electronic payments recent trends, challenges and emerging issues

8/18/2019 Electronic Payments Recent Trends, Challenges and Emerging Issues

1/54

“ELECTRONIC PAYMENTS: RECENT TRENDS, CHALLENGES AND

EMERGING ISSUES”

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR

MASTERS OF INFORMATION MANAGEMENT (MIM)

2014-2015

ROLL NO. 131

JAMNALAL BAJAJ INSTITUTE OF MANAGEMENT STUDIES

UNIVERSITY OF MUMBAI


2/54

2

Acknowledgement

This report is a culmination of my efforts during my fourth and fifth semesters of

Masters in Information Management Studies course at JBIMS, Mumbai. The

yearlong project has been a great learning experience for me and I have been

ably guided and supported in my endeavor by many people.

I am highly indebted to my Project Guide for his advice and guidance from the very

early stage of this project. His able supervision has nourished my intellectual

maturity that I will benefit from for the rest of my life.

I gratefully thank The Director, JBIMS for giving me an opportunity to undertake

such a useful thesis. I am also thankful to the respectable faculty members at

JBIMS for their teachings and thorough concept building in various managerial

disciplines which helped a lot during the course of my project.

I would like to thank everybody who has directly or indirectly helped me in

successful completion of my project.


3/54

3

TABLE OF CONTENTS

Sr. No. Topic Page No.

1 EXECUTIVE SUMMARY 5

2 INTRODUCTION 73 THE INDIAN ELECTRONIC PAYMENT LANDSCAPE 9

3.1 TYPES OF ELECTRONIC TRANSACTIONS 9

3.2 ELECTRONIC PAYMENT MODELS 9

3.3 THE REGULATORY FRAMEWORK 16

4 KEY EVENTS AND E-PAYMENT INITIATIVES 20

5 CONERNS OVER E-PAYMENT MECHANISMS 24

5.1 CHALLENGES AND MITIGATION 24

5.2 FRAMEWORKS SUPPORTING SECURE E-PAYMENTS 27

RESEARCH METHODOLOGY 33

6 6.1 PURPOSE OF THE STUDY 336.2 RESEARCH OBJECTIVE 33

6.3 SCOPE OF RESEARCH 33

6.4 RESEARCH DESIGN 34

6.5 HYPOTHESIS 34

6.6 LIMITATIONS 34

6.7 DATA COLLECTION 35

6.8 SAMPLE DESIGN 35

6.9 TOOLS OF DATA ANALYSIS 36

7 DATA INTERPRETATION AND ANALYSIS 37

7.1 ANALYSIS OF PRIMARY DATA 37

7.2 ANALYSIS OF SECONDARY DATA 42

8 RESEARCH FINDINGS AND RECOMMENDATIONS 45

8.1 RESEARCH FINDINGS 45

8.2 RECOMMENDATIONS 46

8.3 CONCLUSION 51

9 REFERENCES 52

10 ANNEXURE 53


4/54

4

LIST OF FIGURES/TABLES/CHARTS

Sr. No. Topic Page No.

2.1 Payment instruments in non-cash transactions 8

3.2.1 Growth of NEFT/RTGS in India 103.2.2 The retail electronic payment space 113.2.3 Volume of prepaid cards in Retail & Internet purchases 12

3.2.4Market share of prepaid cards in Retail & Internet purchases 12

3.2.5 Credit and Debit Card Spend Trends 153.2.6 Growth rates in Electronic Payments 153.3.1 Regulatory Framework 167.1.1 Percent of Survey Participants Using E-Payment Systems 377.1.2 Survey data of respondents using e-payment services 397.1.3 Respondents using e-payment methods 397.1.4 Survey data of type of e-payment service used 407.1.5 Payment service used by respondents 407.1.6 Likability of e-payment services 417.2.1 Electronic payment scenario in India 427.2.2 Number of Global E-Commerce Transactions 427.2.3 Number of Global M-Payments Transactions 437.2.4 Number of Global Prepaid cards Transactions 437.2.5 Transition difficulties for companies 44

7.2.6 Entities offering non-cash retail payment services 44


5/54

5

1. EXECUTIVE SUMMARY

Topic: Electroni c Payments: Recent Trends, Chall enges and Emerging Issues

Gone are the days when the customers had to stand in long queues for making

monetary transactions in India. Now with the proliferation of new age electronic

methods of payment, the monetary transactions have become much more

convenient. Though, the electronic payment sector in India has adjusted quite fairly

with the emerging environment and is trying to extend its reach and diversity, yet

greater challenges lie ahead.

The biggest challenges for next decade or more is to involve over 50%

population of this country to use the electronic banking methodologies . The

primary challenges being faced in adoption of e-payments by a larger majority include

Security, Privacy, Inclusion, Financial literacy and Education.

Electronic payments are either debit or credit payments that are processed entirely

electronically, with the value passing from one bank account to another bank account. Credit

payments, often referred to as Electronic Credit Transfers (ECT) or Electronic Funds

Transfers (EFT), are where a customer instructs their bank to make a payment, electronically,

to another bank account. Debit payments, known as direct debits, are where a customer

instructs their bank to allow the payment to be charged to their bank account.

EFT is used for many types of payments these days, such as salary/wages paid directly into

bank accounts. Welfare payments, business-to-business payments, bill payments, expenses,


6/54

6

standing orders, government disbursements etc. are all increasingly being paid electronically,

directly to the bank accounts of the beneficiaries.

When it comes to payment options, nothing is more convenient than electronic payment. Youdon't have to write a check, swipe a credit card or handle any paper money; all you have to

do is enter some information into your Web browser and click your mouse. It's no wonder

that more and more people are turning to electronic payment -- or e-payment -- as an

alternative to sending cheques through the mail. There are various methods for electronic

payment processing. However it is not clear as to which one will be the leader in the next 10

years. Hence it is very interesting to investigate the software growth and research that has

been done in this area and develop more efficient and better software.

In this study there is a focus on one aspect: secure electronic payment systems. As

such, an analysis is provided of current trends in electronic payment; we focus mainly

on the electronic payment mechanism, and not on transactions involved.

It also discusses the regulatory mechanisms and methods employed which make

electronic payment systems more convenient to the customers.

This study also is an attempt to provide a detail on the concerns and challenges/issues

of e-payment transactions as well as an insight into the future ahead.

Primary data was collected by means of a comprehensive survey. Based on these

responses the analysis has been done and inferences have been drawn.

Also, at the end of this report, some recommendations are made for revising the

electronic payment framework.

http://money.howstuffworks.com/personal-finance/debt-management/credit-card.htmhttp://money.howstuffworks.com/currency5.htmhttp://money.howstuffworks.com/currency5.htmhttp://money.howstuffworks.com/personal-finance/debt-management/credit-card.htm


7/54

7

2. INTRODUCTION

An electronic payment is defined as a payment services that utilize information and

communications technologies including integrated circuit (IC) card, cryptography, and

telecommunications networks.

The need for electronic payment technologies is to respond to fundamental changes in socio-

economic trends. The payment system is the infrastructure which comprised of institutions,

instruments, rules, procedures, standards, and technical, established to affect the transfer of

monetary value between all the parties. An efficient payment system reduces the cost ofexchanging goods and services, and is indispensable to the functioning of the inter-bank,

money, and capital markets.

The tasks to design payment system infrastructures become ever more complex as

competition and innovation push constantly to the limit the search for better combinations of

efficiency, reliability, safety, and system stability in the provision of payment services to

larger numbers of individual users and institutions. A plethora of new electronic technologies

are emerging, opening up new transaction opportunities.

Microchip-based payment devices, such as chip cards and other new technologies, such as

transponders, are being tested in many parts of the globe. The potential of digital wireless

transactions remains untapped, yet it is very likely to emerge as telecommunications and

computer technologies converge in devices. New technologies supporting the electronic

storage, transfer, and use of money could have significant implications for consumers,

merchants, governments and financial institutions. The electronic payment system consists of


8/54

8

Users – who can in turn be subdivided into retailers and consumers depending on the

transaction model adopted.

Issuers – banks and other financial institutions that are providing the actual

mechanisms or the means to integrate the mechanism into other financial systems.

Regulators – who are concerned with issues ranging from assuring the integrity of the

mechanism and its operators, to the potential impact on the wider economy.

As such with the growth in research and adoption of electronic mechanisms, the share of

paper-based instruments in the volume of total non-cash transactions has seen a decrease

with an increase in usage of electronic payment instruments.

Fig.2.1. Payment instruments in non-cash transactions


9/54

9

3. THE INDIAN ELECRONIC PAYMENTS LANDSCAPE

3.1. Types of Electronic Transactions

An electronic payment is any kind of non-cash payment which includes credit cards, debit

cards, direct deposit, direct debit and electronic checks (e-checks).

For all these methods of electronic payment, there are three main types of transactions:

“One-time customer-to-vendor payment” - You type in your credit card information,

the site processes this information and sends you an e-mail notifying you that your

payment was received.

“Recurring customer -to-vendor payment” - when you pay a bill through a regularly

scheduled direct debit from your checking account or an automatic charge to your

credit card.

“Automatic bank-to-vendor payment” – You log on to your bank's Web site, enter the

vendor's information and authorize your bank to electronically transfer money from

your account at each billing cycle.

3.2. Electronic payment models

There are various electronic payment models which could be classified broadly into:

A) Electronic Fund Transfer

The NEFT system, facilitating person to person payments via bank accounts gained

momentum, fueled by the rapid adoption of Internet Banking by customers of both public

sector and private sector banks in India.


10/54

10

Fig.3.2.1. Growth of NEFT/RTGS in India


11/54

11

The electronic payment machinery has seen a spur in growth over the last few years with the

oncoming of the newer electronic ways of payments, thereby resulting in a tremendous

increase in retail sector.

Fig.3.2.2. The retail electronic payment space

The upsurge in retail loans including mortgages, car loans and personal loans led increasing

use of the ECS facilities, wherein customers and banks preferred direct debits to their bank

accounts rather than cheque clearing mechanisms.

B) Prepaid Cards

Most banks had initially focused on foreign exchange cards denominated in USD, Sterling,

Euro and other leading currencies targeted at the international traveler and the domestic gift

cards market. Payroll and gift cards are also finding increasing traction, enabling both POS


12/54

12

and ATM cash withdrawal transactions. Operators such as Itz cash have addressed the gap in

the online payments space targeted at uncarded customers or even unbanked customers.

Fig.3.2.3. Volume of prepaid cards in Retail & Internet purchases

Payroll Cards continues to dominate. The market is expected to have grown by over 75%

rising from USD 2.19 billion to over USD 5 billion.

Fig.3.2.4. Market share of prepaid cards in Retail & Internet purchases


13/54

13

Axis Bank is a market leader with over 39% marketshare. Itz Cash stands out as a large non-

banking prepaid card issuer seeking to make payments on the Internet for purchasing railway

tickets and a host of other services.

However, the industry is besot with a myriad of opportunities and challenges:

Key Challenges:

a) Business Models: For Bank Issued Cards, Issuance, Top Up Fees, Transaction Fees, float

revenues and breakages constitute the key revenue streams. Though the forex cards offer a

high revenue per card opportunity, gift cards are limited by their typical single use nature.

b) Evolving Regulations: The norms issued by the regulator have imposed greater emphasis

on the Know Your Customer (KYC) norms to be adopted for customer acquisition card

issuance and limited the opportunities on both float revenues and breakage opportunities.

Prepaid payment instruments up to Rs 5000/- can be issued by accepting any 'Government

issued Identity Cards' as proof of identity, but no cash withdrawal.

C) Mobile Banking Transactions

The RBI introduced an Operative Guidelines for Banks for Mobile Banking Transactions in

India in October 2008 under the aegis of the Payments & Settlements Act 2007 with a few

revisions and clarifications outlined in subsequent releases. The key highlights:

Only banks with core banking solutions would be permitted to provide mobile

banking services.

Customer registration for mobile banking mandatory


14/54

14

To ensure inter-operability between banks message formats like ISO 8583 were to be

adopted

Transaction limits were placed with a daily cap of Rs. 5000/- per customer for funds

transfer and Rs.10,000/- per customer for purchase transactions

This has been followed up by the introduction of IMPS (Interbank Mobile Payments Service)

by the National Payments Council of India, allowing bank’s registered customers to transfer

funds between banks via their mobile phones. The earlier models allowed only transfers

between customers having accounts with the same bank

Customers required to register with the participating banks and receive a unique

seven digit MMID (Mobile Money Transfer Identified Number)

No requirement of an Internet connectivity or a personal computer

The service may be operated via SMS or a special applications developed installed on

the customer’s handset

24x7 real-time service

Seven banks have gone live with the service including Axis bank, Bank of India,

HDFC Bank, ICICI Bank, State Bank of India, Union Bank & Yes Bank

This model could possibly become the largest 24x7 real-time Interbank transfer facility in the

world!

D) Credit & Debit

The credit and debit card spends over last few years has been consistently increasing with the

improving financial inclusion of the society and raised standards of living.


15/54

15

Fig.3.2.5. Credit and Debit Card Spend Trends

The growth rates in spends have been consistently high, with a slight blip in credit card

spends in 2009-10, which have picked up again later on.

Fig.3.2.6. Growth rates in Electronic Payments

The decline in spends was also on account of the over 30% reduction in credit cards in


16/54

16

circulation in the period, as banks and financial institutions focused on profitable customers

and addressed customer delinquencies. The healthy onward surge of debit card spends

continues to

fuel the penetration and usage of plastic within the larger Indian population and promises to

soon be the torchbearer for retail spends in India.

3.3. The Regulatory Framework

The RBIs approach to electronic payments has been summarized in the below diagram:

Fig.3.3.1. Regulatory Framework - RBIs approach to electronic payments


17/54

17

Under the Payment Systems & Settlements (PSS) Act of 2007, two regulations have been

made by the Reserve Bank of India, the Board for Regulation and Supervision of Payment

and Settlement Systems Regulation (BPSS), 2008 and the Payment and Settlement Systems

Regulations, 2008. Both these Regulations came into force along with the PSS Act, 2007 on

12th August 2008. The BPSS would exercise the powers on behalf of the Reserve Bank, for

regulation and supervision of the payment and settlement systems under the PSS Act, 2007.

The Payment and Settlement Systems Regulations, 2008 covers matters like form of

application for authorization for commencing/ carrying on a payment system and grant of

authorization, payment instructions and determination of standards of payment systems.This in essence permitted third party non banking entities to play the role of clearing &

settlement in financial networks, with the permission of the RBI. This was subsequently

followed by the establishment of the National Payments Council with the objective to

consolidate and integrate the multiple systems with varying service levels into nation-wide

uniform and standard business process for all retail payment systems.

Outlined below some trends and events that are likely to influence the e-payment space

1. Financial Inclusion

Allowing the underbanked customers the opportunity to walk into their neighborhood store to

both deposit and withdraw cash is the inflection point for penetration & adoption of

“banking” services. Allowing BCs to operate as access points across banking institutions and

widening the network of banks serviced could be the solution. A plan could be conceived,

allowing the creation of a default bank account for every unbanked UID holder with a

designated institution, hence assuring both identity and financial inclusion in one shot.


18/54

18

2. Domestic Payments Standards & Network

Though the structure and format is evolving, the country is poised to witness the formation of

a domestic transaction switching networks for POS, ATM and remittance transactions,

possibly inspired by China & Singapore. This network is likely to co-exist with the existing

global card networks of Visa, MasterCard and American Express. With ATM & POS device

costs already at possibly the lowest levels available globally, the case rests on reducing

switching & settlement costs & fueling card issuance by banks on the other end.

3. Device Penetration Levels

Low end card readers could be linked to mobile phones which would be the next step of

evolution for card acceptance. With cash withdrawal via POS machines already being

permitted for debit cards, the confluence of low cost card reading access devices linked with

mobile phones and the activation of the retail channel as BCs could spurn or limit the

requirements for large and expensive ATM devices. As the mobile no-frill account

ecosystem crystallizes, we are set to witness the creation of a non-card based ATM & POS

network which would surely catapault the payment device penetration levels into another

orbit.


19/54

19

4. Role of Non Banking Entities in the Payments & Transfers Ecosystem

Apart from the BC network, the scope of opportunity for non-banking entities can clearly

extend beyond payment processing, network management and device installation and

support.

There have been several inroads provided with co-branded opportunities and the guidelines

on prepaid card issuance, allowing customer acquisition, issuance, reload and even

transaction processing to be undertaken by non-banking institutions. Other large categories

including the FMCG sector may be enthused to leverage their retail distribution networks as

well.

5. Micro Payments

A melee of technologies, standards, end uses and devices ranging from mobile, Internet,

NFC, smart cards, contactless targeting transit, grocery or even utility payments is going to

emerge in a heady concoction of ground up innovation. A payment system emerging from a

transit payment format would be the ideal approach for large scale card based micro-payment

proliferation, in the urban areas.

6. Incentivize Electronic Payments

The one large opportunity that remains is incentivization for usage of electronic payments.

Tax breaks for merchants and customers could be put in place, as in South Korea for card payments. These incentives be extended across all electronic purchase transactions or even

on C2G payments.


20/54

20

4. KEY EVENTS AND E-PAYMENT INITIATIVES

Outlined below is a snapshot of the key events and business models that have been witnessed

in the Indian electronic payments space in the recent past. These could potentially influence

and catalyze the course and development of the electronic payments landscape in this decade.

Unique Identification Authority of India (UIDAI): The government has commenced

implementation of UID (Unique Identifier) which sets the foundation for establishing

a unique national identifier and enabling identity authentication for every citizen, a

logical and imperative building block for financial inclusion. With MasterCard

having developed a payment solution for “Aadhar” (UID), the road has been paved

for integrated identification & payment solutions.

An Inter Ministerial Group (IMG) was constituted by the Cabinet Secretariat in 2009,

to enable finalization of a framework for delivery of basic financial services using

mobile phones. The framework envisages creation of “Mobile Linked No Frills

Accounts” enabling a basic set of transactions via a mobile PIN based system using

“Mobile Banking POS” or through bio-metric based “micro ATMs" of the BCs (or

the sub-agents of BCs).

Prepaid has come of age. Banks have seen the opportunity served by prepaid in

addressing the gap left between the debit and credit customer base. Over 14 non

banking corporate entities have been granted permissions to issue prepaid cards in


21/54

21

card based, paper based and other electronic formats including virtual / mobile

wallets till date.

With the operationalization of large scale transit projects including metros, toll roads,

organized parking and other emerging urban transit systems, electronic transit

payment systems have become the norm. Large transit payment products (contactless

cards largely) are already flourishing across major metro towns eg. Delhi Metro,

Gurgaon-Delhi toll road & Mumbai Suburban Rail.

With 2 new credit bureaus being set up, in addition to the existing CIBIL, the quality

and depth of credit history and analysis is expected to grow multifold in the coming

years, resulting in enhanced quality of credit scoring and recoveries. The remarkable

transformation has been the increased consumer awareness of the importance and

impact of their credit histories.

Debit cards have been opened up for Internet transactions, potentially providing a

tipping point for ecommerce transactions. With cash withdrawal at POS machines

now a reality, the seeds for wide adoption and use have been sowed.

The India Card initiative as an alternative domestic payment network and systemcould potentially take the Indian card payments into another orbit.


22/54

22

ATM access fees have been normalized by the RBI enabling easier and cheaper

access for banked customers across all bank ATMs. Though stressing the cost lines of

banks, the lower charges should result in an explosion in ATM usage across India.

Payback acquired iMint, India’s largest coalition loyalty programme which in turn

was subsequently acquired by American Express. This potentially changes the

contours, creating a fine meshing of payments and loyalty systems.

The RBI has introduced Interbank Mobile Payment Service (IMPS) enabling

seamless mobile based transfers between bank account holders. The cornerstone of

interoperability has been established with this measure.

With the formal launch of 3G in India a deluge of service offerings across customer

segments is expected to fuel purchases and transactions on the mobile.

The BC model has received a quantum push, with both retailers and non banking

entities now being permitted to work with banks as extensions of their branch

counters. This virtually opens up the opportunity of converting over 10 million retail

outlets in India into bank branches.

Nokia Money underwent a silent launch in Pune and Chandigarh with Yes Bank.


23/54

23

Citibank, in conjunction with Vodafone & Nokia conducted an NFC based mobile

payments trial in Bangalore, which met with considerable success. However the

scalability would be dependent on the proliferation and adoption of NFC enabled

handsets and acceptance capabilities at merchant outlets.

FINO, ATOM, Eko, ALW are some of the players who are operating financial

inclusion models offering a bouquet of deposit, cash withdrawal, payment and

transfer transactions via the mobile.

Paymate, an SMS based mobile payments service launched “Green Money” with a

leading mobile operator Tata Indicom and Corporation Bank, allowing person to

person transfers.

With the imminent entry of mobile operators, fueled by the success of MPesa, and a

host of other global players, in the arena of payments & transfers, the market is

poised to witness several interesting and possibly unique business models and

consumer propositions.

A joint venture between Airtel & SBI and Vodafone & ICICI has been set up that

envisages opening bank accounts, cashless transfers, cashless spending & payment

facilities through a mobile phone platform.


24/54

24

5. CONCERNS OVER E-PAYMENT MECHANISMS

5.1. Challenges and Mitigation

Here, we analyze the problems faced by the customers and offers suggestions for improving

the payment systems. Three main issues have been identified: 1) Security issues; 2) Low

interest among businesses; 3) Heavy reliance on traditional payment methods.

A) The Security framework:

Since the present century is the century of information and data, every technology which is

working with, they are in exposure of data theft, stealing, and fraud. For so many companies

and even individuals, the secrecy of information about the financial data and their accounts is

highly important. Generally, security is a set of procedures, mechanisms and computer

programs to authenticate the source of information and guarantee the integrity and privacy of

the information (data) to abstain this circumstance to lead to a hardship (economic) of data or

network resources. Three basic building blocks of security mechanisms are used:

Encryption: provides confidentiality, authentication and integrity.

Digital signatures: provide authentication, integrity protection and non-repudiation.

Checksums/hash algorithms: provide integrity and can authentication.

B) Fraud Risk:

After sloping by around half between 1991 and 1995, plastic fraud losses have risen steadily

and are estimate of plastic fraud doubling in the next two years and with recorded fraud


25/54

25

statistics rising. As organizations struggle to remain competitive in a global marketplace, the

business is more complex, systems are left open to employee manipulation and without a

finely tuned internal control system, and the opportunity for significant loss is always

present. There are several internal forces which can make electronic money fraud more likely

in the organization, such as poor internal controls, poor personnel policies and practices, and

poor examples of honesty at the top levels of an organization.

C) Money Laundering:

Money laundering is defined as the act of disguising the origin or ownership of illegally

gained funds to make them appear legitimate. The process of transferring funds through

electronic messages between banks is known as wire transfers. It acts as the primer step in

money laundering where the profits from gambling, real estate fraud, and tax evasion are

somehow slipped into the banking systems before it can be safely spent. It is the duty of the

bank staff to report any detection of potential money laundering via direct telephone

notification to the bank regulators and financial enforcers. The high number of transaction

and the flow of wire transfer through fully automated systems have made it hard for it to be

detected by law enforcements and confuse audit traits.

D) Privacy & Anonymity:

With the increasing usage of the Internet, the fears of privacy abuse become a top concern of

most of the Internet users. Nonetheless, the anonymity of an Internet user is mainly


26/54

26

compromised through the payment method that is employed widely on the Internet – credit

card, since most of the information is being collected on the Internet when users enter their

credit card purchasing details. As consumers prefer to keep the details of their transaction

private, conversely merchants and issuers in favor to ensure they capture and possess enough

an appropriate and sufficient record of their transactions. Then privacy may become a thorny

issue here. Last but not least, privacy must be regarded as a political right that consumers

enjoy and ought to be respected. At the same time, precautions need to be put in place to

ensure that electronic money systems are not used as a means to thwart existing laws.

E) The Technical Problems:

Every new technology, when exposes and comes to the public, it faces to so many

difficulties. It takes time that people getting familiar with it. The other point is that since the

technology like e-payment is new, there should be so many thing invented and prepared as a

base for expanding of e-payment. The other important problem is not having good

infrastructure to extend and expand the e-payment sequentially e-commerce. Most of

equipments of e-payment are expensive and not easy and simple to anybody to apply them.

The other problem is to expand and grow the other part that are engage in or are part of e-

commerce, like telecommunication and their services. In the case of e-commerce and e-

payment every end user (home or office user) must have at least one phone line and theconnection to the Internet. As to be integrated system in all over the world, the infrastructure

should be well developed in all country to have a real integration in this field.


27/54

27

F) The cultural problems:

Most people still like to do their businesses in traditional form as before. These people like to

touch the documents and money in hand and doing the process physically and manually.

They believe in every dealing and business, physically rather than virtually. There are many

people even in the 21st century, who are not agree and accept the all new technologies. They

are always not certain and assured to the technologies. One reason is because of so many

malfunctions, fraud, and unavailability of devices in the time of need. Every defection makes

the public opinion divert from the advantages of new technologies.

5.2. Frameworks supporting secure e-payments

The following shows some payment mechanisms that are either commercially or in a pilot

version available today or have been published recently. The following analysis does not

cover an exhaustive list of all available mechanisms, but illustrates the main options and their

associated features.

A) Traditional money transactions:

These systems have the characteristics normally associated with credit card and bank card

transactions. They are mainly used for identification of the user, so they are not anonymous

since the credit card company or the bank has a record of all transactions. As a result of the

on-line clearing, total cost is fairly high. There are several systems that facilitate secured

credit card transactions over the Internet, the below mentions a few.

1) SET

IBM, Netscape, GTE, CyberCash, MasterCard, Microsoft and Visa have cooperatively


28/54

28

developed the Secure Electronic Transactions Protocol (SET) for securing on-line

transactions. SET secures cardholder account and payment information as it travels across

the network, preventing interception of account numbers and expiration dates by

unauthorized individuals. Payment information and authentication is ensured by the use of

digital signatures.

2) PCT

The Private Communication Technology (PCT) protocol, defined by Microsoft, provides

privacy between two communicating applications, and authenticates at least one of the two

to the other. A higher level application (e.g. HTTP, FTP, etc.) can layer on top of the PCT

protocol. PCT uses a symmetric session key for the encryption of messages during a

connection, and performs the requested authentications based on asymmetric public keys.

3) iKP

iKP is an IBM proposal for a family of public key protocols supporting secure presentation

of credit card information. The iKP technology is designed to allow customers to order

goods, services, or information over the Internet, while relying on existing secure financial

networks to implement the necessary payments. The iKP technology is based on RSA

public-key cryptography.

4) First Virtual’s InfoCommerce System

In this system the credit card information is given to First Virtual via phone only when the

account is opened. Thereafter, purchases are made using user account ID. During purchase,

the client gives the vendor his client’s ID. The vendor sends a transaction report to First

Virtual, on which it e-mails a report to the client for confirmation. If the client confirms, the


29/54


30/54

30

chequebook functions. A customer loads his card with money from a card held by a bank

teller or installed in an ATM; he then makes purchases by transferring value to a merchant

card; and the merchant in turn uploads his takings to his bank via an ATM or terminal.

The security of UEPS is based on two levels of authentication. The core is an electronic

cheque which carries two digital signatures: one generated with a key known only to the

issuing bank’s security module and the customer card, and one generated with a key which is

controlled by the clearing house and loaded by them to the card before it is supplied to the

bank. Only the cards embedded in bank and merchant terminals possess a set of universal

secrets, and the customer cards have keys derived from their serial numbers using thesemaster keys. The payment protocols implement both message chaining and double

encryption.

C) Digital currency:

1) DigiCash

The DigiCash system involves the creation of ‘electronic coins’ in the form of digitally

signed numbers in exchange for real money from the user’s bank account. Each of these

coins can be spent, once and only once, with a service provider who accepts them. When the

coin is spent it is immediately sent by the recipient to the issuing bank for on-line verification

and logging (to ensure it is not spent again) before confirming receipt to the payer, who then

discards the used coins. The appropriate amount is credited to the recipient’s bank account.

This system uses ‘blinding’ techniques to ensure that the coin can be verified without

revealing the identity of the payer to the payee or the bank.


31/54

31

2) NetCash

NetCash tries to find a balance between unconditionally anonymous electronic currency,

and signed instruments analogous to checks that are more scalable but identify the principals

in a transaction. Currency issued by a currency server is backed by account balances

registered with NetCheque to the currency server itself and the NetCheque system is used to

clear payments across servers and to convert electronic currency into debits and credits

against customer and merchant accounts. Though payments using NetCheque originate from

named accounts, with NetCash the account balances are registered in the name of the

currency server, and not the end user.

3) CAFE

CAFÉ provides a high security of all parties concerned without being forced to trust other

parties (so called multi-party security). It uses a combination of tamper-resistance devices

and hence, it is impossible to spend money more than once. If tamper-resistance of the

device is broken, users who spend electronic money more than once are identified, and the

fraud can be proven to them. Since CAFE aims at the market of small everyday payments

that is currently dominated by cash, payments are off-line, and privacy is an important

issue.

4) Mondex

The Mondex system is based on a tamper-proof smart card that holds the cash (in multiple

currencies) and the software to make and receive payments. The system preserves

anonymity in that only the chip on the card has a complete record of transactions, and

therefore only the cardholder has access to this information. The chip on the card provides

immediate control at the time of any transaction. Peer to peer transactions are possible,


32/54

32

providing both parties have access to the necessary hardware. The system can be used for

any amount, and should be relatively fast and reliable.

5) Brands’ off -line electronic cash system

In this system a tamper-resistant smart card, issued by the bank and trusted by the user,

controls a counter that represents the amount of electronic cash carried by the user. The use

of a counter ensures that the computation and communication complexity for paying an

amount are independent of the specific amount due, and that conversions between multiple

currencies can be made at payment time. Smart cards can transfer electronic cash to POS

terminals that need not be physically secured by the bank without needing on-line

verification. Cryptographic software in the user controlled computer ensures that payments

are untraceable and unlinkable.

Banks now provide cash management services to help business make the most of their money

and here is a sample of what is available:

a. E-Banking for Business - real-time access to your accounts

b.

Sweep accounts - automatically transfer cash to interest bearing accounts

c. Lockbox Service - quick way to convert receivables to cash

d. Account Reconciliation - manage your checking accounts more efficiently

e.

Wire Transfer Services - quick and secure method to send and receive funds

f. Electronic Funds Transfer - economical way to send and receive funds for next day

availability.

https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=136https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=169https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=170https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=172https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=221https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=138https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=138https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=221https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=172https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=170https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=169https://www.flagshipbank.com/drive.php?cid=2&sid=10&aid=136


33/54

33

6. RESEARCH METHODOLOGY

6.1. Purpose of the Study:

The purpose of study is to understand the electronic payment systems and analyze the

challenges faced by it. The study would also include analyzing the trends in usage of e-

payment mechanisms and its concerns.

6.2. Research Objective:

The objectives of this research are as follows:

To identify and explain the role and importance of e-payment system.

To study and examine the characteristics of the most current types of e-payment and

protocols.

To analysis the problems and the obstacles for developing infrastructure and

integrating the whole systems.

To understand e-payment usage pattern as well as finding out its related concerns and

provide suggestions to lessen their impact.

6.3. Scope of Research:

The scope of this research is to analyse the e-payment systems in use today and

understand the concerns over their use.


34/54


35/54


36/54

36

B) Sampling Frame: The sampling frame is the adult population of Mumbai and Thane area,

the children from the target population are not considered for the purpose of sampling.

C) Sampling Unit: The sampling unit is an individual resident of Mumbai or Thane city.

D) Sampling: The sampling method used for the research is non-probability – judgment

sampling. The sample included equal number of respondents from each age group given in

the questionnaire. Judgment sampling was considered for the reason, having respondents

from each age group would give sufficiently accurate responses representing the target

population.

E) Sampling Size: The sample size (p) selected for the purpose of the research is 100

respondents.

6.9. Tools of Data Analysis:

A) Significance Level: The significance level chosen in hypothesis testing is 0.01

B) Method of Hypothesis testing used: Hypothesis test of proportion


37/54


38/54

38

H0: m = 0.5

Alternate hypothesis - The number of respondents having used e-payment atleast once in last

3 months is more than the number having not used it even once in the last 3 months.

H1: m > 0.5

This is a right-tailed test

Sp = sqrt(pq/n)

= sqrt[(0.84*0.16)/100]

= 0.03666

Z(obs) = (p-m)/Sp

= (0.84-0.5)/0.03666

= 9.2744

Level of significance = 0.01

Z(critical) = 2.33

Since, Z(obs) > Z(critical), the null hypothesis can be rejected.

Therefore, the alternate hypothesis is true.


39/54

39

B) Respondents using e-payment services

Gender Age

Professional

Service Business Salaried Others

Male 20 to 30 4 3 6 130 to 40 5 5 7 2

40 to 50 5 0 6 2

50 to 60 5 0 4 3

Female 20 to 30 6 0 8 2

30 to 40 7 3 9 1

40 to 50 0 1 2 1

50 to 60 0 0 2 0

Total 32 12 44 12

Fig.7.1.2. Survey data of respondents using e-payment services

The above survey responses show that the salaried persons use the newer electronic payment

systems than others.

x = Total number of female/male respondents in the certain age group using an e-

payment service, n = Total number of respondents using an e-payment service

Fig.7.1.3. Respondents using e-payment methods

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20 to

30

Years

30 to

40

years

40 to

50

years

50 to

60

years

20 to

30

Years

30 to

40

years

40 to

50

years

50 to

60

years

Male Female

Others

Salaried

Business

Professional Service


40/54

40

C) Type of payment services used by respondents

Gender Age Debit Credit NetBanking Others

Male 20 to 30 2 6 4 2

30 to 40 5 7 6 140 to 50 5 3 3 2

50 to 60 4 2 5 1

Female 20 to 30 3 6 4 3

30 to 40 5 7 6 2

40 to 50 1 0 0 3

50 to 60 1 0 1 0

Total 26 31 29 14

Fig.7.1.4. Survey data of type of payment services used

The above survey responses show that the younger generation is most conversant with using

e-payment methods and most of the transactions are credit-based.

f = Number of respondents using a specific e-payment service, n = Total number of

responses received, Percent of respondents using a specific e-payment service = ×100

Fig.7.1.5. Payment service used by respondents

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20 to

30

Years

30 to

40

years

40 to

50

years

50 to

60

years

20 to

30

Years

30 to

40

years

40 to

50

years

50 to

60

years

Male Female

Others

NetBanking

Credit

Debit


41/54

41

D) Likability of e-payment services:

Based on the data collected about the likability of the services of e-payments,

10% respondents strongly agreed and 76% respondents agreed to have liked theservices.

Fig.7.1.6. Likability of the e-payment services

Chart Title

Very satisfied Satisfied Neutral Dissatisfied Very dissatisfied

1%12% 10%

76%


42/54

42

7.2. Analysis of Secondary Data

Although large value payment systems have mostly shifted to electronic payment mode,

retail payment remains rather paper-centric.

Fig.7.2.1. Electronic payment scenario in India

Global levels of e-transactions are seen in a state of continuous increase over the years.

Fig.7.2.2.Number of Global E-Commerce Transactions (Billion), 2010 – 2014F


43/54

43

Fig.7.2.3. Number of Global M-Payments Transactions (Billion), 2010 – 2014F

Fig.7.2.4.Number of Global Prepaid cards Transactions (Billion), 2009 – 2014F

Most of the companies have moved from traditional paper cheque based payments to modern

electronic methods of payments, the below figure shows their response related to transition

difficulties faced while moving to e-payments from the traditional methods.


44/54

44

Fig.7.2.5. Transition difficulties for companies

Current day market has many players (both government and non-government) offering non-

cash retail payment services to the general public; the following graph lists out the entities

with the majority of services provided by Banks.

Fig.7.2.6. Entities offering non-cash retail payment services


45/54

45

8. RESEARCH FINDINGS AND RECOMMENDATIONS

8.1. Research Findings:

Majority of the customers living in cities are using the e-payment services, especially

those offered by banks.

The younger generation is most conversant with using e-payment methods and most

of the transactions are credit-based.

All commercial banks have progressed far in automation of their core services. But,

e-payment services of banking reaches only 40% of the total population of India, this

has resulted in more than 60% of the financial transactions being cash based.

One of the major issues related to e-payment services and rural banking is the

customization of the available products. Most of the products have been designed

keeping in mind the urban and metro customers.

While India takes pride in its GDP growth rate, people below poverty line continue to

languish. About 24% of Indian population is in this category. 60% of the population

and 51% of the cultivator population are out of the ambit of the banking system. The

number of people using the banking e-payment services can easily be doubled

through vigorous financial inclusion efforts.


46/54

46

8.2. Recommendations

1) Revise the role of issuers and consumers to hinder security threats

Issuers’ role: Issuers of electronic payments will need to take great care to ensure that the

danger of counterfeiting is minimized and they must be very vigilant in monitoring their

systems and operations so that fraud can be detected quickly when it occurs. Issuers should

emphasize on a well-written and prominently displayed assurance of security encryption.

Enhancement on every sophisticated security systems should be done at least every month, to

prevent hackers from stealing both money and personal information. Higher priority must be

given to the enhancement of encryption mechanism in order to maintain security and privacy.

They should constantly upgrade hardware and software whenever a new feature of enhancing

security becomes available. Besides, issuers should create the possibility of having face-to-

face interactions to ensure institutional and customers trust is maintained. Highly confidential

information such as customers’ personal identity number or other code should not be

revealed to anyone other than the owner itself. It is definitely necessary to allow details of

transactions to be identified throughout the process.

Issuers must collect personal information directly from the concerned consumers. This

personal information must be used for intended purpose only and must not be held for longer

than required. Consumers must be made aware of the information being collected and the

purpose for which the information is being collected. Issuers are advised not to use anyinformation unless it is accurate, up to date, complete, relevant and not misleading.

Therefore, they must ensure that consumers update their information at least two months

once. It is the issuers’ responsibility to assure the consumers that no one else can divert the


47/54

47

payment in order to steal funds or use them for nefarious purposes. Safety can be assured by

sending critical information such as a credit card number through a separate medium such as

telephone. Besides, issuers can make use of all the fraud prevention mechanism available in

the market, such as public key crypto-systems and digital signatures. During payment, at

least one digital signature must be created to verify the process. Digital signatures can be

used both to assure integrity of the data and the identity of the originator. On the other hand,

privacy can be assured by avoiding from revealing any of the identification of a consumer in

the payment mechanism.

Customers’ role: The willingness to use the electronic payments is directly proportional to

the frequency of usage. Customers should get themselves exposed to electronic payment

systems in order to gain experience and increase trust on the existing security. In case of any

confidential information which is yet to be revealed, customers should clarify the request

with the issuers beforehand or consult those who have experienced the system beforehand. If

consumers feel insecure over certain electronic payments, they may wish to send confidential

details separately by telephone. Besides, attending seminar/workshops/talk on the healthy

usage of electronic payments is very much encouraged, especially for those

machine/computer illiterates.

Customers must also be able to keep track on the balance, protect identity/code number from

public’s view, update personal information at least once every two months and notify the

issuer of the loss/theft of the e-payment instrument (EPI) immediately.

As a precaution, consumers must always remember not keep their code/pin number

somewhere that is not easily accessible by the public. It is also very much advisable to carry


48/54

48

along an electronic payment card, which has lesser credit limit. For example, consumer can

open two separate accounts in the same bank with different amount banked in into each

account. As for daily usage, the consumer can bring along the card that has lesser amount of

money. This way, in any case of physical emergency, the other account can be saved.

2) Identify ways to increasing interests among businesses

Most electronic payments cost only around one-third to one-half as much as a paper-based

non cash payment and it is clearly understood that the cost of a payment system could be

considerably reduced if it is shifted to electronics. Therefore, bank should provide payment

services according to their differential costs of services, so users may choose the payment

instrument with the lowest net price/non price cost. If the banks can move their account

holders from using paper cheques to using electronic debit cards, their costs will be reduced,

revenue will be enhanced and consequently profitability will be increased. In addition, for

consumer-to-business point-of-sale and bill payments, electronic payments will reduce the

need for business working capital associated with the delay in processing paper-based non-

cash payments. Research studies have also proved that people have different preferences for

using various types of payment instruments. For example, ATM, debit card use and PC

banking are more prevalent among those who use direct deposit than among others.

Consumers with similar education, income, and age share similar preferences for paymentmethods. Therefore, the bank’s role here is to facilitate and encourage overall payment

system efficiency by continuing to offer currency as just one payment technology amongst


49/54

49

several. Alternative payment technologies can be provided freely and users are allowed to

choose amongst those competing technologies.

Some industries, such as financial services have characteristics that lend themselves to

electronic payments, such as sophisticated systems, while others such as construction are

hindered by the nature of their business to require signatures. Companies in the focus groups

expressed that some of their smaller customers are not sophisticated enough for electronic

payments and would most likely not comply with any requests for electronic payments.

Larger companies are more likely to be using electronic payments and Electronic Data

Interchange (EDI). They can choose any payment mechanism that they think is acceptable in

the real world, which is very much dependent on the nature of their business.

In the case of new electronic payments arrangements, it is likely that the statute law, common

law, contractual arrangements and industry codes of practice will have some role to play. The

new technologies should be subjected to some market protection mechanisms including

minimum capital requirements and limitations on the investments, which can be made with

the real money exchanged for electronic money. Businesses should look deeply into the

characteristics of transactions that could affect the requirements of an online system. A

proper standardization will help to increase participation of more businesses to invest in

electronic payments.

3) Reduce the usage of traditional payment methods

The traditional payments, where the clumsy and expensive way to handle coins and notes is

being replaced by efficient electronic payments initiated by various types of plastic cards.


50/54

50

This is a tantalizing prospect for the twenty-first century. Both the costs and the prices of

paper-based payments are higher than their electronic counterparts. Traditional payment is

not the preferred method of payment, particularly for higher value transactions since use of

currency involves handling, storage and security costs that may not arise to the same extent

with other methods. Clearly, some substitution will take place, but the nature and extent of

this substitution will depend on a number of factors. People will tend to prefer to use

payment technologies, which are cheaper, more convenient and less risky than available

alternatives. Many will probably prefer methods which can be used for multiple purposes,

rather than having to utilize a variety of methods to meet different needs. The level ofacceptance of particular payments by retailers, merchants and other suppliers will obviously

have an important influence on the take-up of new approaches.

The system of money is abstract, impersonal and symbolic. But electronic money is virtual

compare to cash and cheques and the payments instrument or channel is no longer physical.

Electronic money is likely to have extra benefits that cash cannot deliver. Retailers are

generally attracted to electronic payments because it offers them another service

enhancement and it reduces their costs of cash holding and handling. For example, debit

cardholder presents the card at the point of sale (PoS) to pay for the goods and services

consumed and to receive cash, which as with the debit card payment, is immediately

deducted from the cardholder’s account. Persuading customers that plastic card payments are

more convenient, easier and more secure than cash or cheques requires consistent marketing

about the advantages of paying by plastic and getting the cardholders to consolidate their

various accounts on to the one card may require considerable attention to relationship

marketing.


51/54

51

8.3. Conclusion:

There are a wide variety of payment systems available to a consumer today. However there

arises a need to provide a single universal payment system that provides the advantages of all

the existing payment system. In an effort towards this direction, an organization called Joint

Electronic Payment Initiative (JEPI) has been formed. The objective of this group is to define

a set of protocols and interfaces that can support the use of a wide variety of payment

methods for network commerce.

It is clear that Credit Card Payments have adopted SET as a standard for payment

transactions. However, no protocol is currently available for electronic check payment.

Financial Service Technology Consortium (FSTC) is working towards bringing in a standard

for electronic checks. FSML has been introduced to develop secure financial documents like

checks. However, it is yet to be accepted as an industry wide standard. Electronic Cash

products like Ecash that do not make use of banking infrastructure are finding it difficult to

push into the market. However smart card systems like Mondex are not popular in the market

because of not being backed up by major banking institutions. We should try to develop

systems that are not proprietary and inflexible but instead are open-ended.

Electronic Payment Industry has an extensive potential for growth considering the growth of

Internet. We should take advantage of this and make the best use of available technology for

the betterment of mankind. Ensuring a profitable business model for e-payments across therural areas remains elusive as there still needs to expand the reach of modern information and

communication technologies to the remote areas and promote financial inclusion.


52/54

52

9. REFERENCES

Indian settlement systems - Wikipedia

A strategic review of India's emerging payments market - Mckinsey

World Payments Report 2013 - Capgemini

Payment and Settlement Systems - Reserve Bank of India

"Indian Banking – Paradigm Shift in Public Policy", BIS Review No.3, Bank for

International Settlements.

Reserve Bank of India, Report on the Financial System

Reserve Bank of India, Report on Banking Sector Reform.

Research Methods for Business – A Skill Building Approach by Uma Sekaran.

http://en.wikipedia.org/wiki/Indian_settlement_systemshttp://www.mckinsey.com/client_service/financial_services/profiles/~/media/57387926B33841B5B0F2A0D8A1429368.ashxhttp://www.capgemini.com/resource-file-access/resource/pdf/wpr_2013.pdfhttp://www.rbi.org.in/scripts/paymentsystems.aspxhttp://www.rbi.org.in/scripts/paymentsystems.aspxhttp://www.capgemini.com/resource-file-access/resource/pdf/wpr_2013.pdfhttp://www.mckinsey.com/client_service/financial_services/profiles/~/media/57387926B33841B5B0F2A0D8A1429368.ashxhttp://en.wikipedia.org/wiki/Indian_settlement_systems


53/54

53

10. ANNEXURE - Questionnaire:

Gender: Male Female

Age Group:

1) 20 to 30 years

2) 30 to 40 years

3) 40 to 50 years

4) 50 to 60 years

Profession:

1) Professional Service

(e.g. Doctor, Lawyer, etc)

2) Business

3) Salaried

4) Others

Yes No

Yes No

Options: 1-4, 5-9, 10+

Approximately how many times have you done e-payments in last 3 months?

Have you done at least one electronic payment in the last 3 months?

Are you aware of e-payment services?


54/54

Debit Cards

Credit Cards

E-cash cards

NetBanking

Digital Cheques

Others

How satisfied are you with the following payment methods?

Very satisfied Satisfied Neutral Dissatisfied Very dissatisfied

Credit Cards

Debit Cards

E-cash cards

NetBanking

Digital Cheques

Others

Yes No

f yes, what was the issue, how it was solved and how much time it took?

Have you ever faced an issue with any of the e-payment services?

Which payment method do you use the most?

electronic payments recent trends, challenges and emerging issues

Documents