Electronic Payment System

Electronic Payment System

I. Introduction

With the continuing rapid growth of E-commerce, transactions on the Internet have been increasing exponentially. And such transactions require some reliable and secure payment systems. In fact, one of the key factors in the success of E-commerce is the development of convenient, reliable and secure electronic payment system.

To understand the issues and current activities regarding the development of electronic payment system, I discuss the following in this paper.

· Existing paper-based payment system

· Major issues in designing an electronic payment system

· Electronic payment system

II. Existing paper-based payment system

The existing paper-based payment system can be largely classified as paper checks and credit card systems. In a paper checks processing system, the cost of normal operations is frequently outweighed by the costs associated with exception handling. If a typical transaction costs US 5 cents to process, and the manual labor associated with handling errors and exceptions comes to an average of $25, even with an error rate of only two per thousand, exception costs will equal normal processing costs. As electronic processing drives down the cost of normal transactions, exception handling becomes relatively more significant. Payment systems must therefore be implemented to the highest standards of reliability, with automated procedures for recovering from errors whenever possible.

On the other hand, the credit card system was designed to provide immediate gratification of the wants of consumers by allowing them to purchase goods or services on credit...

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...tions of functions, price, and performance. The paper world, after all, has many different instruments, which embody different tradeoffs among risk, cost, complexity, responsiveness, and the time until the transaction is final. The same variety should be expected in electronic credit and debit systems.

Yet new technologies uncover new ways to distribute risk, liability, and cost among the parties to a transaction. They will take somewhat longer to develop, however, as they require changes in regulatory assumptions, case law, and participant behavior, all of which evolve much more slowly than technology does.

Reference

1. Credits and Debits on the Internet, Marvin A. Sirbu, Carnegie Mellon University, 1997

2. http://www.cybercash.com

3. http://www.setco.org