Comparative evaluation of electronic payment systems

Comparative evaluation of electronic payment systems

In Business to Consumer, B2C, electronic commerce, it is necessary for the merchant to reduce the risk of non-payment by the customer by processing the payment interactively while processing the customer's order. In Business to Business, B2B, e-commerce there is also a rapidly growing interest in processing payments online. Depending on the customer's choice of payment method, this can be done by validating the customer's credit card number or bank checking account number or by clearing digital cash through the issuer of the cash.
Electronic payment systems securely process such payments and can be implemented by merchants themselves on their own web servers or alternatively, they can be provided to merchants by third party e-payment service providers. This paper describes the mode of operation of a broad range of e-payment systems available today in order to provide a comparative evaluation of their advantages and disadvantages. The analysis is presented in terms of the features of each system and discusses the advantages and disadvantages to the customer, the merchant, the e-- payment service provider and the financial institution. This paper updates earlier work on this topic, e.g. [1], [2], [3].
2. ELECTRONIC PAYMENT SYSTEMS
In this section we analyse how payments are processed when a customer visits a merchant's web site and needs to make an electronic payment. Some merchants process the payment on their own web servers, whereas other merchants outsource this function to an electronic payment service provider in order to avoid the security concerns and the additional software, which is necessary in order to process the payments themselves. Outsourcing of information systems functions is part of the trend towards increased use of Application Service Providers, ASPs. Payment processing is an application that an ASP can provide to its customers, which can include both large and small companies. E-payment service providers charge a cost to the merchant, which depends on the number of transactions and is typically a few tens of dollars for a few thousand transactions per month.
There are four advantages to the merchants in outsourcing this function to an electronic payment service provider.
* The merchant does not need to obtain "merchant status" with credit card companies, which can be a costly procedure for small merchants. Instead credit card companies accept the service provider's "merchant status".
* The service provider typically has redundant web servers, redundant power supplies and redundant internet access so that if one unit fails, the backup comes into operation automatically.
* An e-payment service provider can handle focused loads on its web site caused by the merchant running promotional campaigns. The merchants own web server may not be able to handle a large sudden load of customers, whereas an e-payment service provider has a more powerful server, which is capable of handling many customers, from many merchants.
* The cryptography can be handled by hardware acceleration on these large servers, whereas on a regular web server, using software consumes significant processor power.