Study on Electronic Money

Introduction :

Commerce refers to all the activities surrounding the purchase or sale of goods or services. As we step into the next century, the Internet promises to bring unpredictable change in the society. Spanning the entire globe, crossing all boundaries, the net has redefined the methods of communication work, study, education, interaction, Entertainment, Health, Trade and commerce. There are some activities in commerce such as marketing, sales, payment, fulfillment, customer service etc.

Electronic commerce is the application of communication and information sharing technologies among trading partners to the aim of business objectives. Electronic Commerce is associated with the buying and selling of information, products and services via computer networks.

Electronic Commerce is a new way of conducting managing and executing business transactions using computer and telecommunication networks. Electronic Commerce refers to the paperless exchange of business information using EDI (Electronic Data Interchange), Electronic Mail, EFT (Electronic Funds Transfer) and other networks based technologies. Electronic Commerce applications started in the early 1970s, with such innovations as EFT.

Objectives Of The Study:

Purpose of the study is to diagnose the state of efficiency in itself and trace out the factors responsible for lower or higher efficiency in discharging various operation and activities of analysis in Electronic Money security.

1. To review rational and motives underlying term lending agencies in the present day complex mechanism of Electronic Money.

2. To analyze the institutional and organizational constraints hampering efficiency, efficiency and effectiveness of Electronic Money.

3. To assess their quality performance through structural analysis.

4. To examine the impact of new business policies and liberalization on these Electronic Money.

5. To study and analyze the security of Electronic Money transaction.

6. To suggest possible remedies for these institutions to halt their present declining trends.

7. To suggest the techniques for lending to higher growth of Electronic Money security.

Advantages Of Electronic Money:

Digital cash will allow for the immediate transfer of funds from an individual’s personal account to a businesses account, without any actual paper transfer of money. This offers a great convenience to many people and businesses alike.

Banks can offer many services whereby a customer can transfer funds, purchase stocks, and offer a variety of other services without having to handle the physical cash or cheques. Customers do not have to wait in lines, and this provides a lower hassle environment.

Disadvantages Of Electronic Money :

Although there are many benefits to digital cash, there are also many significant disadvantages. These include fraud, failure of technology, possible tracking of individuals and the loss of human interaction. It is very common that almost all systems have drawbacks. However, the question that needs to be asked is whether the advantages of using the system overpass the disadvantages.

Fraud over digital cash has been a pressing issue in recent years. Hacking into bank accounts and the illegal retrieval of banking records has led to a widespread invasion of privacy, and has promoted identity theft.

There is also a pressing issue in regards to the technology involved in digital cash. Power failures, loss of records, undependable software often cause a major setback in promoting the technology.

Fraud over digital cash has been a pressing issue in recent year. Hacking into bank accounts and illegal retrieval of banking records has led to a wide spread invasion of privacy and has promoted identity theft.

Power failures, loss of records and undependable software often cause a major set back in promoting the technology.

Frame Work Of Electronic Commerce:

Many people things Electronic Commerce is just having a web site, but Electronic Commerce is much more than that. There are dozens of applications of Electronic Commerce such as home banking, shopping in online stores and malls, buying stocks, finding a job, conducting an auction and collaborating electronically on research and development projects.

To execute these applications, it is necessary to have supporting information and organizational infrastructure and system.

Electronic Commerce applications are supported by infrastructures and their implementation is dependent on four major areas such as


2.public policy

3.technical standards

4.protocols and organizations

Peoples – Buyers, sellers, intermediaries, services etc.

public policy – Taxes, legal, and privacy issues, domain names.

technical standards – For documents, securities, and network protocols.

Organizations – Partners, competitors, associations, Govt. services.

There are some other area of Electronic Commerce infrastructure such as

1.Common business services infrastructure – security smart cards / authentication, Electronic Payment, directories / catalogs.

2.Messaging and information distribution infrastructure – EDI, Electronic Mail, HTTP.

3.Multimedia content and network publishing infrastructure – HTML, Java, WWW, VRML.

4.Network infrastructure – Telecom, cable, TV, wireless, Internet, WAN, MAN, LAN, Intranet, Extranet.

5.Interfacing infrastructure – To databases, customers and applications.

Electronic Money System Model:

The e-money system is a mechanism that facilitates payments – generally of limited value – in which e-money can be considered as an electronic surrogate for coins and banknotes. The e-money system is described on the basis of a model with a set of sub-systems through which electronic value (EV) is transferred, under the responsibility of a System Supervisor who monitors the security of EV creation, EV extinguishment and EV circulation within the system.

The three main elements which make up our e-money system model are EV, EV circulation between sub-systems and supervision. Put together, these elements constitute the core of the e-money system model. The notions of transactions, compensation, EV life cycle and actors then complete this model.

EV is a monetary value represented by a claim on an EV Issuer, which is:

– stored on an electronic device;

– issued on receipt of funds for an amount not less in value than the monetary value issued;

– accepted as a means of payment by undertakings other than the issuer.

The EV circulation starts with a first phase called EV creation, and ends with a final phase called EV extinguishment.

This model does not impose any restriction on the number of sub-systems that form an e-money system.

Transactions On The Internet:

All the transactions on the internet take place using the customer’s personal computer and the seller’s web server. Customers use a web browser to place on order with the merchant and specify their mode of payment. In the case of an online transaction the customer has the option of paying by credit card or smart card the customers can also to pay using electronic cash or a digital cheque . The software on the seller’s server has to verify the order and has to settle the transaction by receiving authorization for the transfer of funds from a bank or the credit and acquirer. It is possible that the applications on the customer’s, merchant’s and bank’s are not same. Hence the interaction across this step is achieved using a gateway, which is a link between applications.

The gateway allows for protocol conversion and communicates with the bank using the bank’s private network or the internet. Gateway, more specifically common gateway interface (CGI) is a specification for communicating data between an information server, for example server, and other application. CGI is used wherever the web server needs to send or receive data from another application, such as database. A CGI script is a program that negotiates the movement of data between the web server and an outside application. It typically passes data, filled in by the user in an HTML form, from the web server to a database.

Payment System:

In any business transaction, the customer and merchant enter into an agreement. According to this agreement the merchant supplies the goods and services that the customer requests for while the customer transfers funds to the merchant in lien for the goods received. Thus the payment is the most important part in the sales cycle.

The general requirements of payment system’s are-

(1)Confidentiality – the user expects a secure system of payment.

(2)Authentication – A method to verify the buyer’s identity before payment is authorized.

(3)Integrity – It ensuring that information will not be accidentally or maliciously altered or destroyed during transmission.

(4)Authorization – It 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 honour the cheque amount.

(5)Privacy – There might be situations where both the customer and merchant would want to ensure the privacy of sale. example – a business conducting research might not the details of its purchases.

Types Of Electronic Payments:

The various methods that have been developed for making payments on the internet are electronic versions of the traditional payment systems that we use everyday. In our daily life we use cash, credit cards or cheques to make payments. All these systems are digitally incorporated on the web as e-cash, electronic cheques and credit cards.

(1)Credit Card:

Credit cards are the most popular payment method for cyberspace customer shopping today.

(a) The card holder- A customer or a corporate purchaser who uses credit cards to pay merchants.

(b) The merchant- the entity that accepts credit cards and offers goods or services in exchange for payments.

(c) The card issuer- A financial institution that establishes accounts for cardholders and issues credit cards.

(d) The acquirer- A financial institution that establishes an accounts for merchants and acquires the vouchers of authorized sales slips.

(2)Electronic Wallet Or Digital Wallet:

Secure electronic transaction (SET) protocol was initially designed by visa and master card in 1997. SET protocol meets the four security requirements for EC as SSL does: authentication, encryption, integrity and non repudiation. In addition, SET defines the message format, certificate format, and procedure of message exchange. The role of payment gateway is to connect the internet and proprietary networks of banks. Each participating entity needs its own certificates. To keep the consumer’s certificate in his or her personal computer or IC card, software called the electronic wallet or digital wallet.

(3)Debit Card:

It is also known as check card, is a card that authorizes the EFT. EFT ,Designed to transfer a certain amount of money from one account to another. The customer’s terminal can be automatic teller machine (ATM), PC, or telephone terminals. When we use a debit card, the amount is immediately deducted from our checking or savings accounts. The debit card allows we to spend only what is in our bank account.

Advantages Of Using Debit Card :

1.Obtaining a debit card is much easier than obtaining a credit card .

2.Using a debit card instead of writing checks saves you from showing personal identification .

3.Using a debit card frees we from carrying cash, travelers checks or a check book.

4.Marchants accepts debit cards more readily than checks.

(4)Smart Cards:

At present we carry many plastic cards such as credit cards, debit cards, charge cards, diving licenses, health insurance cards, employee or student identification cards and other.

Now for a moment if we think that all these cards are replaced by a single plastic card carrying all the information of the dozen or fifty cards. Not only dose it lighten our load, it makes identification and purchasing easer for us. Credit, debit and charge cards currently store limited information about us in a magnetic stripe. And unlike a smart card, a credit card dose not contain cash – it only contains a number of an account that can be charged.

A smart card can store hundred times more information than a magnetic striped plastic card. A smart contains private user information such as financial facts, private encryption key, account information, credit cards numbers, health insurance information and so on. The current generation of smart cards includes IC chips with programmable functions.

(5)Closed Vs Open Electronic Cash System:

Electronic cash system can be either closed or open.

A closed system implies that the cash value in the IC card can only be recharged from a banks accounts, and the used money, which was collected in the memory of the IC card readers will be transferred to the receivers bank account. The direct transfer between IC cards is prohibited.

In open system allows direct transfer of money value between IC cards. Because Govt. are afraid of the risk of lost traceability money laundering.

Conclusion :

Nowadays the traditional bills and coins are giving way to the electronic money. With the wide spread of Internet this transformation is inevitable. It is obvious that digital cash is the future of exchange mechanism. It will surely condense many of the prevailing inconveniences such as carrying large amount of cash and will resolve many of the in-security issues experienced today. The electronic money would not only be quicker and cheaper but also more robust and easy to authenticate. People would not be apprehensive in using it as it will respect their privacy and will allow even small merchants to carry out the business all over the world. The digital cash will also reduce the cost of transferring the money internationally, which is quite expensive at present. The electronic money will not replace the traditional form of transaction completely but will facilitate it surely.