CHAPTER 3

CLASSIFICATION AND
REQUIREMENTS OF
ELECTRONIC PAYMENT
SYSTEM

32
3. CLASSIFICATION AND REQUIREMENTS
OF ELECTRONIC PAYMENT SYSTEM
In this chapter, we discuss various electronic payment systems and
issues. We present the requirements of the system on-line payment
technologies, which are necessary to provide a reliable service to the
customer in an e-commerce environment. This chapter also tries to classify
current on-line payment methods on the bases of their method of payment
and their applications.

3.1 Requirements for on-line payment systems

The success or failure of any on-line payment systems depends not

only on technical issues but also on user’s acceptance. The user’s acceptance
depends on a number of issues such as advertisement, market position, user
preferences etc. So when some one discuss about the characteristics of on-
line payment technologies, they should not only think about technical issues
but also about user acceptance related issues [24].

Atomicity

Atomicity guarantees that either the user's on- line payment

transaction is completed or it does not take place at all. If the current on-line
payment transaction fails then it should be possible to recover the last stable
state. This feature resembles the transactional database systems, in which
either a transaction is committed or rolled back.

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Anonymity/Privacy

Anonymity suggests that the identity, privacy and personal

information of the individuals using the on- line payment methods should not
be disclosed. In some on- line payment methods, it is possible to trace the
individual’s payment details. In case of purchases using Debit Card, it is
possible to find out the purchase details as that information is registered at
the vendor and the bank's databases. So some on- line payment systems like
Debit cards are not anonymous systems. In some other payment systems,
anonymity can be weak as the efforts to get the purchase details of the user
can be more expensive than the information itself. There are privacy laws in
several countries to guarantee the privacy of the user and protect the misuse
of personal information by the financial institutions.

Scalability

As the on- line payment methods are getting more and more
acceptance of the users, the demand for on- line payment infrastructure will
also be increasing rapidly. Payment systems should handle the addition of
users without any performance degradation. To provide the required quality
of service without any performance degradation, the payment systems need a
good number of central servers. The central servers are needed to process or
check the payment transactions. The growing demand for the central servers,
limits the scalability of the on- line payment systems.

Security

Security is one of the main concerns of the on- line payment

methods and it is one of the crucial issues which decide the general
acceptance of any on- line payment methods. Internet is an open network
without any centralized control and the on- line payment systems should be

34
protected against any security risks to ensure a safe and reliable service to the
users. When users are paying on- line they want to be sure that their money
transaction is safe and secure. On the other hand, banks and payment
companies and other financial institutions want to keep their money, financial
information and user information in a secure manner to protect it against any
possible misuse.

Reliability

As in any other business activity, even in on- line payment methods,

the user expects a reliable and an efficient system. Any on- line payment
system would fail, despite of it's advanced technological features, if it fails to
get the users acceptance and pass their reliability tests. There are many
reasons, which can make the system unreliable to the users. Some of them are
Security threats, poor maintenance and unexpected breakdowns.

Usability

Usability is an important characteristic of an interactive product like

on- line payments. On-line payment systems should be user friendly and easy
to use. Any On- line payment system with complicated procedures, complex
payment process and other associated complications with the payment
environment, can't get users acceptance. Poor usability of a web shopping or
a payment method could also discourage on- line shopping. To make the on-
line payments simple and user friendly, some of the on- line payment systems
allow the users to make payments with minimum authorization and
information inputs.

Inte roperability
In On- line payment Technologies, different users prefer different
payment systems. The different payment systems use different kinds of

35
currencies and the payment systems should support interoperability between
them. If a payment system is inter operable, then it is open and allows other
interested parties to join without confining to a particular currency. In the real
life situation, there should be some sort of mutual agreement between various
on- line payment systems to provide the interoperability. Interoperability can
be achieved by the means of open standards for data transmission protocols
and infrastructure. An interoperability system can gain much acceptance and
high level of applicability than individually operating payment systems.
Because of the rapid technological changes, it's not always easy to get
interoperability between various payment systems.

3.2 Classification of Payment Systems

With the advancements in the Internet technology, many on-line

payment technologies have been developed in these days. Many of these On-
line payment methods are developed on the basis of existing payment
instruments and others are developed on the basis of new form of value
representation and exchange. Majority of current on- line payment methods
allow monetary value to be transferred from one entity to another across
computer networks with much security and little chance for fraud [25].

Payment systems are mainly classified into two systems, depending

on the value of money transactions, processing time, computational
requirements, security issues and usability requirements. They are
 Macro On- line Payments Systems
 Micro On-line Payments Systems

Macro payment systems support payments for higher value. The

security requirements are more rigorous in these payment systems because of
huge money transactions. Micro payment systems support frequent transfers
of very small amounts. Because of the small amounts involved, higher

36
efficiency can be achieved by slightly relaxing the security mechanism.
Micro on- line payment methods aim at providing a reasonable level of
security with more economical usage of computer resources and time.

3.2.1. Macro Payment Systems

Macro payment systems are modeled on real world payment

instruments and have minimum transaction overheads imposed by the issuing
banks. These transactional over heads and heavy usage of computationally
expensive cryptographic operations prevent these payment systems to be
used for the payment of small amounts. Some of the popular macro on-line
payment systems are mentioned below [14].
 Card Based Payment Systems
 Electronic Check and Account Transfer Payment Systems
 Electronic Cash Payment Systems
 Mobile Payment Systems

Card Based Payment Systems

There are varieties of payment systems available. Some of them are

Card-based while others are electronic instruction oriented. In general, these
payments link to an existing account relationship to a financial institution for
both payer and payee. There are three widely used Card-based on-line
payment systems. They are [26]
 Credit Card Based Payment Systems
 Debit Card Based Payment Systems
 Stored Value Card Based Payment Systems
Credit Card Based Payment Systems
Credit-card based payment systems have been in use since the early
1960s. There are five parties involved in the credit card transaction. These are
as follows:
37
 Cardholder is the customer who holds the credit card.
 Merchant is the person who sold the item.
 Issuing Bank, which issues the credit card and operates a card account to
which payments can be charged.
 Acquiring Bank, which handles the merchant’s receipts. A merchant who
wish to accept payments must register with the acquiring bank.
 Credit Card Network, which is a co-operative venture between the
affiliated card issuers. It links the issuing, acquiring banks and co-ordinates
the exchange of information, flow of funds between them. e.g. Visa Card or
MasterCard.

The functionality of Credit Card:

When the card holder swipes his or her credit card at the point of
sales terminal [POS], the information stored on a magnetic strip or a chip will
be transmitted to acquiring bank in encrypted form. The acquiring bank
checks the information containing Merchant’s ID, The card number, the
expiry date, the credit limit and remaining credit [16]. The acquiring bank
connects to the issuing bank through the network’s computer. The is suing
bank transmits the account information and later transfers the funds to the
acquiring bank. The issuing bank then debits the card holder’s account and
reduces the balance of credit available [16].
The network [Visa Card or MasterCard] charges the issuing banks to cover
its costs. The acquiring banks charge the merchants a percentage of each
transaction and pay interchange fees to the issuing banks .The issuing banks
charge card holders some interest on unpaid balances or an annual fee.
Credit Card Transaction can be summarized in the following steps:

(i) The Payer [Consumer] pays a Payee [Merchant] with a credit card
at the POS [point of sale].

38
 (ii) The Payee [Merchant] transmits the data at POS through the
bankcard association’s network to the card issuer for authorization.
(iii) If the issuer authorizes, then the merchant receives the authorization
to capture funds and the card holder accepts liability by signing the
credit voucher.
(iv) The merchant receives the payments by submitting the captured
credit card transactions to its financial institution in batches or at the
end of the day.
(v) The merchant's bank [Acquire Bank] forwards the sales draft to the
bankcard Association, which in turn forwards the data to the card
issuer.
(vi) The bankcard association determines each financial institution’s net
debit position and the association’s settlement financial institution
coordinates issuing and acquiring settlement positions. The
settlement process takes place using a separate payment network.
(vii) The card issuer presents the transactions on the card holder’s next
monthly statement.

Security of Credit Card Transactions:

SSL and TLS are used to encrypt payment transaction messages,

including the payment card details, sent between the payer and payee over
the Internet. Here, SSL uses authentication based on asymmetric
cryptography issued by trusted third party. In general, the authentication of
Payee [Merchant] takes place and after the authentication process, all the
messages are encrypted using symmetric cryptography. The actual
cryptographic algorithms used are negotiated at connection setup. The payee
verifies that card details at the time of purchase through an existing financial
network.

39
 Secure Electronic Transaction [SET], is the common proposed
standard by Visa Card and MasterCard for secure on-line payments. SET
suggests a hierarchy of Certification Authority instead of a single CA, a
strong public key encryption, a strong card binding mechanism and a dual
signature scheme to link order and payment details together. Despite of this
good feature, SET can be a burden to the payment system as it demands a
large number of computationally expensive signatures and messages to
complete a single transaction. One improvement in the direction is the design
of lighter version of SET, Which reduces the computation time and resources
significantly [27].

Stored Value Card Payment Systems

Stored value cards are cards with magnetic stripes or computer

chips that are charged with fixed values that can be spent or transferred to
individuals or merchants in a manner that is similar to spending paper money.
In addition to cash, a stored value card can allow other items of value, such
as purchase points, phone time etc. Some stored value cards may also be
smart cards if they contain an integrated microchip. The integrated chip can
store value and perform other functions such as consumer authentication.
Stored value cards can come in the form of cash-replacement cards, phone
cards, gift cards etc. These cards can store one-time fixed amounts of
electronic money or they can interact with the loading devices that allow
increase to the available amount [28].These cards are typically used for low-
value purchases.
The Stored Value Card Transactions can be summarized in the
following steps:
(i) The consumer purchases a stored value card.
(ii) When the consumer pays for the goods or services with the stored
value card, electronic notations or tokens transfer form the card to
the merchant’s cash register.

40
 (iii) The merchant contacts the computer network of the financial
institution that Issues the stored value card and presents the tokens
for payment.
(iv) The network notifies the consumer’s financial institution to pay the
appropriate sum to the merchant’s financial institution and net
settlement occurs at the end of the business day.

Electronic Check and Account Transfer Payment Systems

Paper-based payments using a check are still highly popular in

many nations. These trends are changing rapidly because the paper-based
checks are expensive to process and the average cost for check is quite high
in case of bounced checks. The basic idea of Electronic check payment
system is, the electronic document can substitute paper based check. The
public key cryptographic signature can replace handwritten signature without
creating a new payment instrument with new legal, commercial and
regulatory polices. The Electronic Check and account transfer payment
systems have all the properties of a check-based payment with more
advanced and effective electronic verification features [14].

Electronic Check Payment Systems

In these systems, each check is usually generated and digitally

signed by the payer before being passed across the network to the payee for
verification. The payee endorses the check by applying a further digital
signature before sending it to the network bank. Existing financial networks
can be used to clear the electronic check between the payer and payee's bank.
To ensure the availability of the funds during a purchase, the check should be
cleared on-line. The digital signatures ensure that each party is fully
identified. Electronic Exchequers have a similar payment model to payment
card schemes. A digitally signed check is transferred through the payee to an

41
acquiring bank for authorization and clearing with the issuing bank. Like, in
on- line credit card payments, digital signature creation and verification is
required by all parties. Money will be drawn from the payer's account at the
time of purchases or even after that [29].
The Electronic check transactions can be summarized in the following
steps:
(i) The payer sends an Electronic Check with all the information
required and cryptographic signature.
(ii) The Payee sends back an invoice after receiving the Electronic
check.
(iii) The payee verifies the payer's signature and sends it to the payee's
bank in the form of Secure Envelope which is having the check
details.
(iv) The Payee's bank verifies the payer's and payee's signatures and
sends electronic check for the ACH check clearing. It credits the
payee's account.
(v) The payer's bank verifies the payer's signature and debits the
payer's account and sends an E- mail statement to the payer.

In general, Electronic checks are written in Financial Service

Markup Language [FSML], as FSML supports data structures and
cryptographic signatures which are needed for electronic checks. X.509
certificates are used with electronic checks to provide the verifiers of public
key signatures with the signer's public signature verification key. X.509 is
issued to the customers at the time of opening an account with the bank. The
cryptographic signatures are sufficient to secure the electronic checks against
fraud as they are ensuring message integrity, authentication and non-
repudiation. For more confidentiality, encrypted email can be used between
the payer and payee or between the payee and the bank [14].

42
Electronic Account Transfer Payme nt Systems

It is an alternative payment method to electronic checks and Card-

based payment systems. In this payment method, the payer authorizes funds
to be transferred from one account to another, most of the time at the same
network banks. These payment systems support not only customer- merchant
payments but also customer-customer payments. Accounts of individuals can
be funded using card-based payments [credit card or debit card] or
transferring of funds form a regular bank account. The communications with
the bank is well protected with SSL and authentication is based on password.
The password should reasonably be strong enough to guard against any
possible attacks. Papal, Yahoo Pay Direct and Prepay are some of the
commercial applications of Account transfer payment systems [14].
The Electronic Account Transfer payment system transactions can be
summarized in the following steps:
(i) Select account payment system.
(ii) Redirect to payment system with transaction details.
(iii) Payment authorization over SSL.
(iv) Redirect to merchant with payment indications.
(v) Payment indication from the payment system.
(vi) Purchased goods or services.

Electronic Cash Payment Systems

Electronic cash is a store of monetary value, held in digital form,
which is available for immediate exchange in transactions. Electronic cash or
digital cash payment system is an anonymous token-based direct electronic
macro payment system, in which the payment instrument consists of prepaid
payee- independent electronic value tokens issued by trusted financial agent.
The customer can use the electronic Cash payments to pay over the Internet
without the involvement of banks during their payments [30]. In genera l, an
electronic payment system consists of following three phases:

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Withdrawal
The Customer [Payer] withdraws electronic coins of specific
denomination form his or her on- line bank. Each of these coins consists of a
serial number for unique identification and denomination value. For
authentication, each coin is digitally signed by the bank.

Payment
The user collects the correct amount of coins and sends them across
a network to make a pay. The merchant [Payee] can verify the authentication
by checking the bank's signature.

Deposit
The payee [Merchant] sends those coins to the bank for verification
to prevent a double spending. The bank prevents double spending by
maintaining a database of all the spent coin serial numbers. If the coins serial
numbers are not present in the bank's database then this payment is valid and
the serial numbers of the coins will be entered into the Bank's database.

Electronic cash payment system is modeled after the traditional

paper based payment system, so it should have the same features as the paper
based payment system. Some of those features are [31].
 Anonymity
 Security
 Divisibility
 Transferability

Anonymity
As in the traditional cash payment systems, electronic cash
payments are anonymous as they can't be traced back to a particular
individual and it is called “unconditionally untraceable”. Here payer's
[Merchant] anonymity is limited to the payee only as the financial institution

44
can trace down the payment path, which depends on who is requesting for
coins and who is depositing them. Full anonymity can be achieved by letting
the financial institution to sign on the coins using blind signatures. Here the
coins are blinded by the user using some blinding factor and the user sends
them for getting signed by the bank authorities. The bank signed on these
random looking blind coins without knowing their serial numbers and the
user can now remove the blind factor and send to the merchant [payee] and
the bank can't link a specific withdrawal with a specific deposit.

Security
The main security concerns of electronic cash payment system are
forgery and double spending [or multiple spending]. As in the paper based
payment systems, forgery or counterfeiting is the main concern in the
electronic payment system. Here forged coins are created with all the genuine
coin features except that without making a corresponding bank withdrawal.
With strict user authentication and message integration the token forgery can
be avoided.
Spending the same token over again and again is called double
spending or multiple spending or repeat spending. The only method to safe
guard against the double spending or multiple spending is to check the
database of spent coins on line at the issuing financial institution database at
the time of purchase as the issuing financial institution maintains a database
of all the spent electronic coins. In an off line transaction, the identity of the
user should be attached to the coin information. In a non-anonymous
payment system, the user identification information can directly be attached
to the coin information but in the anonymous systems, the user information
will be divided and only a piece of that will be attached to the coin
information [32].

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Divisibility
The user needs to have correct coin deno minations at the time of
purchase for payment and he has to keep various denominations which lead
to undesirable storage costs and coin handling problems. If the system is on
line, the user can withdraw required coin denomination and the exact amount
at the time of purchase. To support the off line transactions, divisible coin
system is proposed. A divisible coin is an electronic coin that can be divided
into smaller coin denominations and whose total value is equal to the value of
the original coin.

Transferability:
An electronic coin is transferable, if a payee [merchant] can use the
received coin in the subsequent payment. A payment system is transferable if
it allows at least one transfer per coin. Like in traditional cash based payment
systems, transferability is well desired as it reduces the communication with
the issuing bank considerably. Most of the electronic cash payment systems
are not transferable as they support the single spending of coins before being
returned to the banks.

There are many electronic cash payment systems available now and
the most popular among them are
 DigiCash
 Mondex

DigiCash
This system was found by David Chaum and this is one of the first
systems for electronic cash payments. Ecash is a fully anonymous secure
electronic cash payment system developed using DigiCash. Ecash has strong
security features with the implementations of both symmetric and
asymmetric cryptography. Here, the customers (payer) and merchants
(payees) have accounts at an Ecash Bank. The clients withdraw the coins

46
form the Ecash bank and keep them in their Ecash wallet, software resides on
their computer. The Ecash wallet is also called cyberwallet and these coins
are used for the on- line payments [14].

Mondex
This system was developed by Tim Jones and Graham Higgins of
the National Westminster Bank, UK. Smart card technology forms the basis
for the Modex system. The electronic cash is stored on the smart card along
with personal identification number [Which is used to provide user
authentication]. The electronic cash loaded in the smart card is used for the
payment purpose at the POS [point of sale] with the help of specially
installed Mondex automated teller machine [ATM] [14].

Mobile Payment Systems

With the recent developments of high-speed mobile data networks
and new developments of electronic commerce, a new channel of commerce
has been emerged and that is Mobile commerce. Mobile commerce is exactly
the same as E-commerce except that the access mechanism is via a mobile
wireless device rather than the fixed telephone network. Mobile commerce
demands more advanced and secure on- line payments over Mobile devices
[Mobile Phone, Personal Digital Assistant], which support the on-line
payment transactions regardless of place and time. The on- line payment
methods which support above features are called mobile payment methods
[33].

We define the mobile payment as wireless transaction of a monetary

value form one party to another using a mobile device [Mobile phone, PDA,
laptop regardless of their geographical location [with in access limits] [34].

There are different roles such as service providing, consumer

authentication, payment authorization and payment settlement which should

47
be managed properly in the mobile payment systems. There are four actors
which can take care of those roles and they are as follows [35].

i. The consume r: The consumer owns the mobile device and he uses it to
pay for a service or product [a physical content, down loadable digital
content] and he might involve in the process of initializing the mobile
purchases, registering with the Payment service provider and authorizing
the payments

ii. The content provide r or Merchant: The merchant or content provider

sells the products [digital content or physical content] to the consume rs
and he might involve in the process of forwarding purchase requests to
the payment service provider, relaying authorization requests back to the
consumer and the delivery of the contents.

iii. Payment service provider: The payment service provider is responsible

for the payment process. He controls the flow of transaction between the
mobile consumer, the content provider and the trusted third party. A
payment service provider can be a network operator or an independent
payment vendor or a banker or a credit card company. He might let the
consumer to be registered with him to avoid the repeated entries of
payment details.

iv. Trusted third party: The trusted third party performs the authentication
and authorization of the payment requests and payment settlement. A
network operator, banks or credit card companies can be trusted third
party. The mobile requests for the content from the content provider.
Once this content request is made, the content provider will initiate a
charging session with the Payment Service Provider. The payment service
provides the authorization and authentication of the mobile user to
complete the payment transaction. The trusted third party performs the

48
 authentication of the transaction parties and the authorization of the
payment settlement. In most of the mobile payment systems, the payment
service provider itself is responsible for the authentication of the payment
requests. The transaction process can be summarized as follows.

Service Registration
The content provider registers with the payment service provider
and gets a service identification number for the further operations.

User Registration
The mobile user registers with the payment service provider to use
the services provided by content provider. The user will get an
identification number after the completion of registration, which uniquely
identifies the user during the on- line payment transaction.

Requested Service
A registered mobile user can request a service provided by a
registered content provider.

Request Charging Session

The content provider will initiate a charging session with the
payment service provider once it receives a request form the registered
mobile user. The charging session is uniquely identified by a unique
identification number.

Request authorization and authentication

The mobile user's authorization is needed before the starting of the
charging session and it would be achieved by the mobile user's acceptance
of payment agreement sent by the content provider. The mobile user's
authentication can be achieved by submitting the PIN code of the mobile
device.

49
User Authentication
The payment service provider confirms the authentication and
authorization of the mobile user and it issues a unique session id. The
content provider can start of charging the user from now on.

Provide Content or Service

The content provider provides the requested content of service to
the mobile user.

Charge
On the request of the content provider, the payment service provider
settles the payment transaction between the mobile user and the content
provider and informs them the results of the transaction.

Undoubtedly, the shift of physical to virtual payments has brought

enormous benefits to consumers and merchants but it puts a lot of
pressure on payment service providers and mob ile operators to provide
robust security and interoperability. The advent of mobile payments has
added another layer of complexity through the use of constrained devices
with different capabilities and network limitations [36].

In the mobile payment systems, Public Key Infrastructure [PKI] and

Second ID Module [SIM] provide security to the user's mobile payment
devices. Wireless Transport Layer Security [WTLS] provides security to
the content/service providers. The emerging 3G networks can provide a
secure communication medium between the mobile user and the content
provider through a secure Mobile IP tunnel.

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3.2.2 Micro Payment Systems

It is an on-line payment system designed to allow efficient frequent

payments of small amounts, as small as a fraction of a dollar. In order to keep
transaction costs very low and efficient, the communication and
computational over heads are minimized here. Unlike macro on-line
payments, which use expensive public key cryptography and on-line
communication with the trusted third parties [most of the time], the security
requirements of the micro on-line payment are relaxed by using light weight
cryptographic primitives and off- line payment verifications. The security of
micro on-line payment systems is not as good as that of macro on-line
payment methods but if the user's micro on- line payments are tampered then
the user might lose a few cents only. Here, the cost of fraud is much higher
than the possible value to be gained by fraud itself. So the security in micro
on- line payment methods is considered to be adequate [37].

The majority of micro on- line payment systems were designed to

pay for information goods on the Internet. A network user might pay to
consult an on- line database, read some financial information web-pages,
listen to a song, play an on- line computer game etc. In general, the parties
involved in the micro on- line payments are [38]

 Customer
 Service Provider or Vendor
 Micro online payment processor

The Micro On- line payment system transactions can be explained in

the following way.

Step 1: Customer proves his authentication and the Micro on-line payment
processor issues micro payments.

51
Step 2: Customer pays the micro payments to the Service provide or vendor
and gets the requested goods or services form the Service provider or
Vendor.

Step 3: Vendor or service provider deposits Micro payments by the customer

at the Micro on- line payment processor or claims money from the
processed micro payments form Micro on- line payment processor.

A number of payment systems, which need to contact a trusted third

party during every payment have been proposed as micro on- line payment
systems, but they are infeasible to handle large number of micro on-line
payments as they need to contact the trusted third party repeatedly. The micro
on- line payments systems can be classified into the following 4 categories
based on the cryptographic constructs used and the communication overheads
[14].
 Hash Chain based Micro On- line Payment Systems.
 Hash Collisions and Hash sequences based Micro On- line
Payment Systems.
 Shared Secrete Keys based Micro On-line payment Systems.
 Probability based Micro On- line payment Systems.

Hash Chain based Micro On-line Payment Systems

Hash functions are used to authenticate a payment in the micro on-

line payments instead of expensive digital signatures. Here, the user
computes the outcome of a one-way function y = f(x) and securely shares it
with the system to which it later wants to authenticate. A hash chain of length
n is constructed by applying a hash function n times to a random value
labeled x n . The value x n is called the root value of the hash chain. A hash
chain derived using a hash function h recursively can be represented as:

52
 hn (y) = h(hn-1 (y))
h0 (y) = xn
Where hn (y) is the result of applying a hash function repeatedly n
times to an original value y. The final hash value, or anchor, of the hash chain
after applying the hash function n times is x 0 = hn (x n ). The hashes are
numbered in increasing order from the chain anchor x 0 , so that h(x 1 )=x0 , and
h(x 2 )=x1 .
Each hash value in the chain can provide a single user
authentication. The user releases x 1 for the first authentication, x 2 for the
second and so on. The server only has to apply a single hash function to
verify that the received value hashes to the previous value. The user only
needs to store x n from which the rest of the chain can be re-computed. The
final hash x0 of a chain may need to be securely swapped across a network. A
public key digital signature can be applied to x0 to produce a signed
commitment to the hash chain. Such a user signature on the chain anchor is
represented as {x0}SigUser. signature allows a single message to be signed
once using a set of private signing values and verified with the set of public
validation values and it is having the advantage of allowing non-repudiation.

Hash values from a user- generated hash chain can be used as

authenticated payment tokens. For each micro payment, the user releases the
next payment hash, the pre- image of the current value, to the vendor. Since
the hash function is one-way, only the user could have generated this value,
and knowledge of it can constitute proof of payment. In essence, the hash
chain links the correctness of the current payment to the validity of previous
payments. Each hash value is worth the same amount, which can be specified
in the commitment.

This system implements the cryptographic properties of digital

signature and hash chain. In this system, the Customer opens an account with
the Micro on- line payment processor. The Micro on- line payment processor

53
issues digitally signed certificates, which authorizes the customer to make
payments and assures the Service Provider or Vendor that the customer's
payments are redeemable. Customers create the payment hash chain in
reverse order by picking the last payword P[N] at random and then generate
the remaining paywords (A micro payment value) by applying the formula
P[N-i] = H(P[N])
Here H is collision-resistant hash function; i = 1,2,...............N. and P[0] is
the root of the payword chain. A Hash Chain based Micro On-line Payment
System Transactions are explained in the following steps.

Step1: The Customer registers with the Broker or trusted third party, who
acts like Micro on- line payment processor. The Broker or trusted third party
generates and issues a certificate to the customer and the customer is now
eligible to do purchase using this Micro on-line payment system. The
certificate is in the form of {B, C, AC, PKC, E, IC} SKB
Where
B: Broker or Third party identity.
C: Customer Identity
AC: Customer IP addresses.
PKC: Customer's public key.
E: Expiration date.
IC: Other customer specific information.
SKB: Broker's signature.

Step2: When the customer contacts a new vendor, the customer computes a
new payword chain with the root P[0] and computes his or her own
commitment for that chain. That commitment is in the form of {V, CC, P[0],
D, IM}SKC.
Where
V : Vendor's Identity.
CC : Client's certificate

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P[0]: Root of the payword chain.
D: Current date
IM: Additional Information.
SKC: Customer's signature.

Step3: In advance of business, customer sends his or her commitment to the

vendor and the vendor verifies the Client's signature and Client's certificate
and the expiration date. If all the information is valid then the Vendor keeps
the commitment.

Step4: When the Customer purchases goods or services from the Vendor
then the Customer transfers the {P[i], i} to Vendor as its payment. So the
customer sends {P[1],1}, {P[2],2}, {P[3],3} for 1st , 2nd and 3rd successive
payment.

Step5: Vendor computes H(P[i]) and confirms it, if valid then keeps it.

Step6: Vendor sends the last payment information {P[i], i} and it's
commitment to the broker or trusted third party and requests for the
redemption. After verification, Broker withdraws eligible money from
Customer's account and deposits it into Vendor's account.

The basic chain structure can be modified to produce tree structure,

which allows multiple independent values to be authenticated through their
connected branches to the authenticated root of the tree. The root node is
initially authenticated by other means such as by signing it with a regular
asymmetric digital signature. The basic chain structure can be modified to
produce even better tree structure called PayTree, in which each leaf of the
authentication tree becomes the anchor of a normal hash chain. A broker
signs the root of the tree with an asymmetric digital signature .Since the
anchor of the each hash chain can be authenticated through the tree, the need

55
to sign each chain individually has been removed. The contribution of
PayTree is that instead of a digital signature generation per vendor for a new
hash chain commitment, the computational cost has been reduced to a single
signature for K vendors [38].

A broker or trusted third party aggregate micro on- line payments to

many different vendors. Actual monetary value is claimed by redeeming the
highest spent token along with the commitment at a broker with whom the
user has an account [39]. By using a hash chain, the Computational cost of a
payment is now a single hashing operation for the vendor after the Initial
single digital signature verification for a new chain. If a user spends N hashes
from a Chain to make z payments at the vendor then the average cost per
payment is [ N hashes + 1 Signature] /Z.

PayWord

PayWord is a hash chain based micro on- line payment scheme and
it was designed by Ron Rivest and Adi Shamir. This scheme aims to be a fast
micro on- line payment system by replacing a number of public-key
operations required per payment by using hash functions. PayWord uses
chains of hash values to represent user credit within the system. Each hash
value called a PayWord can be sent to a merchant as a payment. A PayWord
chain is vendor-specified and the user digitally signs a commitment to honor
payments for that chain. Here, the broker mediates between users and
vendors and maintains accounts for both. They vouch for users by issuing a
PayWord certificate allowing that user to generate PayWords. They redeem
spent PayWord chains from vendors, transferring the amount spent from the
user's account to the vendor.

It is not necessary for both the vendor and user to have an account
at the same broker. As in other micro on- line payment schemes, security is a

56
bit relaxed for more efficiency. There is some possibility that some users
might over spend and those users can be detected and removed from the on-
line payment system. Since PayWord is a credit-based scheme, vendors need
some assurance that users will honor their PayWord payments[40].

A PayWord certificate authorizes a user to generate PayWord

chains and guarantees that a specific broker will redeem them. Brokers and
vendors do not need to have PayWord certificates in the PayWord Scheme.
In general, the users get PayWord certificate when they initially set up an
account with a broker. Any macro payment method or credit card could be
used to charge money into the account. The certificates have to be renewed
every month and this limits fraud by ensuring the users who over spends will
not be issued with a new certificate. A broker might maintain blacklists of
certificates that have been revoked. A user's certificate would be revoked if
the user's secrete key are lost or stolen as this would allow others to generate
PayWord chains under the user's name. The vendor can get the list of
revoked certificates from a broker [38].

Hash Collisions and Hash sequences Based Micro On-line Payme nt

Systems

In this micro on- line payment method payment coins are produced
by a broker , who sells them to the users. User gives these coins to the
vendors as payments. Vendor returns the coins to the broker in return for
payment by other means of system transactions. The Hash Collisions and
Hash Sequences Based Micro On-line Payment System Transactions are
explained in the following way.

Step 1: The Users buys coins form the broker.

Step 2: The broker issues the coins which can be used for any vendor.
Step 3: The user spends the coins.

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Step 4: The vendor sends the purchased information or goods to the user.
Step 5: The vendor redeem the coins with the broker at the end of the day.

Hash collisions and sequences can be used to define an electronic

coin as a k-way hash function collision [K different input values map to the
same output value]. A collision occurs when two entries have the same hash.
Two values x1, x2 form a two-way hash function collision if they both hash
to the same value y1 and it is computationally hard to generate two values to
the same value.
H[x1 ] =H[x2 ]=y1
A K-way hash function collision occurs when K different input values map to
the same output value of y.
H[x1 ] =H[x2 ]=H[x3 ] ....................=H[xK]=y
Broker issued payment coins as k-way hash function collisions and
no public key cryptography is used here. Each coin is worth the same
minimum value and the customer or the user stores the coins in a large scale
and transmits the coins, when he makes purchases. The token are vendor
independent and they can be spent at any vendor [14].
In this micro on- line payment method, the issuer creates coins and
invests a large amount of computation to search for hash function collisions.
Instead of using digital signatures, the collisions are used to authenticate t he
coins. It is efficient to verify that the coin is valid by checking that each pre-
image is unique and that they all hash to the same value. The coin can easily
be verified by
 Performing Hash function on each xi to obtain the same y value.
 Ensure that each x is different .Other wise the x value could be set to
be the same value and they would then map to the same y value.
 Verification of coin proves the authentication of the coin and the
broker needs to maintain a copy of each coin already spent to
check against double spending.

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 Coins, which are defined as k-way hash function collisions can
provide protection against forgery by imposing a coin validity criterion,
in which a portion of the hash value must equal a certain bit pattern. This
has the advantage of reducing the storage requirements of the bank as the
non-confirming hashes can be discarded instead of storing them as
candidates for possible collisions. Here the payment coins have a very
short validity period and it forces the attacker to generate the coins
during their short validity [37]. The definition of a coin can be modified
so that the broker can prevent stolen coins being spent and he can issue
user-specific coins. The user's identity U is hashed by using a second
hash function h2 to produce a group of numbers and each will be labeled
di. A coin is now a set of k pre-images { x1 , x2 ,.......,xk } whose hash
values {y1 ,y2 ,...............,yn } form a sequence where the difference
between each hash value links them to a specific user identity U and
h2 [U] = { d1 ,d2 ,.......,dk-1 }

yi+1 = yi + di ( mod 2U) for i =1,2,...............k-1

Coin verification will require one additional hash computation

per purchase and the hash values combine to form a hash of the user
identity [38].

The customer can spend the coins at any vendor and double
spending is possible as there is no checking performed to see if a coin is
already spent. But when the vendor redeems the coins with the broker, the
broker will detect the fraud and the users, who are repeatedly do uble
spending can be blacklisted and expelled from the payment system.

MicroMint
This is a Hash Collisions and Hash sequences based micro on-line
payment schemes and it was designed by Ron Rivest and Adi Shamir, who

59
have also developed the PayWord Micro on- line payment scheme. It is based
on a unique form of identified electronic cash that requires no public-key
cryptographic. MicroMint coins can be spent efficiently at any vendor
without the need to contact a bank or broker for the verification at the time of
purchase. The security provided by this scheme is a bit less than that of the
PayWord but it's an efficient micro on- line payment scheme to made
payments to many different vendors. In this payment scheme, some small
scale fraud is possible but large-scale fraud is designed to be computationally
difficult. In this MicroMint system, coins are minted by broker, who then
sells them to users. A user can speed coins at any vendor. A broker might
maintain user and vendor accounts that can be settled using a macro payment
scheme [37].

Shared Secrete Keys Based Micro On-line Payment Systems

In this micro on- line payment schemes, sharing the keys between
the parties concerned eliminate the use of computationally expensive
asymmetric cryptography. By using the Message Authentication Code
[MAC], shared secrete keys can be used to provide authentication and
integration. Here, a secrete key K is appended to the message M and a hash
function applied to the combined value and the symmetric encryption using
the shared key will provide message secrecy. Instead of a full encryption, a
one-time pad can also provide secrecy. One-time pad can be generated by
choosing a random number N and it would be hashed with the secret key K
and XOR'ed with the message to hide. Now, XOR'ed message is sent with N
and the user needs the secret key K to recover M.
Public key cryptography of out-of-band communication is used to
solve the key distribution problem as the symmetric keys have the problem of
how initially to swap the secrete value for a new relationship. Here, each key
need to be refreshed periodically to prevent cryptanalysis and to limit the
time frame of a brute force attacks [14].

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Millicent

This is one of the first micro on- line payment system designed on
the basis of Shared Secrete Keys scheme and it uses a broker to aggregate
user micro on- line payments made to many vendors. It uses vendor-broker
and user-vendor shared secrets. Here, vendor issues value to users in the form
of an authenticated message, which is called scrip, which specifies the value
a user, has at that specific vendor. To ensure that scrip is genuine, the vendor
uses a vendor secrete in a keyed hash of the scrip to produce a Message
Authentication Code [MAC].The MAC prevents the scrip being altered or
forged. The vendor can verify the scrip by re-computing the MAC. A serial
number is placed in every scrips along with the value and other fields to
prevent double spending. Scrips can be verified locally as they are vendor
specific. A broker sells the vendor scrips to customers and the vendor shares
its MAC vendor secretes with the broker to allow it to generate vendor scrip.
To avoid any fraud by eavesdroppers, the customer and the vendor share the
customer secret, which is given to the customer by the broker upon new
vendor scrip purchase [41].

Probability based micro on-line payment sche mes.

This scheme supports to minimize the number of transactions the

must be performed for each and every payment. This is a deferent approach
than some other micro on-line payments as they need each and every
payment is usually processed by the vendor and later verified and redeemed
at the trusted third party. Here, probability theory can be applied so that there
is a specified chance that transaction will be performed and it reduces the
number of transactions must be performed for each and every transaction [6].
Here, the micro on- line payment cost has been eliminated for most of the
transactions with the introduction of cost of fairly predicting a random event
with known probability. Probability techniques have also been applied to the

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creation of digital signatures. It can solve the difficulty of factoring and it can
be modified to allow more compact signatures to make no use of memory
between signatures other than for the public an secrete keys. The factoring -
based version of this scheme is more practical and it can well safe guard the
security properties of the payment system. The probability signatures based
on efficient public key algorithms can offer a significa nt performance
improvement with little increased risk of forged signatures [14].

Bets using coin flips: Wheeler, Proposed this Probability based micro on-
line payment scheme, in which, for each transaction the payer makes a bet
with the payee. If the payee wins the bet then an actual micro payment is
made to the payee by the payer otherwise no payment is made. The
transaction value is set by fixing the probability of the payee wining the bet
to specific value [14].

Hash chain lotte ry tickets: Rivest, proposed this probability based micro
on- line payment scheme. Here each payment is probabilistic as each ticket
has a known probability of winning a specified amount. The user will only
make an actual payment for wining tickets. In this scheme, the overhead o f
processing every micro payment at the bank is reduced to only processing
winning payments [14].

The efficiency of probabilistic payment is similar to other micro on-

line payment schemes for both the user and the vendor. Due to the
probabilities there will be a variability of the amount paid and an unlucky
user will end up paying more than expected. The main advantage of this
scheme is that the bank needs to process only the winning micro payments
and it supports more anonymity as the bank will not see every transaction.

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3.3 Comparison of Payment Systems

The comparison of current on- line payment systems is based on the

following factors:
 Security
 Usability
 Reliability
 Anonymity/Privacy
 Scalability
 Monetary Value
 Customer Acceptance

3.3.1 Analysis of Credit Card Based Payment systems

Despite the increased risk, the absence of commonly accepted

network payment schemes in a period when the Internet was rapidly
expanding and which meant that many people resorted to this method of
effective payment. At present, credit card payment systems offer the most
practical and popular payment methods for on- line payments over the counter
electronic payments methods. Credit Card payments reduce the risk and costs
associated with handling cash and checks. Cred it cards for on line payments
have a large user-base and benefit from familiarity and simplicity of use and
also allow international payments. Security is being addressed via new
modified credit card payment solutions. Another advantage of the secure
credit card model is that the user needs not be registered to the payment
service, only the transportation of the credit card number is needed for
instance in encrypted form. One of the main advantages of the credit-debit
model is the audit ability of the transactions which is certainly a desired
feature from the viewpoint of the merchants and banks. The transactions can
always be traced so that it can be determined, "who paid, how much, for

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what, with which instrument and when". Another important advantage to be
noted is that the credit card organizations already have business experience in
managing similar systems and many of them have very large customer bases
already. On- line payments with credit cards can be risky. Some customers
may find that, when the credit card statement comes, many entries have been
made without their consent or even their knowledge at all. There is an
awareness of fraud and other security issues concerning e-payments by credit
cards. The information may be intercepted or altered during transmission.
The information may be stored on vendor’s servers and they may fall victims
to hackers who may later sell the information or use the information to make
illegal purchases. Dishonest vendors may sell the information. All these
threats expose credit card holders to a significant financial risk. Credit card
holders are not informed of these losses until their monthly statements arrive.
Normally, cardholders are asked to supply additional information, such as
their name and address that can be used to verify their identity. If goods that
require physical delivery are being ordered, they must be dispatched to the
address associated with the card. This gives limited protection against bogus
orders. Since there is no card holder signature involved, the processing rules
allow the buyer to opt out of any transaction if they claim that they did not
agree to the purchase. Clearly, this increases the risk borne by merchants.
Using credit cards to make payments across computer networks has some
security risks. Attackers eavesdropping on network traffic may intercept
messages and capture credit card details as well as any associated verification
information (name, address etc). Because of the distinctive structure of credit
card numbers, with their inbuilt check digits, programs can be written to scan
a data stream for occurrences of such patterns. The data stream could be
either an intercepted transmission, a file on disk, reclaimed disk space on a
shared system, or even the stream of keystrokes produced by someone typing
at their workstation. If merchants are processing orders electronically, then
fraudsters can generate vast numbers of orders before the fraud is detected.
On-line credit cards have a high fraud risk and the estimated fraudulent on-

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line credit card payment will cause a loss of billions of dollars and it is
showing the growing up trends. Because of the high transaction costs and
other security risks, a number of merchants searching for other alternative
payment methods and who prefers to use card payments are slowly declining.
One of the drawbacks of the systems includes the lack of anonymity and the
fact that liquidity is dependent on the merchant’s bank. Paying by credit
cards reveals payers identity to providers and vendors. Some users do not
want other parties to know which items they have bought or which web sites
they have visited. The trails usually show themselves up on the monthly
statements.

3.3.2 Analysis of Stored Value Payment Systems

A stored- value card maintains a temporary account balance, rather

than actual electronic tokens, on a smart card. The card securely holds trusted
bank keys, which are used to digitally sign messages passing between cards.
Value transfer occurs when the payer’s card sends a signed payment
instruction to the payee card or terminal. Having received an
acknowledgment, the payer card will decrement its balance counter by the
specified amount.

Advantages of Stored Value Payment Systems

 Flexibility in adding applications giving extra value to consumers.
 Over the counter and Internet transactions possible.
 Low costs and ideal for low value transactions.
 Can be used for on line and off line transactions.
 Immediate transfer of funds.
 Cash balances remain high because of unspent balances in the cards.
 Transactions are easily processed via existing POS equipment.
 Mobile source of money.

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  Transaction times are typically faster than for credit card or debit card
payments.
 Increased consumer convenience.
 Secure with the use of passwords/pins.
 Risk is limited to the value of the cash sent on the network.
 Electronic transactions are faster and more accurate than counting
and collecting cash or manually processing paper checks.
 No new or expensive investment in hardware is required.
 Each transaction is tracked electronically on a central database.

Drawbacks of Stored Value Payment Systems

 Hardware specifications pose a problem.

 Does not allow micro merchants.
 Uses proprietary currencies thus depend on issuing companies
to honor their individual cash.

3.3.3 Analysis of Electronic Account Transfer Payment

Systems

Electronic Account transfer systems have a large user base and

established network, and banks have well-established procedures and security
systems for on line banking. International payments and micro payments
remain challenges and the relatively low offer of e-banking for on line
purchase in several countries suggests that these systems still need further
development to become widespread payment options.

3.3.4 Analysis of Electronic Cash Payment Systems

Electronic Cash are bit strings and that can be copied as many times
as desired. In such cases, the service of protection against double spending

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can help. This service can be based on conditional anonymity; the condition
being that if a customer is honest and spends a coin only once, his identity
cannot be discerned. However, if he does try to double-spend, he can be
identified and eventually made responsible. Banks can try to prevent multiple
spending by keeping a database of spent electronic tokens or coins which is
checked before completing a payment. This method is useful when the
transaction is done online; here the merchant verifies the validity of the
payment before delivering merchandise. In an off- line setting, the merchant
deposits the payment after merchandise has been delivered and the best thing
one can do is to detect multiple spending and identify the guilty user so they
can be punished. An obvious way to protect Electronic Cash from being
stolen through eavesdropping is to use encryption. To ensure that a serial
number is not spent twice, the minting bank must record every Electronic
coin that is deposited back to that bank. Clearly, the size of the Electronic
cash database could become very large and unmanageable. By using expiry
dates with coins, the serial numbers of those coins can be removed after the
expiry date. Coins that have expired will not be accepted as legal tender. The
bank host machine needs to have an internal scalable structure to cope with
the size of the database. To further handle the problem of scalability, multiple
banks, each minting and managing their own currency with interbank
clearing, could be used.

Advantages:
 Secure with the use of encryption.
 Reduced fraud.
 Reduced check inventory security risks, reduced risk of theft, loss or
damage to checks in the postal system.
 An advantage of the electronic currency model is that the payments
offer (possibly full) anonymity to the user, which may encourage
some potential users to start using the payment mechanism.
 Eliminates the third party.

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  Electronic cash offers the greatest possibilities for electronic trading.
 Allows micro- merchant payments which are perfect for low value
transactions.
 Once received, it has value immediately.
 Reduced cash handling, check handling, or credit card processing.
 Faster value into the bank and elimination of collection risks, checks
and credit cards can be rejected or “bounced.”
 Reduced debt-collection efforts, check-processing costs, and postage
fees, postage-paid and return envelopes.
 Reduced efforts to replace lost or destroyed payments, transfers to
unclaimed property.
 Software solution. No extra hardware required

Drawbacks:

 The servers that handle payment transactions need to collect data

from the past transactions to prevent the double spending of the
tokens. This leads to the problem of large databases in these payment
systems.
 There are many flaws to be addressed. The lack of open standards
between systems is one of the major obstacles, but portability and
permitting macro-payments also have to be worked out. Moreover, in
micro payment systems applying this payment model the number of
transactions to be logged may be huge (certainly larger than in credit
card systems), thus requiring substantial storage and processing
capabilities from the servers that handle the transactions. These
requirements also make the tracing of the payments harder from the
viewpoints of the merchant and bank.
 Uses proprietary currencies thus depend on issuing companies to
honor their internet cash and Consumers are slow to trust such a
system.

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  Tied to specific machines (wallet on hard drive) and not portable.
 These payment systems lack some of the properties of physical cash
such as anonymity, and transferability.
 Obvious shortcomings include the fact that the user must have the
exact change to be able to make the payment and that the bank must
be contacted on- line during each purchase to prevent double
spending.
 Lack of Customer experience. Another common problem with
electronic cash is the lack of hands-on experience in dealing with it.
Few people have actually used electronic cash. The lack of experience
primarily ties to the fact that electronic cash has not become a
dominant player in the market.

3.3.5 Analysis of Electronic Check Payment Systems

Advantages:
 Because the process is familiar to users, electronic checks may act
as a stepping stone to the introduction of more dynamic payment
methods.
 Third party authenticates users.
 Basic system in place already and the existing system is used and
trusted by consumers.
 Just using the Internet as a method of delivery and migration form
paper check to electronic check is not huge.
 Secure with the use of encryption.
 Risk is limited to the value of the check and if cashed without
proper ID, bank identifies the customer.
Drawbacks:
 Costs are too high for low value transactions.
 Does not allow micro- merchants.
 Only sender’s bank can issue value for the check.

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  Slow method, no immediate transfer of funds.
 No immediate confirmation.
 No guarantee of payment upon receiving a check.
 No anonymity.
 Not portable.

3.3.6 Analysis of Micro On-line Payment Systems

Micro On- line payment methods support frequent transfer of very
small amounts. Because of the small amounts involved, higher efficiency can
be achieved by slightly relaxing the security mechanism. In order to keep
transaction costs very low and efficient, the communication and
computational over heads are minimized here.

Well-designed micro payment system implementations allow exact

replay of the messages to the same origin within a few minutes interval by
identifying the double spending attempts. Some micro payment systems
allow the brokers of the system to accept low- level of complaints
automatically and without any questions. The complaints are logged and
pattern of abuses can be used to identify the culprit - this way a suspected
fraud can be traced quite easily. It is, however, absolutely impossible and
unprofitable to investigate every complaint due to nature of the micro
payments. The disappearing of a single micro payment is not dangerous or
fatal for the security of the system or the user. The micro payment systems
need not be as secure as for instance the credit card systems, since the
potential loss of a single payment is not financially disastrous for any party of
the transaction because of the very low value of the payments. Moreover, the
data of low-value transactions is probably not valuable to the attacker as
such.
Micro payment systems are usually meant for buying the low-value
services only in pay-per-visited-link -style in the Internet. Since the
services and goods that can be purchased in the Web are intangible, micro

70
payment systems have been seen as the solution to the growing demand of
better electronic payment systems. Micro payment systems allow the user
to purchase goods on the Internet without having to comply to restrictions
in respect of their physical presence, the purchasing time and the paying
instrument. Micro payments provide users with more options for on-line
payments. Web servers have different backgrounds and frames of mind.
The web site that provides more options has a higher chance of gaining a
wider customer base. Micro Payments are convenient on- line payments for
people with no credit cards and they are an alternative for people who are
not willing to fill in credit card numbers on web pages.
Micro payments are potential and efficient alternatives when credit
card systems are unable to transfer small amount of money. Aggregation
considered to be the key for the micro payment system. Small payments are
aggregated until they are settled in micro payments. Micro payments
support small value payments for products with a minimal delay and in
exchange the products are instantly delivered.
Micro payment systems are payment systems which support low
value payments at a low transaction costs. Unlike macro on-line payments,
which use expensive public key cryptography and on- line communication
with the trusted third parties [most of the time], the security requirements of
the micro on- line payment are relaxed by using light weight cryptographic
primitives and off- line payment verifications. So the transactional
overheads are minimal. Other considerable benefits of Macro payments
over credit card payments are: The risk and the scale of loss or fraud for
consumers and providers is small and these systems do not need features
like high security, non-repudiation, Money-back guarantee etc. It is secure
with the use of encryption. In this, verification of user is not important as
there is immediate transfer of funds. Moreover, risk is limited to the value
of the cash sent on the network and one of the strongest points of micro
payments is that the overhead to re-use or forge the coins are far too high to
be of any benefit.

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3.4 Discussion

A central challenge for on- line payment methods is to provide

authentication mechanisms that allow both secure payments and convenience
of the transaction process. Although there is a large range of on- line payment
systems, credit cards for payment and SSL for security are dominant.
However, there are significant differences across countries, and other
payment methods are of importance in some countries. Innovative new
payment options have not often succeeded in replac ing established ones.

At present, credit card payment systems offer most practical on-line

payment method and have become most acceptable payment methods for
Internet over all the on- line payment systems despite of their disadvantages
of high cost and unsuitable for low-value purchases. Credit cards for on-line
payments have a large user-base and benefit from familiarity and simplicity
of use and also allow international payments. Security is being addressed via
new modified credit card payment solutions.

Debit cards are an alternative payment system, especially where

they previously enjoyed popularity for off- line payments and where they
enjoy a broader user-base on the consumer side. However, they cannot be
used in international payments in the majority of cases. Further, Debit cards
are not currently suitable for micro payments. Electronic checks do not seem
to offer a solution to stakeholder desires for cashless payments. Again high
cost is a major drawback and it is not facilitating low value payme nts, no
anonymity, not being portable, no confirmation, slow transaction speed, and
liquidity problems. However, because the process is familiar to users,
electronic checks may act as a stepping stone to the introduction of more
dynamic payment methods.

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 Electronic cash offers the greatest possibilities for electronic trading
but has many flaws to be addressed. The lack of open standards between
systems is one of the major obstacles, but portability and permitting micro-
payments also have to be worked out. Electronic Account transfer systems
have a large user base and established networks, and banks have well-
established procedures and security systems for on line banking. International
payments and micro payments remain challenges and the relatively low offer
of e-banking for on line purchase in several countries suggests that these
systems still need further development to become widespread payment
options.
Mobile payment system has major potential due to the very large
user base and familiarity with mobile phones and billing systems. Costs are
potentially low (payments added onto an established payment system),
security can be established with extra personal pin- numbers, and micro
payments can simply be aggregated into overall payments. There are some
challenges that exist in relation to international payments and there is the
question to what extent new intermediaries (mobile operators) can act as
financial intermediaries. Micro-payment systems may play a role in
advancing electronic payments but their inability to allow macro-payments
and the fact that they are vendor specific suggests they will not provide the
ultimate solution, as they would be administratively difficult to regulate and
would not allow experimentation on the part of customers. The area of micro
payments has seen a range of developments but none has achieved sufficient
reach and practicality to substitute the more prevalent subscription systems as
the payment option. It can be extracted from the study that credit card based
payment systems are the most widely used means of conducting on-line
payments. It is evident that credit card based payment systems satisfy
stakeholder requirements the best, as they offer most flexible payment
options and these concepts are not alien to users. Other systems lack the
flexibility to allow on-line and off- line payments, as most are specifically
designed for Internet use. It can be extracted from the study that users want

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more simplified, convenient and secure on- line payment systems. Thus
developers will have the task to incorporate all types of payment into one
system, which is available for everybody’s use.

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