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Electronic Payment Systems

Introduction
As payment is an integral part of mercantile process, electronic payment system is an integral part of e-commerce. So, emergence of e-commerce has created new financial needs that in many cases cannot be effectively fulfilled by the traditional payment systems.  

An electronic payment refers to financial transactions that are made without the use of paper documents, such as cheques. For example, direct deposit of payroll is the most familiar electronic payment. 

Numerous payment mechanisms are presently available to meet individual preferences. Each of e-payment mechanisms has a different set of attributes that makes it more or less desirable for different types of electronic commerce transactions.

In electronic payment system, server stores records of every transaction. When the electronic payment system eventually goes online to communicate with the shops and the customers who can deposit their money and the server uploads these records for auditing purposes. This system includes two main parts: client module and server module. 

The purpose of client module is to pass request made by client to server which stores all transaction information in a set of data files. The server site would respond by sending all the items of the client requests. The client process also contains solution-specific logic and provides the interface between the user and the rest of application system. The user interface module and the server module communicate using TCP/IP protocol.

Requirements of Electronic Payment Systems 
The general requirements of payment systems are: 
1) Confidentiality: The user expects a secure system of payment. The system must have a set of special characteristics that the customer can depend on. For example, when the user gives the credit card number to a merchant, the former expects confidentiality that the number will only be disclosed to those who have a legitimate need to know it. It could for instance be disclosed to the bank issuing the payment.
 
2) Integrity: The payment system requires integrity to ensure that neither the purchase amount, nor the goods bought, will be altered inappropriately.
 
3) Authentication: Both the buyer and the seller require assurance that the other is really who they claim to be. In a face-to-face deal, the buyer authenticates the vendor based on the location of the business and the permanence of its facilities. On the part of the vendor, if the customer is not paying by cash, the vendor usually asks for the customer's driver's license and compares the signatures on the charge slip and that on the license. In this manner the seller authenticates the customer.
4) Authorization: Authorization allows the merchant to determine if the buyer actually has funds to pay for the purchase. The merchant verifies that the customer's bank account has sufficient balance to honor the cheque amount. In case of a credit card transaction, the merchant obtains the approval from the credit card clearing house for the amount of the credit card purchase.
 
5) Assurance: The customer on his part might want to be sure that the merchant is competent and worthy of his trust. This might involve some kind of business license, endorsements from other customers or even surety bonds for more complex transactions.
 
6) Privacy: There might be situations where both the customer and merchant would want to ensure the privacy of a sale. For example, a business conducting research might not want its competitors to know the details of its purchases. 


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