are:

Payment Cards

The payment cards can be classified as Credit cards, Debit cards and Smart cards, generally businesses use the term payment card for all types of plastic cards that consumers use to make payments.

Credit Card

This is one of the most popular and widely accepted methods of payment on Internet.

A credit card is issued to the customers by the banks known as issuing banks.

The issuing banks provide the credit cards of the financial institutions which are established and reputed in the services of credit card business.

Examples include MasterCard® or Visa®.

Depending upon the customer’s credit history and income level, credit limits are provided and up to that limit the customer can spend and pay to the issuing bank within the billing period.

As credit cards are linked to a bank account, when they are used to pay online, the merchant charges the goods to the issuing bank account and the bank shows the debit in the next statement. The customer simply pays the bank.

For accepting payments on websites through credit card, merchant needs to open a merchant account with the banks which is known as acquiring banks, which in turn provides the services of online authorization and payment processing.

Authorization is the process of verifying whether the card is active; the credit limits are available to make purchase and verifying the other details of the customer like billing information.

Credit cards are widely accepted by merchants and provide assurance to the customer as well as the merchant.

In credit card transactions over the Internet, the customer visits the merchant’s website and selects goods to buy, all the information related to credit card is entered and then this information is transmitted to the merchant electronically. 

In this transaction four parties are involved:

• Customer with credit card
• Merchant accepting the credit card
• Issuing Bank: issues the credit card and guarantees the payment to the merchant. The bank collects the payment from the customer.
• Acquiring banks: Financial institution that establishes the account with the merchant validates the credit card information of the customer and authorizes sale based on the customer’s credit limit.

Two more entities play role in online payment.

• These are payment gateways and processors.

Payment gateways are services provided by the third parties like PayPal which connects networks of all the parties involved and enables to perform authorization and payment in secured manner.

Processors are data centers which perform the credit card transactions and settle funds to the merchant.

Processors are connected to the E-commerce website of the merchant through the payment gateway.

The online payment through credit card on Internet is divided into two parts: Authorization and Settlement.

During authorization the following steps are performed:

Customer checkouts, provides credit card information on the E-commerce website, which along with the transaction details (like them detail, date of purchase and others) is transferred to the payment gateway.

The payment gateway passes the information to the processor which contacts the issuing bank for the verification of the information.

After verification, issuing bank sends the status of verification (or transaction result like accepted or rejected) to the processor which in turn passes it to the payment gateway.

Finally, payment gateway sends the result of the transaction to the merchant’s website. If the merchant accepts the transaction then the next step is the settlement during which it transfers the amount from the customer’s account to the merchant’s account.

During the settlement or payment processing the following steps are performed:

• Merchant sends the transaction request with all the details to the payment gateway which sends to the processor.
• Processor sends the payment details to the issuing bank of the customer.
• It also sends the payment details to the acquiring bank where the merchant has an account.
• The acquiring bank credits the amount to the merchant account. 
• The issuing bank after including all the charges sends the bill to the customer which he needs to pay within the billing period.
• Major credit card companies use the Secure Electronic Transfer (SET) security system to make online transactions secure.

The advantages of credit card are:

• Gives flexibility to the customer as they do not have to carry lot of cash. Customer can pay for goods and services both online and offline.
• Keeps record of the customer’s purchase through the bank statement.
• Allows customers to purchase goods even when they do not have the cash available in the bank account.
• They can settle the cash by the end of the month.

The limitations of credit cards are:

• They are unsuitable for very small or very large payments. Also, due to security issues, these cards have a limit and cannot be used for excessively large transactions.
• Customers tend to overspend using credit cards
• Problems arise in case lost or stolen credit cards.

Debit Cards

• A debit card looks like credit card but works differently.
• It is a kind of payment card that transfers fund directly from the consumer’s bank account to the merchant.
• The amount is immediately deducted from the bank account of the consumer.
• The debit cards can keep the consumer purchases under a limit and do not allow him to exceed beyond his/her budget.
• But while using a debit card for a purchase, the consumer should always be aware of his account balance.

Smart Cards

• Smart cards look just like credit cards but are different as they have a microchip embedded in their surface.
• A smart card contains user’s private information, such as account information, health insurance information, private keys etc.
• It can store 100 times more information than the normal cards.
• They are much safer than the credit or debit cards as the information stored in the smart card is encrypted.
• Customers can load their card with cash and then use this to pay for goods in a merchant’s retail outlet or website.
• Card readers are available for retail outlets as well as an attachment for PCs.
• This convenience gives a great advantage to smart cards.
• They can be used for a range of purposes like storing digital cash, storing a patient’s medical records etc.
• Smart cards are popular in countries like U.S., Europe, Japan and some parts of Asia.
• A smart card reader is required to read information or add data to it.
• It is a small device into which the smart card is inserted.
• For example, when one visits their family doctor, the smart card can be given to him to review the medical history and prescribe medicines.
• This information is also inserted into the smart card.
• At the medical store, the card can be handed over to the pharmacist, who can see the prescription and give the medicine accordingly. 
• Also, the payment for the medicines can be done using smart card.

Charge cards

• A charge card is another form of payment mechanism wherein the customer can pay through the card to the vendor.
• As compared to credit cards that have a credit limit, the charge card does not carry any spending limit.
• The customer has to pay the total amount used at the end of the billing period to the company that has issued the card.
• If the total amount is not paid back then the customer has to pay a late fee.

Net Banking

• Another option which is becoming more popular is net banking or online banking. It does not involve any type of card.
• It can be used by customers who have bank accounts enabled with Internet Banking.
• The bank provides the net banking password to the customer for operating the account from Internet including the payment for online purchases.
• Many of the E-commerce / M-commerce websites provide the facility to make the payments using net banking.
• Instead of entering card details on the website, it allows one to specify the bank through which the user wishes to pay from.
• On these websites, when one proceeds to make the payment, one is asked to select the bank.
• Once the bank is selected, the screen of the bank’s website will be seen.
• That is where the login procedure is done using account number and net banking password.
• The transaction and transfer of the amount can be performed from the users account of the merchant.
• First, the user has to register with the site and provide the details of the jopurney along with the passenger information.
• Once the information is filled up, the user can proceed to the payment where net banking option is provided.
• Selection of bank is done here and continued further which displays the login screen of the bank and transfer fund to Indian railway to complete the booking.
• After successful payment, the user gets a message on the registered mobile number, which can be shown at the time of travel or E-copy of the ticket can also be printed.
• Net banking payment system is seen as being safer than using credit cards as nearly all merchant accounts in India offer it as an option.

Electronic Fund Transfer

Electronic Funds Transfer (EFT) means transferring money from one bank account to another electronically.

It is safe, secure, efficient, and less expensive than paper check payments and collections.

Examples of EFT are:

• Transactions amongst various banks around the world.
• Payment of tuition fees using an ATM.
• Deposit of employee’s salaries in their accounts.
• Monthly bank account deductions and many more.
• The popularity of EFT for online bill payment is growing.
• The benefits of EFT include reduced administrative costs, increased efficiency, simplified book keeping and greater security.

E-wallet

• Most of the time when a purchase is made on the web, the user has to fill out a form with name, shipping address, billing address, credit information and so on. 
• It becomes an annoyance if the similar form has to be filled up every time the user shops.
• Some merchants solve the problem by having to fill out a form only once, and then saving the information on their servers for later use.
• These merchants provide e-wallet for its customers.
• Today many banks, online grocery stores, telecom services etc, provide e-wallet services.
• E-Wallet is an electronic card for making secure online payments towards a merchant.
• It works just like a credit or a debit card.
• While making payment through E-Wallet the customer is not required to provide the credit / debit card number thus reducing the risk of credit / debit card number being exposed.
• For example, IRCTC has launched E-Wallet scheme for the customers to make online booking easier.
• The customers having an account can deposit money in advance with IRCTC which can be used in future as payment option to book the tickets online.
• Currently the users have to provide the credit / debit card details for booking tickets.This payment procedure takes time as the customer is transferred to the bank’s server for payment.

RuPay

• The term RuPay is coined from two terms Rupee and Payment.
• It is a new card payment mechanism launched by National Payments Corporation of India (NPCI).
• Currently, as there is no domestic card Indian banks have to tie up with Mastercard or Visa to connect cardholders, merchants and issuing banks around the globe.
• Mastercard and Visa are the world leaders in card payments and all payment transactions are processed through them.
• Every transaction done using a credit or debit card issued by a domestic bank is routed through their network switches which are outside the country.
• These transactions involve additional charges for providing the services.
• The banks have to pay for processing all debit and credit card payments.
• RuPay cards are the domestic alternative to the other payment cards.
• By using RuPay cards, all the transactions will be processed within India.
• As the transaction processing will be done domestically, the cost of each transaction clearing and settlement will be reduced.
• RuPay will benefit the customers and the banks by reducing the cost.

Legal Issues in E-commerce / M-commerce

• E-commerce as well as M-commerce presents a world of opportunity for doing businesses, reaching global markets and providing facility of online purchasing. 
• It provides opportunities to improve the business processes.
• However, just as any new business has some issues and risks so does E-commerce and M-commerce.
• Both of these pose many legal challenges, as it is the activity performed on global Internet without national boundaries.
• Every nation has its own rules and regulations.
• The major challenges are related to the intellectual property rights, copyrights, privacy and many times the disputes among the parties.
• The legal framework is necessary to resolve these issues.
• Many countries have already established their legal framework for electronic commerce.
• Indian Government has also established the IT laws (Information Technology Laws) under the IT act.
• Enforcement of legal rules and regulations provides confidence to the customers that their personal information remains secret and will not be misused.
• If it is misused, responsible party can be punished.
• This type of security is a must in E-commerce and M-commerce as customers provide their sensitive information like credit card details.
• Companies making online business are getting legal support in case of misuse of their logos or any copyright materials like digital content.
• Any dispute between two parties can be resolved under these laws.

Securing Intellectual Property
The intellectual property includes books, software’s, music, video, copyrights, trademarks and web pages. Some of them are explained below:

Copyright

• Copyright provides the author with a tool to protect his / her original work from being used or taken by others without permission.
• It is applicable to books, software programs and articles.
• Copyright law protects intellectual property in its various forms, and cannot be used freely.
• It is difficult to protect Intellectual Property in E-commerce or M-commerce.
• For example, if one buys software, one has the right to use it and not the right to distribute it.
• The distribution rights are with the copyright holder.
• Also, most of the web pages are protected by copyright.
• In that case, copying contents from that website also violates copyright laws.

Trademark

• It is a specific logo, mark, word, symbol, design, phrase or image which is used by an individual or a company to distinguish a product or service from that of others in the market.
• A trademark may be designed by the following symbols: TM, SM and ®.

Domain name disputes

• The competition over domain names is another legal issue.
• Earlier, the domain names were given on first come first basis.
• Thus people would register domain names that were not in use but would be of importance.
• Later on, such domain names were sold to concerned company at a very high price.
• This is known as cyber squatting.
• Another problem is Name changing where someone registers purposely misspelled variations of well known domain names.
• This can mislead the consumers who generally make typographical errors while entering a URL.

Security Issues in E-commerce & M-commerce

Internet is a public network system that consists of thousands of private computer networks connected 

together. These private computer networks are exposed to potential threats from anywhere on the 

public network. Internet provides a good opportunity to the businesses but along with the convenience 

also come new risks. The valuable data or information that travels on the Internet may be misused, 

stolen, corrupted or lost. For example, while making online purchase on the E-commerce website, 

customer needs to provide the credit card number and personal details. This information is transmitted 

to the merchant server. The merchant server sends it to the issuing bank for authorization through 

payment gateway. All these transmissions occur on the public network i.e. Internet.  An unauthorized 

user may read the credit card number during the transmission and misuse it later on. Also, there are 

possibilities that order information might be changes in between. If the customer has ordered 10 items, 

and somehow the merchant receives order of 100 items, he would ask us to pay for 100 items. An 

intruder can steal or tamper information anywhere in the world while sitting on his computer. He can 

create new programs and run them on remote computers causing it to malfunction or break down in 

worst cases while hiding his identity. 

E-commerce / M-commerce sites have to keep their online data such as customer’s personal details, 

their bank details and many more safe. They have to be aeware of all the frauds that are taking place 

now days. As E-commerce deals with payments such as online banking, electronic transactions, using 

debit cards, credit cards and many others; the E-commerce / M-commerce websites have more security 

issues. They are at more risk of being targeted than other normal websites. Thus, it becomes very 

important to secure the data on Internet. 

The E-commerce / M-commerce security must meet four important aspects as mentioned below:

Confidentiality

It refers to the secrecy of the information so that unauthorized user cannot read it.

It is achieved by using cryptography in which all the messages transmitted are encrypted and only the 

receiver can read it after decrypting the message using appropriate key. 

This protects the data from private attacks and ensures that the message is not revealed or leaked to 

anyone as it travels to the destination.

It helps in protecting the protecting the confidential data like credit card number.

Integrity

It ensures that the information must not be accidentally or maliciously altered or tampered in transit. 

The receiver should receive the same message as was sent by the sender. 

If the message is altered in between the transition, it should be detected. 

This removes the problem of modifying the order quantity in between and later creating the payment 

problems. 

Authorization

It ensures that only authentic users are allowed to use the system. 

The login and password is one of the ways to achieve authentication.

Non-repudiation

It ensures that the sender of the message cannot deny that he / she has sent the message. 

It prevents sender or receiver from denying a transmitted message when in fact they did send it.

For example,. If the customer denies of sending a purchase order for any reason, then it can be proved 

that the customer has send the message. It is usually accomplished via digital signatures or a Trusted 

Third Party (TTP).

E-commerce Business Models

The business models of E-commerce are defined on the parties involved and the type of business activities or services provided. Many business models have been proposed for E-commerce but the following are the most popular amongst all. Generally, the classification is done on the basis of who is selling to whom.

•  Business to Consumer (B2C)
•  Business to Business (B2B)
• Consumer to Consumer (C2C)
• Consumer to Business (C2B)

Business to Consumer

Business to Consumer (B2C) refers to business and organizations that sells products or services to consumers over the Internet using websites. Consumers from anywhere can browse and order the products or services anytime. The sellers can sell products directly to the consumers. And the buyers are individual customers. This is the type of E-commerce that the consumers are most likely to see on Internet. Lately, it has gained a high popularity amongst consumers due to simplified and fast way to buy products. Apart from online retailing, B2C also includes services like online banking, retail estate services, travel services and many more. Some examples of B2C websites are: amazon.com, rediff.com, fabpart.com, flipkart.com etc.

Business to Business 

Business to Business (B2B) refers to E-commerce activities between different business partners. In B2B both the seller and the buyer are business entities. It enables the business to form E-relationship with their suppliers, distributors and other entities. This allows more transparency among the business entities involved and results in more efficiency. For example, a manufacturer deals with a supplier, a distributor and a wholesaler. The manufacturer using B2B can quickly communicate to the supplier about diminishing stock product, the supplier in turn can respond quickly to it. With the help of B2B, the companies can improve the efficiency of common business activities like supplier management, inventory management, payment management and many more. It is an effective media for managing telemarketing, supply chain, procurement, just-in-time delivery, online services. Some examples of B2B websites are commodity.com and tradeindia.com.

Consumer to Consumer 

Consumer to Consumer (C2C) refers to E-commerce activities involving transactions between and among the consumers. It enables the consumers to directly deal with each other through online auctions and classified advertisements without the involvement of third party. Any Internet user can become a vendor or purchaser at C2C websites.  Auctions sites are a good example of C2C model. If there is a product to be sold, it can get listed at an auction site and others can bid for it. Some of the C2C websites are Ebay.com, OLX.com And Quikr.com.

Consumer to Business Consumer to Business (C2B) involves reverse auctions where the consumers determine the prices of the products or services. In this type of E-commerce, consumers have a choice of a wide range of products and services, along with the opportunity to specify the range of the prices that they can afford or are willing to pay for a particular product or service. The companies bid to offer the products or services to the consumer. This helps in reducing the bargaining time while increasing flexibility for both the consumer and the company. C2B uses Internet to reverse the normal buying process wherein the consumers decide what they are willing to pay and business decides whether to accept it or not. Some examples of C2B websites are bidstall.com, JeetLe.in.