Session 6: Electronic Payment Systems Online banking .

Session 6: Electronic Session 6: Electronic Payment Systems Payment Systems

http://www.youtube.com/watch?v=Nu3W3ECxlM8- Online bankinghttp://www.youtube.com/watch?v=Nu3W3ECxlM8- Online bankinghttp://www.youtube.com/watch?v=sLfm0Wwdikg http://www.youtube.com/watch?v=sLfm0Wwdikg http://www.youtube.com/watch?v=rIauZfXevzwhttp://www.youtube.com/watch?v=rIauZfXevzw

http://www.youtube.com/watch?v=A0XfyB65zbs – http://www.youtube.com/watch?v=A0XfyB65zbs – http://www.youtube.com/watch?v=B_2oj_Cxjcs - Ebanking http://www.youtube.com/watch?v=B_2oj_Cxjcs - Ebanking http://www.youtube.com/watch?v=_Cs8UPOBjM4- E-Checkhttp://www.youtube.com/watch?v=_Cs8UPOBjM4- E-Check

http://www.youtube.com/watch?v=FeGfiMIYBP8 – Online paymenthttp://www.youtube.com/watch?v=FeGfiMIYBP8 – Online payment

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Payment RevolutionPayment Revolution Metal coins appeared in Italy and India Metal coins appeared in Italy and India

between 10between 10thth and 16 and 16thth century BC century BC Checks were introduced by Italian Checks were introduced by Italian

MerchantsMerchants Paper money was first introduced in Paper money was first introduced in

Massachussets in 1690Massachussets in 1690 Credit cards -1950 by Diners club in USCredit cards -1950 by Diners club in US

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Payment RevolutionPayment Revolution Cards and electronic payments taking place of cash and Cards and electronic payments taking place of cash and

checkschecks In 2003, combined use of debit and credit cards In 2003, combined use of debit and credit cards

exceeded that of checks and cashexceeded that of checks and cash From 2000 to 2003, Volume of electronic transaction From 2000 to 2003, Volume of electronic transaction

grew from 30bn to 45bngrew from 30bn to 45bn Debit cards, the fastest growing segmentDebit cards, the fastest growing segment Cashless societyCashless society In US 90% of online payments done by Credit In US 90% of online payments done by Credit

Cards(VISA, MASTER)Cards(VISA, MASTER)

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Payment RevolutionPayment Revolution Consumers in Germany, Netherlands and Japan use direct Consumers in Germany, Netherlands and Japan use direct

debit and bank cardsdebit and bank cards Need for various e-payment mechanisms Need for various e-payment mechanisms Merchants offering multiple payments-20% higher order Merchants offering multiple payments-20% higher order

conversion rateconversion rate Credit cards introduced in 1950s – but widespread use only Credit cards introduced in 1950s – but widespread use only

post 1980spost 1980s Chicken and egg situation(buyer vs seller)Chicken and egg situation(buyer vs seller)

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Critical Success FactorsCritical Success Factors IndependenceIndependence Interoperability and PortabilityInteroperability and Portability SecuritySecurity AnonymityAnonymity DivisibilityDivisibility Eas of useEas of use Transaction feesTransaction fees RegulationsRegulations

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Setting up a e-Payment SystemSetting up a e-Payment System AuthorizationAuthorization SettlementSettlement Own a payment softwareOwn a payment software Use POS operated by an acquirerUse POS operated by an acquirer Use a POS operated by a payment system providerUse a POS operated by a payment system provider

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Key participantsKey participants Acquiring bankAcquiring bank Credit card associationCredit card association CustomerCustomer Issuing bankIssuing bank MerchantMerchant Payment processing servicePayment processing service ProcessorProcessor

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Key tools in combating fraudsKey tools in combating frauds Address verification System(AVS)(82%)Address verification System(AVS)(82%) Manual Review (73%)Manual Review (73%) Card Verification Number(56%)Card Verification Number(56%) Fraud screens and decision models(53%)Fraud screens and decision models(53%) Negative files(45%)Negative files(45%) Card association payer authentication services(55%) (Master and Card association payer authentication services(55%) (Master and

VISA securecode)VISA securecode) Impact: Rejection of orders(12.5% outside US and Canada)Impact: Rejection of orders(12.5% outside US and Canada)

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Smart CardsSmart Cards Looks like a plastic payment cardLooks like a plastic payment card Embedded chip Embedded chip

• With Microprocessor and memory chipWith Microprocessor and memory chip

• Just memory chip with nonprogrammable logicJust memory chip with nonprogrammable logic

Microprocessor is not a computerMicroprocessor is not a computer Programs and data must be downloaded from and activated Programs and data must be downloaded from and activated

by other device(like ATM machine)by other device(like ATM machine)

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Types of Smart CardsTypes of Smart Cards Contact CardContact Card

• Small gold plate (One half inch dia on the front)Small gold plate (One half inch dia on the front)

• Data to and fro the reader using thisData to and fro the reader using this

• EPROM and EEPROM cards(Most are EEPROM)EPROM and EEPROM cards(Most are EEPROM)

Contactless (Proximity) CardContactless (Proximity) Card• Chip and Embedded AntennaChip and Embedded Antenna

• Card reader or other device also with AntennaCard reader or other device also with Antenna

• Mass-transit applications like paying bus or train faresMass-transit applications like paying bus or train fares

• Work at short range, just a few inchesWork at short range, just a few inches

Hybrid cardHybrid card

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Smart card readerSmart card reader Read/Write deviceRead/Write device Act as a mediator between card and host system that stores application data Act as a mediator between card and host system that stores application data

and process transactionsand process transactions Two types: Contact and ProximityTwo types: Contact and Proximity Interoperability between card and reader technologiesInteroperability between card and reader technologies Global platform(globalplatform.org)- specs for smart cards and devicesGlobal platform(globalplatform.org)- specs for smart cards and devices Smart card OS(JAVA and MULTOS)Smart card OS(JAVA and MULTOS)

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Store Valued CardsStore Valued Cards Monetary value is stroed on magnetic stripMonetary value is stroed on magnetic strip Cardholders name is not printed on itCardholders name is not printed on it Anyone can get it without any financial standing or bank accountAnyone can get it without any financial standing or bank account Rely on Same network, encrypted communications and E-banking Rely on Same network, encrypted communications and E-banking

protocolsprotocols Close loop Close loop (Single use e.g issued by a shopping merchant like (Single use e.g issued by a shopping merchant like

timezone)timezone) Open loop Open loop (multipurpose cards, various retailers, payroll, govt (multipurpose cards, various retailers, payroll, govt

benefits, prepaid- itzcash, Citi Cash card)benefits, prepaid- itzcash, Citi Cash card)

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Electronic checksElectronic checks Electronic version of paper checkElectronic version of paper check Account no, 9 digit ABA routing no, bank account type, name of the Account no, 9 digit ABA routing no, bank account type, name of the

bank account and transaction amount bank account and transaction amount They use digital signatures for signing and endorsing andThey use digital signatures for signing and endorsing and Digital certificates to authenticate the payer, the payer’s bank and Digital certificates to authenticate the payer, the payer’s bank and

bank accountbank account They are delivered either by direct transmission using telephone lines They are delivered either by direct transmission using telephone lines

or by public networks such as the Internet.or by public networks such as the Internet.

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Internet bankingInternet banking Make the purchase you want.Make the purchase you want. Select the payment option using internet banking.Select the payment option using internet banking. You have to enter your User ID and Login Password.You have to enter your User ID and Login Password. Then select the Bank using which we desire to pay.Then select the Bank using which we desire to pay. Your transaction password should be entered.Your transaction password should be entered. Your selected account will be debited by the purchase amount.Your selected account will be debited by the purchase amount.

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Internet banking-ADVInternet banking-ADV 1. Available for 24 hours a day, 7 days a week.1. Available for 24 hours a day, 7 days a week.

2. No need to stand in queues.2. No need to stand in queues.3. The account can be operated from anywhere – all you need is a computer 3. The account can be operated from anywhere – all you need is a computer with internet access.with internet access.4. Integrated security.4. Integrated security.5. You can apply for a majority of the services such as loans, savings 5. You can apply for a majority of the services such as loans, savings accounts, mortgages, etc., on-line.accounts, mortgages, etc., on-line.6. It can be used for paying bills through on-line which saves both time and 6. It can be used for paying bills through on-line which saves both time and money on postage.money on postage.7. Through internet banking we can easily compare services offered by 7. Through internet banking we can easily compare services offered by different banks. We can buy financial products and apply for loans by different banks. We can buy financial products and apply for loans by choosing the best bank for us to apply by such comparison.choosing the best bank for us to apply by such comparison.8. We can even buy insurance online through Internet banking services.8. We can even buy insurance online through Internet banking services.9. Stocks and bonds and other investments can be managed with online 9. Stocks and bonds and other investments can be managed with online banking from our home or office independent of a financial intermediary like banking from our home or office independent of a financial intermediary like a stockbroker.a stockbroker.

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Internet banking-DisadvInternet banking-Disadv The internet connection costs should be met by the The internet connection costs should be met by the

customer while using the service.customer while using the service. The account cannot be accessed if there is a failure in The account cannot be accessed if there is a failure in

the internet connection.the internet connection. The bank and the account holder would not be having The bank and the account holder would not be having

any personal interaction.any personal interaction. Working through the internet banking can be slow with a Working through the internet banking can be slow with a

56K modem.56K modem. You cannot deposit physical cash into your account, You cannot deposit physical cash into your account,

online. For that you need to visit the bank.online. For that you need to visit the bank. For obtaining cash floats or to use an ATM machine to For obtaining cash floats or to use an ATM machine to

withdraw cash we will have to visit the bank personally.withdraw cash we will have to visit the bank personally.

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NEFT and RTGSNEFT and RTGS National Electronic Fund Transfer (NEFT)National Electronic Fund Transfer (NEFT) is an online is an online

system for transferring funds of financial institution, especially system for transferring funds of financial institution, especially for the banks in India. This service is used mainly to transfer for the banks in India. This service is used mainly to transfer funds below Rs 100000funds below Rs 100000

The instant funds transfer system, known as the The instant funds transfer system, known as the Real Time Real Time Gross Settlement(RTGS)Gross Settlement(RTGS) cannot be used for an amount cannot be used for an amount below Rs. 1 lakh by the banks as per the instructions of the below Rs. 1 lakh by the banks as per the instructions of the banking regulator, the Reserve Bank of India. banking regulator, the Reserve Bank of India.

The main difference between NEFT and RTGS is that the NEFT The main difference between NEFT and RTGS is that the NEFT works on works on net settlement basis and RTGS works on gross net settlement basis and RTGS works on gross settlement basissettlement basis

The NEFT involves four settlement cycles a day 9.30 am, 10.30 The NEFT involves four settlement cycles a day 9.30 am, 10.30 am, 12 pm and 4 pm and RTGS facilitates online transferam, 12 pm and 4 pm and RTGS facilitates online transfer

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E- BankingE- Banking Case Study Case Study

ICICIE-Banking Case