Evaluation of electronic payment methods Au Wei Loon, Kevin Supervisor: Bill W.S. Whyte Information Systems-Management Studies 2003/2004

Transcription

1 Evaluation of electronic payment methods Au Wei Loon, Kevin Supervisor: Bill W.S. Whyte Information Systems-Management Studies 2003/2004 The candidate confirms that the work submitted is his own and the appropriate credit has been given where reference has been made to the work of others.

2 Summary This report critically reviews and categorises the different methods of electronic payment methods for ecommerce. The research was conducted over a 7 months period from October 2003 to April This document analyzes the advantages and disadvantages of each existing methods of payment for ecommerce. An analysis will also be done on the factors that contribute to the failure of some payment methods that prevents it from being used widely. A questionnaire will also be used to determine Malaysian and Leeds students attitudes towards those methods. ii

3 Acknowledgements This project will not be a success without any help from certain people. Throughout the course of the project, various people have provided much valued assistance. Thanks go to my project supervisor, Mr. Bill W.S. Whyte, for providing essential guidance and support throughout the project duration. Without his much valued input and feedback, this project will not have been successful Thanks also goes to students from Malaysia and Leeds who helped complete the questionnaire, which is used to gauge their acceptance and attitude towards the payment methods. Finally, thanks goes to Elaine Blair, who helped me guide me in accessing the university library s databases to search for project resources. Kevin Au April 2004 iii

4 Table of contents SUMMARY ii ACKNOWLEDGEMENTS. iii 1. INTRODUCTION 1.1 Statement of problem Purpose of project Objectives Minimum Requirements Scope of Report Structure of Report Initial Project Management Evaluation Plan BACKGROUND RESEARCH 2.1 What is electronic payment History of electronic payment Cost of electronic payment Future of electronic payment RESEARCH METHODOLOGY 3.1 Availability of research resources Data collection Analysis approach CLASSIFICATION OF ELECTRONIC PAYMENT METHODS 4.1 Proposed electronic payment schemes Digital Currency Characteristics Types Advantages Disadvantages Examples of Digital Currency iv

5 Prospect of Digital Currency Credit-Debit System Characteristics Types Advantages Disadvantages Examples of Credit-Debit System Prospect of Credit-Debit System Specialized System Characteristics Types Advantages Disadvantages Examples of Specialized System Prospect of Specialized System Token Scheme Characteristics Types Advantages Disadvantages Examples of Token Scheme Prospect of Token Scheme B2B Payment System Characteristics Types Advantages Disadvantages Examples of B2B Payment System Prospect of B2B Payment System Failure of Electronic Payment Methods RESEARCH RESULTS 5.1 Objective of questionnaire Participants v

6 5.3 Procedures Materials Questionnaire Results Objective of interview Discussion EVALUATION 6.1 Conclusion Evaluation results Future improvements and enhancements BIBLIOGRAPHY APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F APPENDIX G APPENDIX H APPENDIX I. 66 vi

7 Chapter 1: Introduction 1.1 Statement of problem Nowadays, many people use e-payment methods for numerous purposes such as paying for their online purchases and for bill payment. For example, when a buyer purchases a product from ebay.com, they can choose to pay the seller via e-payment methods such as Paypal. However, as the level of technology continues to rise; fears in respect to electronic payment continue to rise as well. The fear of commercial failure or loss of competitive advantage is driving high levels of innovation among commercial firms, information systems suppliers and financial institutions [8]. Besides that, all the fear may have influence on students usage of such payment method. This report looks into categorising and classifying the different types of electronic payment methods in terms of its advantages and disadvantages, the level of acceptance of students in Malaysia and Leeds and factors that influence their usage or non-usage. This comparison is useful in determining whether students from Leeds and Malaysia actually use electronic payment methods. Another reason is to determine whether Leeds students level of usage is higher than Malaysian students or vice versa. 1.2 Purpose of project. Having defined the problem, the objectives, minimum requirements and the scope of the project will be defined. This is necessary to state what is hoped to achieve Objectives The following objectives were determined at the start of the project: To review and categorise various electronic payment methods. To analyze the methods in terms of its advantage and disadvantages. To compare Malaysian and Leeds students response towards different electronic payment methods. To examine whether Malaysian and Leeds students use electronic payment and the factors that influence their usage Minimum requirements To achieve the aim stated above, the following minimum requirements were determined: Survey on past and current systems. Analysis of failed methods. 1

8 Use of a questionnaire to find out whether Malaysian and Leeds students actually uses e- payment methods Scope of project The scope of the project is restricted to reviewing and categorisation of e-payment methods and students attitudes towards various e-payment methods. The research conducted is also restricted to students in Malaysia and Leeds to ease data collection. It is useful to limit the research area to areas that are familiar to the author because to research students from other area requires a huge amount of time Structure of report. The project addresses two main areas, which are the categorisation of electronic payment methods and students responses to it. As a result, the report generally is divided into 2 main parts. The first part focuses on the introduction of electronic payment and the analysis of different methods of electronic payment. The second part of the report shows the results of the research done on students response to the electronic payment methods. The report concludes with an assessment on how electronic payment systems can meet the needs of students and suggest the best type of method for students to use Initial project management Activity Oct Nov Dec Jan Feb Mar Apr May A B C D E F G H J K L M 2

9 N O P Q R S T U V W X Activity A. Submit project preference form B. Develop minimum aim and requirement C. Submit project aim and minimum requirement form D. Develop project schedule E. Develop evaluation plan F. Decide research method G. Background reading H. Analysis of background reading J. Reviewing and categorising electronic payment methods K. Analyzing electronic payment methods in terms of its advantages and disadvantages L. Submit mid project report M. Review mid project report comments. N. Develop questionnaire O. Send out questionnaire P. Conduct interview Q. Analyse interview results R. Analysis of questionnaire results S. Comparison of interview vs questionnaire results vs background reading T. Submit table of contents and draft chapter U. Writing up report V. Evaluating success of project W. Re-checking overall aspects of project 3

10 X. Submit project report The revised project management chart is included in the Appendix B. The revised project management chart did not differ much from the original plan except for certain activities. The background readings were completed earlier than expected and thus allow the analysis to be completed faster. The time to develop the questionnaire took longer than expected because of the difficulty encountered in structuring the questionnaire and selection of relevant questions to be asked. After reviewing the comments from the mid project report, the answers to the comments is included in Appendix C. During the course of the project, draft chapters were written which speeds up the process of writing up the report and thus allow more time for re-checking the projects for mistakes and improvements Evaluation plan The evaluation plan is used to evaluate the overall success of the project. The justification for the evaluation criteria chosen is included in the Appendix D. Key success factors Measurement method 1. Achieve the aims, objectives and minimum requirements. Survey on past and current electronic payment systems. Analysis of failed methods. Use of a questionnaire to find out Malaysian and Leeds students attitudes towards electronic payment methods. 2. Achieve the possible improvements. Expand upon the basic requirements 3. Fully understand electronic payment methods. Analyzed a large number of credible resources. Produced a classification method. 4. Identify failure reasons of failed electronic payment method. Analysed a large number of credible resources. Able to identify factors resulting in failures. 5. Conduct a good survey. Able to get high response rate. Able to identify common themes and 4

11 differences from the results. 6. Conduct a good interview. Able to ask relevant questions. Able to obtain useful information. 7. Assess attitudes of students towards electronic payment. Analyzed questionnaire conducted on Leeds and Malaysian students. Analyzed questionnaire conducted on Leeds and Malaysian students. Able to identify the differences and factors that influence their usage. 8. Manage the project well. Able to develop a project management schedule. Able to follow the schedule. 9. Write a good report. Able to incorporate all the relevant information into the report. Able to achieve high readability. 10. Overall success of the project. Able to combine all the key success factors to evaluate the success of the project. Chapter 2: Background research. Although there are no previous research done on students responses and attitudes towards e-payment system, a number of credible resources regarding electronic payment methods were found. These resources are valuable in supplementing the author s investigation and research for the project. 2.1 What is e-payment? E-payment is the exchange of monetary value online via the Internet, private networks or a combination of it [1]. A typical e-payment transaction is where merchants collect revenue from customers when they pay for goods or services online using electronic payment methods such as Paypal. There are many risks involving conducting a payment electronically such as fraudulent activities. E-payment is a multi participant activity, with each participant trying to minimise their risk [2]. Nevertheless, e-payment does provide some benefits and convenience to 5

12 customer, merchants and banks that are involved in an electronic transaction [3] such as the convenience enjoyed by the buyer by using a credit card to pay for lastminute.com s travel services online. Different electronic payment methods have different benefits and risks. The advantages and disadvantages of using specific methods are discussed in Chapter History of electronic payment [8] provided a brief outline on the history of electronic payment. The financial services developed a variety of complex networks to support electronic funds transfer (EFT) between financial institutions, consumers and businesses with services such as credit card payments, cash point machines and business payments via bank and wire transfer [5]. The financial services are considered the initial users of e-payment. Many companies now adopt Electronic Data Interchange (EDI) standards to exchange business information between computers, and carry out business transactions electronically. EDI works on most type of computer hardware, application system, and business process used [6]. However, EDI s main limitation is its high cost of set up. 2.3 Cost of electronic payment. Costs of e payment are usually hidden from customer s view. Most customers will think that what they pay for a good or service is equivalent to what the seller receives. The payment service provider charges a percentage on each transaction. For example, credit cards can carry percentage charges ranging from 1.79% to 9%. Different e-payments methods have some common pricing structures in addition to other unique charging elements, which are discussed in [7]. It gives a good insight on general cost of setting up e payment but the costs discussed are limited to companies in UK. The costs discussed are set up cost, annual cost, monthly cost, PSP, transaction charge and bond (see Appendix E). However, [8] provides a general formula that can be used by a company to measure the total cost of payment and to negotiate what proportion of the total cost is born by which party. 2.4 Future of electronic payment [9] conducted a survey on pure online transaction sales from which shows that e-commerce sales are on the rise. Figures show at least a 100% increase in sales each year. [10] shows that USA has the most number of Internet users and online shoppers but they predict that Italy will overtake USA in terms of online shoppers in the future (see figure 3). The research also shows that Asian countries generally rank the lowest in terms of online shoppers. This report will 6

13 look at the attitudes and responses of Malaysian student towards various electronic payment methods and try to determine if [10] is right that Asian countries lag behind others in terms of online shoppers. Online Shopping Patterns In Terms of Internet Penetration Category Country Lowest Highest average Internet users 27% 6% (Indonesia) 58% (USA) 1% Online shoppers 10% 27% (USA) (Thailand/Turkey) Online dropouts 15% 1% (India) 32% (Korea) Offline shoppers 36% 13% 1% (Portugal) (but browse online) (Hong Kong) Future online 14% 3% (Poland) 31% (Italy) shoppers Source: Taylor Nelson Sofres Interactive In addition, banks and Internet merchants in USA are spending approximately $1.4 billion and $100 million respectively on ecommerce payment systems [11]. A whopping 91% of those figures are spent on driving, switching to and authorizing new technologies. There is a huge belief that electronic payment methods will soon replace traditional payment methods. This result is further supported by [13], which predicts electronic payment method will overtake traditional method of payment by 2010 in USA. The e-commerce market in USA can be used as a benchmark because any market movement in the USA will indirectly affect countries around the world. The cost of electronic payment is also found to be significantly lower compared to traditional method [14]. Apart from the optimistic views, [2] painted a rather conservative view on e-business. It pointed out that the popular interpreters and the less responsible futurologist have over hyped things, which no concrete evidence has surfaced as yet. Chapter 3: Research methodology 3.1 Availability of research resources Reliable and up to date resources are hard to locate. There are also no previous researches done on students attitudes towards electronic payment. However, the author have been able to source for a number of books written by well-respected writers to help complete the project and websites and online journals will be looked at to help supplement the author s reading. 7

14 3.2 Data collection Questionnaire, interview and literature review will be used for data collection. A large number of students response is needed to measure their attitudes towards e-payment. By using questionnaire, a large number of students responses can easily be gathered. However, the response rate might be low and students generally take a long time to return a completed questionnaire. An interview is ideal in getting instant response but it is too time consuming and much time is needed to conduct many interviews. By conducting a literature review, previous studies can be analyzed but the reliable and up to date resources are hard to obtain. Combining these methods will provide a more rounded and balanced case study in order to overcome the limitation and constraints of each methods [15]. It is hoped that the results from the questionnaire and interview would help identify some trends such as does most of the students who uses credit card choose to use it because it is convenient as perceived by many or because of other reasons. In order for the questionnaire to be successful, a high response rate is vital. Nevertheless, the author is confident that a high response rate can be obtained from student in Malaysia and Leeds. The questionnaires will be sent by to students. The recipients of that batch of questionnaires will be asked to help forward the questionnaire out to other students known to them so that a higher number of responses can be obtained. An interview will also be conducted with the vice president of Citigroup from Malaysia in order to find out the extent of e-payment usage in Malaysia. The interview will be helpful as Citigroup Malaysia has done extensive research on students responses towards e-commerce in Malaysia and the author will be looking to obtain conclusions from the research to support the questionnaire survey results. Literature review will also be used to support the analysis on electronic payment systems. There is a huge array of publications on electronic payment but it is time consuming to analyze all of it. Literature review is fundamental to help the author understand existing electronic payment methods and in preparing the questionnaire. Books and online journals will be obtained from the Leeds University s library and through the library s databases. 3.3 Analysis approach. For this report, the author will be analyzing several aspects of electronic payment methods. Firstly, the different methods of electronic payment will be categorized, and differentiated through its unique characteristics. The advantages and disadvantages of each method will also be discussed. In addition, the reason for the failure of some of those methods 8

15 will be discussed. Next, the results gathered from the questionnaire and interview will be analyzed. The author will then try to determine the factors that might influence whether Malaysian and Leeds students uses electronic payment methods. Finally, the author will try to suggest which e-payment system is best suited for students usage. Chapter 4: Classification of e payment methods A search for a consensus on a classification framework for e-payment methods remains indefinable. [16] categorizes e-payment based on traditional money transaction, credit-debit payment and digital currency.[17] partitions e-payment methods into e-cash or token based system and credit-debit or account based system. [18] developed a classification of web payment solutions which consists of electronic fund transfer at point of transaction, direct debit/credit, financial electronic data interchange (EDI), home banking, stored card values and e-cash. A framework that consist of e-payment methods that are Electronic Data Interchange (EDI) based, financial card based, or based on stored value in smart-cards or Internet payment systems was developed by[19]. [20] developed a landscape for web payment solutions mapped by plotting categories of credit-based, debit-based and digital currency solutions against transaction value. Although most frameworks mentioned are quite similar in nature, they are not comprehensive. For example, the framework in [17] omits traditional money transaction. There is also much confusion about the token scheme as each new entrant is argued as a different form of e-cash. Commercial solutions also often support multiple payment methods as optional choices [21]. An example of this type of solution is Paypal. To clear these omissions and confusions, a new classification framework is produced to supplement framework previously produced. 4.1 Proposed e-payment classification scheme An e-payment classification scheme is proposed below to help discuss and evaluate their unique characteristics. As various classification schemes has been noted, it is difficult to choose one which is perfect. The proposed classification scheme may not be perfect but it tries to incorporate the various types of e-payment methods from different classifications by different authors discussed above. This is vital because it is time consuming to discuss and evaluate every author s classification scheme. By producing the framework, it sets the platform to discuss the individual electronic payment methods advantages and disadvantages. The features of each e-payment methods are included in Appendix F. The framework in [8] provided the best picture of various e- payment methods and is a very helpful guidance in coming up with the new classification framework. The proposed classification framework consists of: 9

16 E-payment methods Digital Currency Credit-Debit System Specialized System Token Scheme B2B Payment System Types 1. Smart card based Closed system Open System 2. Mobile phone based Computer disk based 1. Credit card 2. Debit card 1. Electronic cheque 2. Electronic money order 1. Credit model 2. Debit model 1. Electronic funds transfer 2. Automatic clearing house Digital currency Characteristics Digital currencies are e-cash encoded in a string of digit and can be stored in a digital wallet such as a smart card or on a computer disk. The digital wallet authenticates consumer using digital certificates or other encryption methods. Digital wallet also stores and transfer values and secures the payment process from the consumer to the merchant [23]. Both the consumer and merchant have chip cards, each with a value, plus a card to card payment protocol where both would authenticate each other. One would be debited and the other will be credited. The existence of this payment method can be attributed to the emergence of advanced development in cryptography [24]. Digital currencies can be interchanged between different users without any involvement of merchants or third parties. However, trust and frauds remain an issue because transactions cannot be traced whenever fraud or theft occurs [25]. Partly due to this reason, this type of payment model is more suited for low value transactions Types 1. Smart card based Smart cards are based on credit card sized plastic cards that have embedded chips which are pre loaded with credit. The credits will be decremented after every purchase [26]. Smart cards can hold 100 times more data than credit card. Examples of such data are multiple credit card numbers and information on personal health, etc. It may be a closed system where its usage is limited to certain parties or an open system where its usage is not limited to any parties. Example of a closed and open system is Girovend and Mondex respectively. So far, Mondex had a trial run 10

17 in Swindon in 1995 [27] but the model has not penetrated the market as yet. Smart cards can also either be contact or contactless [28]. Contact cards must be physically placed into a card reader while contactless cards have an antenna built in the card that enables transmission of data without direct contact. 2. Computer disk based This payment model is almost identical to the token scheme [8]. E-cash is stored locally in a computer s hard disk. Many problems can be associated with storing of e-cash locally as hardware failure can lead to those credits being wiped out. Computer disk based model such as ecash and Cybercoin has been withdrawn from the market [29]. Thus, the future does not look bright for this e payment model. 3. Mobile phone based A call is first made to the customer s bank. The customer then keys in the amount needed and a PIN code using the keypad on the mobile phone. The message will be encoded by the phone, using a private key. Next, the bank will decrypt and verify the request and send the credit to the customer. The credit sent will be deducted from the customer s account. The location where the majority of application resides is still a big question. Does it reside on the smart card of the application provider, in the mobile telephone or on a server? [2] An example of mobile phone based transaction takes place in London, where a Virgin Cola can be purchased using a Virgin Mobile phone by simply dialling a number on the vending machine. [22] Advantages Smart card based e-payment method has a number of advantages. It is convenient to use and provides a high degree of security through tamper proof chips [25]. It is also able to store value. Consumers need to pre load their cards with credits before they can use it to pay for anything. Once loaded with credits, the credits are considered as cash but in credit form. Therefore, they need not owe anyone any money when paying for good or services. As there is no bank involvement, the privacy of the users is high [30]. Therefore, users can pay for goods and services privately without worrying about providing personal information to merchants Disadvantages To be able to use this type of method, a smart card reader is needed but PC manufacturers show no sign of building it into PC standards although some stand alone alternatives exists [8]. Currently, users and merchants must purchase and install new hardware and software to be able to use this payment method. As a result, users must learn the new system 11

18 while merchants must integrate it with their existing system. This proves to be one of the barriers to the acceptance of digital currency [31]. Another disadvantage is whenever dispute occurs between merchants and consumers regarding issues on payments, there is no transaction history which they can refer back to Examples of digital currency DigiCash ( is an encryption-based prepaid stored value system requiring digital wallet on hard drive to store e-coins. However, it ceased operation in FirstVirtual ( is another stored value system but it also ceased operations in Digicash bank 4. Send e-cash 6. Merchant transfers e- cash back to 7. Bank credits merchant s account at Merchant Encrypted and authenticated messages 5. Spend e-cash 3. Send request for e- cash 2. Download digital wallet with private and public keys 1. Establish account at bank Consumer Figure 1: DIGICASH: how the first generation digital currency works Prospect of digital currency The future for digital currency does not look bright. The withdrawal of ecash and Cybercoin further supports this argument. A research found that traders and customers are not attracted by the benefits offered by this e-payment model [32]. Although this research was done four years ago, the result is clearly still valid today as digital currency still has not managed to garner much market share today Credit-debit system Characteristics. 12

19 The card authorities guarantee payments to payee for charges made via their credit and debit card [33]. The payee will normally be paid within a few days. By using the credit-debit system, customers need to be registered as account holders with financial institutions or payment servers. Customers will then need to authorize charges against those accounts. Payers can settle their card charges using off line or bank transfer methods. Both these methods can be arranged in a credit or debit method. The payer need not be at the point of transaction. However, if the payer is not at the point of transaction, the risk of fraudulent activities is extremely high [30] Types. 1. Credit card For the credit approach, the charges will be sent to the customer s account. They will then be billed monthly and must to pay for it subsequently. For some credit cards such as Visa, payers can choose to either settle the amount owed in full or in part. If they choose to settle it part by part, they will be charged interest for the amount owed depending on the duration the amount is settled. When a credit card is used to make a purchase, the transaction flow from the merchant to the payee s bank, which subsequently pays the payee after deducting a merchant discount of typically 4-5% [34]. 2. Debit card For the debit approach, a customer must maintain a positive balance in their account so that their account can be debited once a debit transaction is processed. The way debit card works is quite similar to credit card but once a payment is authorized, the amount will be deducted from the payer s account automatically Advantages [35] cited convenience as the key factor in credit cards success although it carries a huge amount of risk. In the later part of the report, this reason will be checked from the results gathered for the questionnaire done on students in Leeds and Malaysia to determine if it is the key factor for students to use credit cards. There is a great anxiety in the mid 1990s that the use of credit card on the Internet would lead to a large amount of fraud. These fears drove banks and software vendors to devise 3 mechanisms to protect web based transaction: Secure Socket Layer (SSL), Secure Electronic Transactions (SET) and Public Key Infrastructure (PKI) [36]. SSL secures the session during which credit card information is sent to the merchant and protects the information from hackers 13

20 on the Internet. However, the transacting parties, the merchant and the consumer must trust each other as SSL does not authenticate either of them. SET uses a randomly generated key to encrypt the card details, which in return are further encrypted using the recipient s public key. It is intended to authenticate the cardholder and merchant s identity. It is currently used by MasterCard and Visa to improve the security of credit card transactions. SET uses a digital certificate, which is an attachment to a message that verifies a sender s identity (see Appendix G). For both these mechanisms to work properly, a PKI should be in place. Whenever dispute occurs between merchants and consumers regarding issues on payments, they can always look at the transaction history. All credit card companies keep a record on all their credit card transactions Disadvantages Some payer prefers to remain anonymous as they do not want their transactions to be traced. However, by using the credit or debit card, they do not have such luxury. Whenever they want to make a payment, the merchant must always verify the consumer s personal information to make sure that the actual holder of the card is using the card to pay. The 3 mechanisms used to protect web based transactions: SSL, SET and PKI have its limitation. SSL has serious problem with consumer protection law as it uses digital signature. SET cost too much and delivered too little [3]. PKI has problems with the interoperability with legacy systems and issues regarding the revoking of digital certificates [30]. When fraud is down one year, the latest fraud spotting system is hailed as a success [37] but when figure go up a few years later, vendors let the matter pass quietly [38]. When a consumer uses a debit or credit card to pay for their goods or services, the merchants need to wait for a few days or a few weeks before they actually receive their payment. In addition, the credit card company charges a transaction fee for every transaction and this decreases the amount of profit the merchant might initially earn Examples Examples of credit cards are Visa ( Mastercard ( American Express ( Examples of debit cards are Switch and Solo and they are offered by all major banks in the UK. 14

21 Merchant 3. Merchant software contact clearing house Clearing house Merchant bank 2. SSL provide secure connection through internet to merchant server 4. Clearing house verifies account and balance with issuing bank 5. Issuing bank credits merchant 1. Consumer makes purchase 6. Monthly statement issued Consumer s card issuing bank Figure 2: Credit card transaction Prospect of debit-credit system The debit-credit system is widely used today [39]. Customers and businesses mainly use this method above others. Examples of the credit cards in use today are Visa, Master and American Express. Many banks in UK today also offers debit cards. For example, a NatWest customer will use the NatWest debit card to debit his account in NatWest. The hype surrounding fraud is overdone. It cannot be denied that fraud does not exist; however, the level of fraud now is not that high. Many banks are concluding that improvement lies with better delivery address verification rather than cryptography [40]. The need for the confirmation of the delivery address when a customer order the goods is vital because nongenuine cardholders can simply purchase a product online using a genuine cardholder s details and get the product to be sent elsewhere instead of the cardholder s address. Although fraud remains the key barrier to customer usage, it is hard to see other electronic payment methods replacing this model as the dominant e-payment methods in the near future Specialized system Characteristics Specialized system consists of electronic cheques and electronic money order. Electronic cheques can be sent using e mail. The cheque is converted to real money by performing an EFT 15

22 bank transfer from payer to payee. The cheque is an instruction to the bank to transfer funds from payer to payee. The similarity of digital cheques with original paper cheques is that it operates within the same legal framework Types 1. Electronic cheque. The payment is settled once the payee receives the cheque through an EFT bank transfer [41]. An example of electronic cheque is echeck. echeck require users to obtain a hardware based electronic cheque book from a bank. The electronic cheque book contains the consumer s digital signature in the form of a private key and the issuing bank s public key. Consumers fill out the electronic cheque and send it out to the merchant over the internet using the software provided with the cheque book. The cheque sent contains the consumer s digital signature, public key and the issuing bank s digital signature [22]. The merchant authenticates the digital signature of the sender and issuing bank using their public keys once the cheque is received. The merchant then deposits the cheque at its bank and a higher level certificate authority certifies the issuing bank s public key. The consumer s bank then transfers funds to the merchant s bank. [42] 2. Electronic money order. The way electronic money order works is slightly different from electronic cheque. Funds are first transferred from the payer to a third party before the cheque is sent to the payee [43]. The cheque will only be sent once it is converted to money by the third party. The third party will then send the cheque to the payee by EFT. By using this method, the possibility of the cheque being bounced; will never occur Advantages The cryptographic signatures on every e-cheque can be verified at all points such as the merchant and issuing bank level [36]. This provides extra security to prevent double spending which is a problem e-money faces as it is only a sequence of numbers that can be easily copied (see Appendix G). This system is designed with message integrity, authentication and nonrepudiation features such as digital signature which is strong enough to prevent fraud against the banks and their customers. It is also compatible with either interactive web transactions or with electronic mail and does not depend on real-time interactions or on third party authorizations [36] Disadvantages 16

23 Consumers must be familiar with using traditional cheque and money order. If not, additional barrier arises because of the complete newness of the solution. Specialized system is also not appropriate for all kinds of payments, for example those that require privacy. There is usually a few days delay before a merchant can receive payment from the bank. This is because the specialized systems such as the electronic cheque and money order need to be cleared by the bank first to prevent double spending [30] Examples The key player for specialized system is the US Federal Reserve. Other examples of electronic cheques are Paypal ( Yahoo PayDirect (paydirect.yahoo.com) and MoneyZap ( Consumer s bank Federal Reserve Bank 5. Federal Reserve Bank certifies public keys of banks. Merchant s bank 1. Consumer obtains e-cheque book from authorized bank 3b. Merchant authenticates issuing bank 2. Consumer issues echeck to pay for purchase 6. Consumer s bank transfers funds to merchant s bank Merchant 4. Merchant authenticates consumer ID Consumer 3a. Merchant authenticates consumer ID Figure 3: How electronic cheque works: echeck Prospect of specialized system The 2 types of specialized system mentioned are only used in the US. There is limited interest in this specialized system from other countries because they prefer to use ACH [8]. This method is used by the Federal Reserve in the US. Although there are benefits using these methods, it is hard to foresee it dislodging the debit-credit system as the dominant e payment method. 17

24 4.1.4 Token scheme Characteristics For this e-payment system, customers need to purchase electronic digital tokens from an issuing company. The tokens can be spent with merchants and stored in digital form and serves as a substitute for cash online. The tokens can be paid by many ways such as using credit cards, debit cards, etc. The payments are settled periodically [8]. Some of the systems allow converting electronic currency back into another form of money but are not easily interchangeable with cash [43]. Passwords and IDs are usually used to authenticate the owner of the tokens. Token schemes and digital currency are similar in many ways. However, the difference is that digital currencies are stored locally [44] Types 1. Credit model The payer will use the tokens first and be billed afterwards. The debt is managed by the token provider. The token provider provides the payer with credit through a customer account. 2. Debit model The payer will buy the token first and then uses it. The credit bought by the payer is managed by the token provider Advantages Token schemes are mostly used for micro-payments [45]. They satisfy this particular niche well as other e-payment methods are too expensive and are not suited to be used for micropayments. For example, if a merchant sells a pair of scissors on ebay for 1.00, it makes no sense to pay with a credit card as the credit card company will charge the merchant a 2-3% transaction fee. Since token schemes are usually used for transaction values are relatively low, the risk of fraud is low Disadvantages There is a selection problem for payers on which type of token scheme to choose. The reason for this is because there are a lot of token schemes but with few standards. This means that there are lots of varieties and there is no clear choice for customer to choose. The token issuer also manages the technology systems and this causes the schemes to be not interchangeable [8]. 18

25 Examples Millicent ( Clickshare ( CyberGold ( Qpass ( Prospects for token schemes. Token schemes are best suited for niche markets such as information commerce. Token schemes are also used for micro-payments where other payment mechanisms are too expensive. Examples of token schemes are MiliCent and CyberGold. Token schemes prospect for the future may still lie within the niche markets. It is hard to foresee it challenging other e-payment method in a huge way B2B payment systems Characteristics B2B payment systems are complex because a dozen or more documents may be needed to accomplish the transactions such as purchase order, invoice, etc. The systems must also link with existing Enterprise Resource Planning Systems (ERP) that integrates the corporate data into EDI systems, which replaces paper-based purchase orders with electronic purchases [22]. B2B payments generally comprises of a large transaction size. Buyers may pay with credit card, debit card, Automatic Clearing House cheque or Electronic Funds Transfer. Credit and debit card will be omitted from this model because the process is different Types 1. Electronic Funds Transfer EFT payments or wire transfers as they are more widely known are usually used for transfers of large value transactions and thus are suitable for B2B payments. It can be made in real time by a point to point transfer of funds or Real Time Gross Settlement (RTGS). This is typically used for large or urgent transfers [46]. 2. Automatic Clearing House The Automated Clearing House is a secure, private e-payment transfer system that connects banks to one another. Direct pay cheque deposits and debit card purchases are two examples of electronic fund transfers that go through this network. [47] Other e-payment methods such as credit card have limits which are typically too low for most businesses especially when used to finance expensive items such as industrial equipments. Wire transfers differ from ACH payments in several important ways. For instance, ACH payments are processed in batches, so a 19

26 transaction can take a day or two to be completed. Wire transfers, on the other hand, take place immediately. ACH payments can be repudiated as there's a window of time in which a consumer or business can decide to cancel the payment. Wire transfers can't be cancelled. There also isn't any guarantee that an ACH payment won't bounce in the event that there isn't enough money in an account to cover it but wire transfers are guaranteed Advantages Wire transfers and ACH system is a low-cost way of moving money for corporations compared to other alternatives such as the credit card which involves a lot of for processing, transaction, etc. In addition, these B2B payment systems have value-added services like digital signatures, guarantees of payment and online validation to improve the security level [48] Disadvantages The B2B payment systems don t transmit a lot of information along with the money [45]. Although it isn't a huge concern for individual consumers who only need to know where the money went to, corporations using e-payments for business-to-business transactions usually need more information. They need more information such as what account it needs to be charged to internally, whether there was an invoice and whether the account was paid in full in addition to where the money went. The ACH system involves an element of risk and uncertainty between buyer and seller because of the delay in transferring the money from buyer to seller. The disadvantage of wire transfer systems is that it suffers from expensive operating costs [49] Examples FinancialSettlementMatrix.com ( is formed by many large banks including Wells Fargo and Citigroup plus technology companies such as S1. Actrade( serves as an international marketplace intermediary in the payment process by paying foreign sellers immediately and allowing domestic buyers a variable time for repayment. Other example of companies that offer B2B payment systems are TradeCard( erevenue( efinance( and Orbian( 20

27 Cheque writer 2. Cheque writer authorizes merchant Merchant 1. Makes funds available and respond to statement 5. ACH operator distributes ACH file to cheque writer s bank ACH 4. Sorts and transmits file to ACH operator 3. Forwards transaction data Cheque writer s bank Merchant s ACH processing bank Figure 4: How ACH works Prospect for B2B payment system B2B on the Internet is contributing to the growth of financial EDI and ACH because payments still need to be made, no matter how the transaction is originated. According to [8], 17% of business-to-business payments were made electronically in 1999 while the rest still involve paper cheques or paper money orders. Of the transactions that were conducted electronically, 33% are ACH payments and 39% are wire transfers. The prediction is that more B2B payments will be made using electronically as there is potential that technology based authentication could reduce costs and process delay. In the future, it might be possible that banks can be linked globally which might allow for immediate intra-bank transfer. 4.2 Failure of e payment method One of the factors that drive the creation of various e-payment methods is that most traditional way of paying does not work well over the internet. The failure of e-payment method is not solely judged on the customer side. For merchants, an e-payment method will also meet with low acceptance if its transaction costs and the fraudulent activities are high. Ideally, an e- payment method should satisfy both the customer and merchants [50]. If that requirement is not satisfied, then an e-payment method is doomed to fail. 21

28 The most high profile e payment method failure is the Chipknip and Chipper system. The Chipknip and Chipper system originates from the Netherlands and is a smart card based system. It falls into the category of the digital currency e-payment system. These systems were originally created with the intention just to provide another alternative to e-payment. Although the idea of a smart card sounds appealing, it doesn t manage to garner much acceptance from mass customers. According to the operator of the Chipknip system, Interpay, only one third of the 15 million Chipknip cards was loaded with money. Finally, it was closed down in 2001 [51]. This shows that in order for an e-payment method to succeed, the acceptance by customers and merchants are important. Nevertheless, the acceptance by customers is more important than the merchant s. This is because if the customers do not choose to pay with that method, there is no reason for the merchant to use that system because of the high cost. Convenience can be another factor for the success of e-payment systems [35]. Convenience is the key to the success of the debit-credit system. All customers need to do is just enter their details and their account will be debited or credited. This method is generally easier to use as customers need not go out and reload their smart cards when their credit is running low. Although fraud is a major risk associated with using the debit-credit system, the convenience of using it far outweighs the risk. Therefore, an e-payment which is not convenient to use, will not appeal to the mass customer group. An e-payment method that is complex to use will also be ignored by customers [49]. As mentioned, when customers reject the system, merchant will generally follow suit. E-payment systems that require new hardware or software will not catch on with customers. As new hardware or software requires customers to learn how to use it, most of them will shy away from the system. Another reason for the failure of e-payment methods is that it is too complex for both the consumers and merchants [47]. An example of e-payment method that fails because of this reason is DigiCash. For example, to use DigiCash, a consumer had to first establish an account at a bank using the DigiCash system and then download the digital wallet software onto his computer s hard drive. The consumer can then request a transfer of digital cash and could spend that cash at merchants who were willing to accept it. The amount will is then deducted from the digital wallet by the software and transferred to the merchant. The merchant will then transfer the cash back to the bank to confirm that it had not been double spent. The bank finally credits the merchant s account at the bank. Although the technology for some e-payment system may be cutting edge, most customers will not use it unless it is easy to use, convenient and fairly reliable. 22

29 Chapter Objectives of questionnaire A questionnaire survey was conducted to evaluate Malaysian and Leeds students attitudes and responses towards electronic payment methods. Another reason for conducting the survey is because there is a lack of information regarding this issue. The main objectives of conducting the questionnaire survey are: To compare Malaysian and Leeds students level of acceptance of electronic payment methods. To find out if gender have any effect on performing online transactions. To find out which type of electronic payment methods they prefer to use. To find out the reason why they chose to use the specific electronic payment methods. To find out how satisfied they are with using those electronic payment methods. To find out the maximum amount they are willing to spend using electronic payment methods. 5.2 Participants The participants for this survey are students from Leeds and Malaysia. The students surveyed were limited to those pursuing a degree because there is difficulty obtaining results from Leeds students with other qualification level. Therefore, the participants of the questionnaires were 24 students from Leeds and 35 students from Malaysia. 14 of the Leeds students surveyed were males while the remaining are females. Out of the 35 Malaysian students surveyed, 20 students were males while 15 were females. The numbers of participants along with their gender are as follow: Gender and number of student surveyed 25 Number of students Male Fem ale Leeds student Malaysian student Gender Figure 5 23

30 5.3 Procedures The set of questionnaire for Malaysian and Leeds students were electronically distributed to people known to the author. The recipients of that batch of questionnaires were then asked to help forward the questionnaire to other students so that more results can be obtained and so that it is possible to sample a relatively large number of people with different responses. The procedure for forwarding the questionnaires out to Malaysian and Leeds students did introduce some kind of bias but at least it is consistent within the two areas which make it possible to evaluate the results accordingly. 5.4 Materials The set of questionnaire used in the study is provided in Appendix 2. A brief explanation of the study was included in the set of questionnaire so the participants will understand the reason for conducting the questionnaire. A closed ended type of questionnaire was chosen so the results can be easily evaluated. Another reason for choosing a closed ended type of questionnaire is to enable the participants to easily identify the most suitable answer. If the answer that the participants were looking for was not included in the questionnaire, a space is provided for them to include their own answers. A different set of questionnaire was developed for Malaysian and Leeds students because of a question involving different type of currencies. The Malaysian students use Ringgit while the Leeds students use Pound Sterling. [52] was used as a guide to produce a suitable questionnaire and advice was also sought from the project supervisor. 5.5 Results The complete set of results from the questionnaire is presented in a tabular form in Appendix H. Each participant is given a unique number which allowed their answers to specific questions to be cross referenced. From the table of results, a number of trends in the data can be identified, such as whether a particular group who is more educated is willing to use electronic payment methods, etc. For this section, it might be necessary to refer to the complete set of results in Appendix H because it is difficult to show the complete results in figures Does gender have an effect on performing online transactions? 24

31 By cross referencing the results from question 1 and 2 from section 1, it is possible to find out whether the respondent s gender has any influence on whether they perform any online transactions. Does gender have an effect on performing online transactions? Number of students Male Female Leeds student Malaysian student Gender Figure 6 By looking at figure 6, it shows that 91.6% of Leeds students performed online transactions. Out of the 22 Leeds students that perform online transactions, 14 were male while 8 were females. For Malaysian students, only a relatively low 17.1% perform online transactions. All 6 of them were males. This result suggests that the number of males that perform online transactions were more than females in both places. For those Leeds students who perform online transactions, all of them either purchase a product, pay for a service or pay bills. However, the 6 Malaysian students only made online purchases. 9 out of 22 of the Leeds students have experienced performing more than one type of online transactions. All of them were males. None of the Malaysian students have experience in performing more than one type of online transactions. This result suggests that online transactions might have a stronger effect on males than females and most uses e-payment to purchase products online. 25

32 Which e-payment methods did the students use? Which e-payment methods did the students use? Number of students Credit card Debit card Paypal E-payment methods Leeds student Malaysian student Figure 7 The figure above shows that most of the students from Leeds chose to use credit card as the payment method. All 6 of the Malaysian students also chose credit card. This shows that credit card is the most popular choice among students from Leeds and Malaysia. Out of the 16 Leeds students who chose to use credit card, 94% of them states convenience as the main reason for choosing it. 5 out of 6 Malaysian students who chose credit card also chose convenience as the main reason for using it. The remaining one chose credit card because there is no other methods available that the payer knows how to use. The user also state that another factor for choosing credit card is because debit card is not introduced in Malaysia yet. This reason might explain why no Malaysian students chose debit card as their chosen method. Another interesting result is that all of the Leeds and Malaysian students were either satisfied or very satisfied with the electronic payment methods they chose to use and none of them had any bad experience using the payment methods. This might explain why none of them chose to use more than one electronic payment method. However, 14% of those Leeds students and 33% of the Malaysian students were hesitant in using electronic payment methods again in the future. This seems strange as all of the users were satisfied with using e-payment systems. A few reasons could be used to explain the students resistance in using e-payment again such as they prefer paying offline or they do not intend or need to purchase items or pay bills online What is the maximum amount of money the students are willing to spend using e-payment methods? 26

33 Leeds student Malaysian student Number of students >1000 Number of students >1000 Amount in Amount in RM Figure 8 Figure 9 Although the currency exchange rate fluctuates frequently, for the purpose of this project, the exchange rate of 1.00 will be set at RM7.00. This currency exchange rate is correct as of 7th February The classification of the transaction size will be included in Appendix E. From both the figures above, it is clear that a large percentage of both Leeds and Malaysian students are only willing to spend a maximum of and RM50.00 respectively although the pound sterling is stronger than the Malaysian currency. No students from both places are willing to spend more than or RM It is not wise to conclude that Leeds students are willing to spend 7 times as much as Malaysian students just by looking at the exchange rate because products and services in UK and Malaysia are both priced almost similarly. The key difference is that the pound sterling is much stronger than the ringgit. Therefore, this indicates that most students from Leeds and Malaysia feel 50 is the maximum amount they are willing to spend using e-payment methods regardless of the currency they use. Some might even spend up to 100 using e-payment methods. When 50 ringgit is converted to pounds, it is approximately 7.14, which is a relatively small amount and therefore it can be suggested that Malaysian students either uses e- payment to pay for relatively low priced items from international websites such as ebay or they purchase items from local websites Why students do not perform online transactions? 27

34 Why students do not perform online transactions? Number of students Afraid of fraudulent activities No trust in security of e payment methods Prefer paying offline Slow internet access speed Do not know how to use e payment methods Others Leeds student Malaysian student Reasons Figure 10 A large number of Malaysian students that were surveyed do not use e-payment methods as they have never performed electronic transactions. Their major reason for not performing online transactions is that they have no trust in the security of e-payment methods. There might be a number of reason for them not trusting e-payment methods. For example, they might not understand how e-payment works and its security protocol or they might have heard news of fraudulent activities from others. Although 91.7% of the Leeds students surveyed had performed online transactions before, the remaining 8.3% states that they are afraid of fraudulent activities as their reason for not performing online transactions. This might indicate that the most worrying factor that influences Malaysian and Leeds students to not use e-payment methods are they have no trust in the security of e-payment methods and the fear of fraudulent activities respectively. Both this reasons somehow overlap as they are both related to the security of e-payment methods. Therefore, it might be possible to say that the major reason for the students to not use e-payment methods is down to security issues. 5.6 Objectives of interview An interview was conducted with the Vice President of Citigroup Malaysia via telephone to gather more information on the electronic commerce industry in Malaysia. Another reason for conducting the interview is because Citigroup Malaysia has conducted a survey on the state of e-commerce activities within the Malaysian market. The survey is vital for this project because a part of it focuses on Malaysian students online spending habits. The main objectives for conducting the interview are: To gather information on the state of electronic commerce activities in Malaysia. 28

35 To gather information on Malaysian students usage of electronic payment methods in Malaysia. To understand the methods banks uses to safeguard electronic transactions. To find out the problems which Citigroup faces in regard to electronic payments. A transcript of the interview is provided in Appendix I. 5.7 Discussion The results from the questionnaire and interview could not be tested statistically for its significance due to the small sample size. Although not statistically tested, the results obtained from the questionnaire and interview both suggests that male students from Malaysia tend to use e-payment more than the females. The questionnaire survey conducted on Leeds students also shows a stronger effect of e-payment on males. Therefore, although it is not possible to conclude that male students generally uses e-payment more than females, the results gathered clearly indicates that e-payment have a stronger effect on male students from Leeds and Malaysia. [10] indicated that Asian countries lag behind others in terms of online shoppers and the results from the questionnaire suggest that [10] might be right. [35] stated that the success of the credit card as the major e-payment method is attributed to its convenience of use. The results of the questionnaire also clearly indicated the extensive usage of credit cards over other e-payment methods. The majority of students also stated convenience as the key factor for using credit cards. Although the interview result also mentioned the use of credit card as the most dominant e-payment method in Malaysia, only 4% of card holders are below 25 years old and most students fall into the category of under 25 years of age. Even though there is still not enough concrete evidence to suggest that the assumptions are true, the results gathered does show that it is highly likely that credit card is the most widely used e-payment method(at least in terms of students usage) and it is used because of its convenience. From the questionnaire survey, Leeds students clearly outnumbered Malaysian students in terms of the number of online shoppers. Although the sample size is relatively small and is thus hard to determine its significance, the results does somehow align closely with [10] as Leeds students outnumber Malaysian students in terms of online shopper with a ratio of 11:3. The vice president of Citigroup Malaysia also expressed that the Malaysian e- commerce market is still relatively small if compared to other European countries. Both the questionnaire and interview results show that the most significant reason as to why so many Malaysian students do not use e-payment is because they have concern for the security of e- 29

36 payment systems. There may be a number of reasons for this such as the increasing level of fraudulent activities in recent years [53], the lack of understanding of e-payment systems [54] and the fear of disclosing personal information online [55]. Therefore, to increase the number of online shoppers, the problems concerning the consumers concern for the security of e-payment systems must be solved. Merchants and banks should work together to increase the effort to educate consumers of the security implications of e-payment systems and devise a way to minimize the level of fraudulent activities. Chapter 6: Evaluation 6.1 Evaluation results 1. Achieve the aims, objectives and minimum requirements. The minimum requirements of the project have all been achieved and in some cases even exceeded. A classification of various electronic payment methods has been developed in Chapter 3 and each were discussed and analyzed in terms of its strengths and weaknesses. The reasons for certain electronic payment failures have also been discussed. In addition, a questionnaire survey was conducted to find out the attitudes of Leeds and Malaysian students towards electronic payment methods. 2. Achieve the possible improvements. Not much possible improvements have been achieved due to numerous factors such as page limit constraint and lack of time. Among the issues that should have been touched on include the security of electronic payment, electronic markets, the elements of e commerce and etc. Nevertheless, the author has conducted an interview with the Vice President of Citigroup Malaysia to obtain useful data that can be used to further understand the extent of e-payment usage in Malaysia. The data obtained are also compared with the results obtained from the questionnaire so that the results will be more reliable. 3. Fully understand electronic payment methods. E-payment methods are a very tricky area and are not easy to be understood fully. The author has analyzed numerous credible resources but felt more credible resources should be looked at. However due to time constraint and other work commitments, it is hard to search for more up to date and credible resources. Nevertheless, a classification method of electronic payment methods was produced to show the different types of systems and their characteristics based on the author s knowledge acquired from the background research. The classification 30

37 scheme may not be perfect but it incorporates more or less all the different types of electronic payment methods. 4. Identify failure reasons of failed electronic payment method. By successfully developing a classification of various electronic payment methods, and analyzing them in terms of its advantages and disadvantages, it is therefore possible to point out the reasons why some electronic payment methods fail. The reasons were also supported by the background research done by the author. The various factors for e-payment failure were discussed in Section 4.2. The factors that were discussed may not be the only factors as there may be many other indirect factors that lead to the failure of e-payment systems and it is difficult to determine the exact reason(s) why such systems fail. Therefore, a questionnaire was developed to help identify the real reason why Leeds and Malaysian students do not use electronic payment methods. 5. Conduct a good survey. The response rate for the questionnaire survey by Malaysian students was quite good but it could have been better. In contrast, the response rate obtained from Leeds students was quite disappointing. Many reasons could be used to explain it but the most significant one is the author was still new to the country. Ideally, more questions relating to the topic could be asked in the questionnaire but it is highly unlikely the respondents will favor completing a longer questionnaire, thus resulting in a lower response rate. Most importantly, several interesting points were successfully identified from the questionnaire such as male students were found to use electronic payment methods more than female students. The distribution of the questionnaire to Malaysian and Leeds students were biased as they were distributed to students known to the author. The results of the questionnaire would have been more reliable if the questionnaire was randomly distributed. However, it was not possible due to the author not being in Malaysia and the questionnaire was distributed during the Christmas holidays in Leeds. The author needs to distribute the questionnaire in person in order to obtain random samples. This is too time consuming and might result in lower response rate as students might not be interested in completing the questionnaire. 6. Conduct a good interview. The interview conducted with the Vice President of Citigroup Malaysia was helpful because Citigroup Malaysia conducted a research on Malaysian consumer s attitudes towards 31

38 electronic payments in The information gathered is helpful in helping to support or contradict the results gathered from the questionnaire survey. More questions such as the number of fraud cases the bank encounter were asked but were not answered due to the bank wanting to keep some issues private. Therefore, the interview results could have been more successful if more questions were answered. 7. Assess attitudes of students towards electronic payment. The questionnaire results were analyzed well but could be better. The sample size was too small. Therefore the results were not able to be tested using statistical hypothesis testing for their significance. Nevertheless, both the results were compared to give a broader view on Malaysian and Leeds students attitudes towards electronic payment. The results gathered from the questionnaire and interview did not differ much and thus, the attitudes of the students could be measured quite successfully. The conclusions were discussed in Section Manage the project well. The project progressed quite smoothly. Most of the milestones were done according to schedule except for some tasks which were delayed due to exams and other module workloads. Overall, the project managed to be completed on time and thus, can be considered a success. 9. Write a good report. The written report could be written much better if the author has more experience. Although structured fairly well, it is fairly hard to incorporate all the information gathered from the background reading into the main body of the report. Much information cannot also be included in the body of the report because of the page limit constraints for a 20 credit project. However, the written report can be considered high in readability as all the sections were well defined. 10. Overall success of the project. This project may not have exceeded much of its minimum requirements but can be considered a decent piece of work for a 20 credit project. There are still many enhancements and further investigations in the area that could be made. The project was managed quite well and managed to be completed on time. The questionnaires and interview results were also analyzed quite decently. Therefore, it can be said that although the project might not a complete success, it can still be considered a decent piece of work. 32

39 6.2 Future improvements and enhancement Due to the project s relatively short length, it has not been possible to validate the models developed in this project. There are a number of possible ways that this project could be extended and improved in the future: Extending the research by comparing the extent of e-payment usage of Leeds and Malaysian students with students from other countries with a larger sample size. Producing a case study testing of selected commercial e-payment solutions using the Electronic Payment Methods classification scheme developed in Chapter 4 to better understand the benefits of using the business-to-consumer electronic payment methods and the value it provides to consumers. Producing a case study testing of selected commercial e-payment solutions using the Electronic Payment Methods classification scheme developed in Chapter 4 to better understand the benefits of using the business-to-business electronic payment system and the value it provides to business transactions. Consultation with e-market consultants, merchants, and online companies such as ebay to better understand the requirements for a safe and secure electronic marketplace and the security measurements taken to prevent fraudulent activities. Further refine the classification model to include any electronic payment methods that were omitted and provide more examples on how specific methods work in the business environment. Comparison of business-to-business and business-to-consumer electronic payment methods to distinguish its characteristics in more detail. 6.3 Conclusion In this report, 5 types of e-payment methods were categorized. They are digital currency, credit-debit system, specialized system, the token scheme and B2B e-payment systems. The various e-payment methods have different characteristics which make them suitable to meeting different requirements. Most of the e-payment methods categorized in this report have some kind of relation to the usage of debit or credit card. To be able to use the e-payment methods, the payer might need to possess either a debit or credit card. For example, in order to use digital currency, the payer can pay for the credits using credit or debit card. The same applies to token schemes where token can also be purchased using debit or credit cards. Another example can be explained using Paypal, which is a type of specialized system. In order for a customer to use Paypal, they need to set up an account by entering their debit or credit card details. When they 33

40 pay for the purchase of an item using Paypal, either their credit cards will be charged or their account will be debited if they use debit cards. Therefore, a payer might need to possess either or debit card before they are able to use other e-payment methods. Credit card looks set to remain as the most dominant B2C e-payment method for years to come. Convenience has always been a key factor for its usage as supported by the results gathered from the questionnaire and interview. Traders and customers were found to be not tempted by the benefits offered by the digital currency e-payment method. There is also limited interest in the specialized system from other countries besides the US and specialized system is mainly used for B2B transactions. Token schemes are mainly used for micro-payments. B2B payment system involves a large transaction size and thus is not suitable for B2C transactions. Not all e-payment methods were successfully accepted by merchants and customers. The most high profile e-payment method failure was the digital currency. The most important reason for its failure is the low acceptance by users which in turn affects the acceptance of merchants. There is no reason for merchants to implement the system when customers don t use it. Lack of convenience is another factor for the failure of e-payment methods. Some type digital currency e-payment system such as DigiCash requires customers to perform numerous tasks before being able to use the digital currency. Security is also important as generally most customers are afraid of fraudulent activities. Some digital currency also requires customers to possess new hardware such as smart card readers which might be too expensive and complex to use. Therefore, e-payment systems can fail if it is not widely used by customers, not convenient, not secure or too complex to use. From the results obtained from the questionnaire, it can be seen that students from Malaysia and Leeds do use e-payment methods to pay for online purchases and online billing. Although the sample size of the questionnaire is not large enough to prove anything, it does suggest that Leeds students use e-payment more than Malaysian students. Males were also found to use e-payment more than females in both areas. After reviewing the different e-payment systems, it is clear that every e-payment system does have its own benefits and problems. For students, the most suitable e-payment systems to use to date remain the credit-debit systems because of its convenience. Many banks nowadays offer student credit cards and debit cards and thus help promote the usage of such system. Credit and debit cards are much easier to use compared to other e-payment methods. Unless an e-payment system that is radically much better and more convenient to use than the credit and debit cards, it is hard to see students choosing to use any other e-payment methods. The majority of students who do not use e-payment methods currently state their reason as not trusting the security of e-payment systems. Therefore, to 34

41 increase the students usage rate of e-payment methods, banks and merchants must play a part in educating potential users of the security implications of the systems and provide some form of guarantee that the e-payment systems are safe. Although the availability of the different types of the credit and debit system varies between geographical locations, it still offers the most effective e-payment solution to students because they generally use it for low value payments. For Leeds students, credit or debit card could be used but for Malaysian students, only credit card is available. The effectiveness of the credit card will benefit greatly from the adoption of encryption tools such as SET and SSL which will enable a more reliable authentication to further support higher value transactions. 35

42 7. Bibliography [1] Majhi B, Panda G, Dash P K (2000) Electronic money: An essence of e-commerce, IETE Technical Review, Vol. 17, no. 4, pp [2] Whyte B, (2001) Enabling ebusiness : integrating technologies, architectures and applications, John Wiley, New York. [3] Anderson R, (2001) Security engineering : a guide to building dependable distributed systems, Chichester : John Wiley. [4] Caminer D, Aris J, Hermon P & Land, F, (1997), L.E.O.: The Incredible Story of the World s First Business Computer, McGraw-Hill. [5] Greiner L, ( December 1999) Electronic Funds Transfer, Faulkner Information Services. [6] Maingot M & Quon T, (2001) A survey of electronic data interchange (EDI) in the top public companies in Canada, INFOR Journal, v 39, n 3, pp [7] Electronic Payments Website, URL: [30th October 2003]. [8] Johnson O, (1999) e-payment Options in Electronic Marketplaces, MSc Information Systems Dissertation, Leeds University. [9] ActivMedia, (2002) Online Transaction Sales, URL: [23rd October 2003] [10] Taylor Nielsen Sofres Interactive, Online Shopping Patterns in Terms of Internet Penetration, (2003) URL: [23rd October 2003]. [11] Bancboston, Robertson, Stephens, Spending on E Commerce Payment Systems, (2003) URL: [23rd October 2003]. [12] The Nilson Report, Payment System in US, (2000) URL: [23rd October 2003] [13] Ernst & Young, American Express, (2003) Cost of Traditional vs Online Purchasing Processes, URL: [23rd October 2003]. [14] Tsuji H, (2002) Present state and trend of electronic commerce, Proceedings of the School of Information Technology and Electronics, Tokai University, vol. 2, no. 1, pp

43 [15] Huberman M & Miles M, (2002) The qualitative researcher's companion, Sage Publications. [16] Havinga P, Smit G & Helme A, (1995) Survey of electronic payment methods and systems, URL: [10th November 2003] [17] Wayner P, (1997) Digital cash: Commerce on the net, 2nd edition, AP Professional. [18] Clarke R, (1998) Introduction to electronic payment mechanisms, URL: [10th November 2003] [19] Lawrence E, Corbitt B Tidwell A, Fisher J & Lawrence J, (1998) Internet Commerce: Digital Models for Business, Queensland: Wisley. [20] Weisman E, Trevino B & Sweet R, (1996) Payments on the Web, Forrester Research. [21] Sapsford J, (2000) PayPal Sees Torrid Growth With Money-Sending Service, The Wall Street Journal. [22] Laudon C & Traver C, (2002) E-commerce: Business, Technology, Society, Addison- Wesley. [23] Frankel Y (2000) Electronic payment technologies, 7th ACM Conference on Computer Communications Security, Athens, Greece. [24] Stoklosa J (1998) Cryptography and electronic payment systems, INF, Vol. 22, no. 1, pp [25] Alexandris, N; Burmester, M; Chrissikopoulos, V; Desmedt, Y, (2000) Secure linking of customers, merchants and banks in electronic commerce, FUTURE GENER COMPUT SYST, Vol. 16, no. 4, pp [26] Treese W & Stewart C, (1998) Designing Systems for Internet Commerce, Massachusetts: Addison Wesley Longman. [27] Earl M & Ives B, (1997) Mondex International: Reengineering Money, London Business School. [28] Panurach P (1996) Money in electronic commerce: digital cash, electronic fund transfer, and ecash, Communications of the ACM, vol. 39, no. 6, pp [29] META Group, (April 2000) E-Payment State of the Market and Future Trends, META Group Inc., Stamford. [30] Skevington P J(1998) From security to trust - creating confidence to trade electronically, IEE Colloquium (Digest), v 460, 1998, p 6/1-6/6. [31] van Hove L, (2000) Electronic Purses: Which way to go? URL: [10 th November 2003]. [32] Forrester, (February 1999) Anatomy of New Market Models, Forrester Research. 37

44 [33]Putland P A, Ward C, Jackson A, Trollope C, (1999) Electronic payment systems, BT Technology Journal, v 17, n 3, p [34] Longman T R, Roberts T (2002) Creating a successful payment architecture, IEE Conference Publication, n 489, p [35] National Consumer Council, (August 2000) e-commerce and Consumer Protection: Consumers Real Needs in a Virtual World, National Consumer Council, UK. [36] Kolokotronis M, (2002) An integrated approach for securing electronic transactions over the Web, Benchmarking, v 9, n 2, p [37] Austin D, (1994) Barclays Winning Card Fraud War, Banking Technology, pp. 5. [38] Plastic card frauds rises in the UK, Smart Card News, v 6 no 3, pp. 45. [39] Sivaradje G,Dananjayan P, Saraswady D, (2000) Characteristics of electronic payment schemes - prospects for the future, IETE Technical Review, Vol. 17, no. 4, pp [40] D Austin, Flood warnings, in Banking Technology (Jul-Aug 1999), pp [41] Neuman B C, (1995) Requirements for network payment: the NetCheque TM perspective, Digest of Papers - COMPCON - IEEE Computer Society International Conference, p [42] Chandran M (2003) Electronic Cheque The Emerging Payment System, URL: [15 December 2003] [43] Medvinsky G & Neuman C, (1993) Netcash: A design for practical electronic currency on the internet, Proceedings of first ACM Conference on Computer and communication security, p.p [44] Wright D, (2002) Comparative evaluation of electronic payment systems, INFOR Journal, v 40, n 1, p [45] Yu H C; Hsi K H; Kuo P J, (2002) Electronic payment systems: An analysis and comparison of types, Technology in Society, v 24, n 3, p [46] Whiteley D (2000) e-commerce Strategy, Technologies and Applications, McGraw-Hill. [47] Trombly M (2001) Automated Clearing House URL: ml [15 December 2003] [48] Abrazhevich D, (2001) Classification and Characteristics of Electronic Payment Systems, URL: November 2003] [49] Stoller S D, (2001) A bound on attacks on payment protocols, PROC SYMP LOGIC COMPUT SCI, pp

45 [50] Libbenga J, (2001) Fallen Chipper marks a new start, Automatisering Gids No. 10. [51] Lawack V A., (1998) Electronic payment via the Internet in the Netherlands, EDI Law Review, v 5, n 1-2, pp [52] Dyer, C., (1995) The survey method, Beginning Research in Psychology, Blackwell. pp [53] McCubbin N, (2003) Internet scams, Pulp and Paper Canada, v 104, n 7, pp. 61 [54] Kuo L C, Lee H, Mayer B W (2001) The impact of security control on business-to-consumer electronic commerce, Human Systems Management, v 20, n 2, pp [55] Spiekermann S, Grossklags J, Berendt B (2001) E-privacy in 2nd generation E-commerce: Privacy preferences versus actual behaviour, Proceedings of the ACM Conference on Electronic Commerce, pp

46 8.1 Appendix A Personal Reflection This project was the largest project that I have undertaken, and thus have taught me a number of important lessons. It is also important for me to reflect what I am learnt by doing the project and what makes it valuable to me so it is worth investing time and effort in it. I believe these lessons are important for any final year student from the School of Computing who must carry out a project of similar size: 1. Choose the correct project The main reasons for me choosing this project is because of my interest in electronic payment. By choosing a topic that interests me, I never lost the motivation to do my work. I have also chosen this project after taking into account my ability to do other topics. As I know I am not that proficient in programming, I have decided to do a report based project as I feel even if I have attempted it; I would not have done well. I have also got very valuable advice and guidance from my project supervisors as he is very knowledgeable in the area of e-commerce. 2. Anticipate the workload of each semester As this was my first year in the university, I had no prior experience in choosing modules and anticipating workloads from the modules. As a Joint Honours student, I have chosen a credit module split for my computing subjects over the 2 semesters. If given another chance, I wouldn t have chosen it because the Business subjects I have were worth 60 credits and run throughout the year. Thus, I was kept busy with heavier workloads in semester 2 compared to semester Emphasize on the need for planning Planning is an important part of my project management, and therefore is important to include a plan for completing the project so my time can be organized better. It is useful to allocate extra time in case something goes wrong in the report or the progress is delayed. By allocating extra time, there will be sufficient time for me to fall back on in case I need it. However, I am lucky I did not encounter significant delays in my project process. 4. Start early and aim to finish early 40

47 Although it took me a long time to understand the concepts behind my project title, I managed to complete my project quite early. In my project management plan, I aimed devised a plan to start my projects early and complete it as soon as possible because I anticipate a huge workload for me in Semester 2. Once the objectives and minimum requirements were set, I was able to filter out less relevant research material so more time can be saved. I tried working on my project as much as possible in Semester 1 so can finish it early and have some extra time in case amendments need to be done. Weekly discussions with my project supervisor who knew the problem domain were invaluable in helping me keep on track with my project. 5. Record any process as it happens This means recording the steps taken and decisions made during the project so that everything can be written easily when it is time to write it up. I followed this technique so it was not really a struggle to remember exactly how some of my decisions and actions came about. 6. Early Formulation of a Solution The time taken to perform effective evaluations and validate solutions should not be underestimated. Findings or conclusions that are not sufficiently validated are of limited value and bring the project into question 7. Leave plenty of time for the write up I found that it took a lot longer than expected to write the final report. This was due to the difficulties of writing in the required third person style and in concise, non-ambiguous language. Sometimes I underestimated the time I need to write up the report and therefore had problems keeping with the schedule. Nevertheless, I still managed to write up the report quite fast as I started to write draft chapters as I did my background reading. 41

48 8.2 Appendix B Revised project management chart. Activity Oct Nov Dec Jan Feb Mar Apr May A B C D E F G H J K L M N O P Q R S T U V W X Activity A. Submit project preference form B. Develop minimum aim and requirement C. Submit project aim and minimum requirement form D. Develop project schedule E. Develop evaluation plan F. Decide research method 42

49 G. Background reading H. Analysis of background reading J. Reviewing and categorising electronic payment methods K. Analyzing electronic payment methods in terms of its advantages and disadvantages L. Submit mid project report M. Review mid project report comments. N. Develop questionnaire O. Send out questionnaire P. Conduct interview Q. Analyse interview results R. Analysis of questionnaire results S. Comparison of interview vs questionnaire results vs background reading T. Submit table of contents and draft chapter U. Writing up report V. Evaluating success of project W. Re-checking overall aspects of project X. Submit project report 43

50 8.3 Appendix C Review of mid project report comments 1. More specific work on actual payment methods: The classification framework produced analyzed the various e-payment methods in terms of its characteristics, type, advantages, disadvantages, examples and prospects for the future. The various e-payment methods were explained and its features are included in Appendix F. 2. Project plan is confusing by having a separate milestone and does not include tasks which will lead to the completion of several objectives. The project plan and its milestones were combined and the tasks which lead to the completion of the objectives which were initially omitted were included. 3. Producing process models showing components of different e-payment models and how they work with examples. A process diagram was drawn for each of the e-payment systems such as digital currency, creditdebit systems, specialized systems and B2B systems. The diagram shows an example of the type of such e-payment methods and describes how it works. 4. More technical discussion of the underlying technology based on modules such as IN23 and IS34. The technologies suggested were not directly relevant to this project and therefore was not discussed. It is also quite difficult to discuss the underlying technology of e-payment based on modules such as IN23 and IS34 because the author have not done any of the modules before and therefore is not familiar with the module contents. 44

51 8.4 Appendix D Evaluation criteria. The evaluation criteria were developed at the beginning of the project so the project can be easily assessed. The key success factors along with its justification are as follows: 1. Achieve the aims, objectives and minimum requirements. Without meeting the aims, objectives and minimum requirements, the project would not be worthy of a pass mark for a 20-credit project. 2. Achieve the possible improvements. This is necessary to achieve a good mark for the project. 3. Fully understand electronic payment methods. It is important for the author to understand the various electronic payment methods because the entire project is based on it. If the author does not fully understand electronic payment methods, there is no point doing the project as nothing will be learnt and no problems can be solved. 4. Identify failure reasons of failed electronic payment method. This is important because it is part of the minimum requirements. Without identifying the reasons of failed reasons, the project will not be worthy of a pass mark. 5. Conduct a good survey. Conducting a good survey is important so relevant and useful information can be obtained from Leeds and Malaysian students in order to evaluate their attitudes towards electronic payment methods. 6. Conduct a good interview. Conducting a good interview is important so relevant and useful information can be obtained from the vice president of Citigroup in Malaysia in order to understand the extent of usage of electronic payment methods in Malaysia. 7. Assess attitudes of students towards electronic payment. This is important so that the author can compare the levels of electronic payment usage of students in Leeds and Malaysia and then determine if they actually use electronic payment. 8. Manage the project well. It is important to manage the project well so that the project can be successfully completed on time. 9. Write a good report. 45

52 It is important to write a good report that is readable so all the points can be understood clearly. 10. Overall success of the project. The question that needs to be answered is can the author combine all the key success factors to provide an overall evaluation of the project? 8.5 Appendix E Cost of electronic payment methods. Main costs are listed below but are not relevant to all products: Setup Cost: ranges between 50 and 250, if applicable 120 is the average. Annual Cost: normally around 150 but often not applicable. Monthly: The most standard charge especially from acquiring banks, around PSP: Can be a commission of as little as 1% but often about 10 per month or 3-4%. Transaction Charge: 2.79% for an established business but up to 4-5% otherwise. Bond: dependant on exposure level but is often negotiated down. Source: Electronic Payments Website ( 46

53 8.6 Appendix F Graphical representation of the proposed e-payment methods classification. Smart card based Closed system Digital Currency Mobil e phone based Open system Compute r disk based Credit-Debit System Credit card Debit card E-Payment Methods Specialize d System Token Scheme Electronic cheque Electronic money order Credit model Debit model B2B Payment S Electronic funds transfer Automatic clearing house 47

54 Digital currency Features Risk of payment transfer Value storage Debt storage Most transactions size is small so risk is low. Yes. Value stored on smart cards, hard disk or mobile phone. None Process Delay Third Party Management Traceability Privacy Ease of use Durability Transaction cost Security Transaction size None. Credit is straight away deducted from the smart cards, hard disk or mobile phone when purchase is made. Yes. By the digital currency provider. None. Can be used anonymously. High. High. Payers only need to purchase credits and use it to make a purchase. Credits will be deducted automatically. Low. Electronic money is easily lost if stored locally. E.g. Smart cards may be stolen. High. New hardware like card reader may be needed. Medium. Secured through use of tamper proof chips Generally used for tiny to medium value transactions Credit-debit system Features Risk of payment transfer The card company assumes the risk for the consumer and merchant. There is a high risk 48

55 Value storage Debt storage Process Delay Third Party Management Traceability Privacy Ease of use Durability Transaction cost Security Transaction size for fraud. Yes for debit cards. Yes for credit cards. Credit card users will settle the debt monthly. Authorization is needed at the point of purchase and takes seconds. Yes. By the card company, merchant acquirers, credit providers and banks. Transaction history can be traced in case disputes arise. Low. Payer need to provide card details when making a purchase. High. Payers only need to purchase credits and use it to make a purchase. Credits will be deducted automatically. High. Electronic money is not easily lost during transfer as SET, SSL and PKI are used to protect web based transactions. Medium. Merchants need to pay set up fee to use the system. They are also charged a transaction fee for every transaction. High. Uses SET, SSL and PKI. Generally used for medium value transactions. Not suitable for large value transactions because of the credit limit and transaction charges Specialized system Features Risk of payment transfer The electronic cheque may bounce. Electronic money order is guaranteed by their 49

56 Value storage Debt storage Process Delay Third Party Management Traceability Privacy Ease of use Durability Transaction cost Security Transaction size issuer. Yes for electronic money order. Value is stored with a third party until the payee claims it. None. The bank usually needs a few days to process the transfer of money. Yes. By the bank. Transaction history can be traced in case disputes arise. Low. Payer need to provide personal details when using an electronic cheque. Medium. Payers should be familiar with traditional cheque and money order payment methods first to understand how it works. High. Money is not easily lost during processing. Low. High. Uses digital signature for authentication. Generally used for medium value transactions Token scheme Features Risk of payment transfer Value storage Debt storage Only for credit model. Risk is low because transaction size are usually small. Yes for debit model. Value are purchased in advance and stored until being used. Yes for credit model. The debt is settled periodically. 50

57 Process Delay Third Party Management Traceability Privacy Ease of use Durability Transaction cost Security Transaction size None. Yes. By the token scheme provider. Transaction history can be traced for credit model for billing. High. No information is provided when making a purchase. High. Tokens are easy to use. Low. It is stored in digital form. Tokens may be lost during a system crash. Low. No other purchase is necessary besides the tokens however interest are charged for store of value. Medium. Typically, only passwords and ids are used and therefore may be vulnerable to hackers. Generally used for tiny value transactions B2B Payment System Features Risk of payment transfer Value storage Debt storage Process Delay No risk except that purchases are nonrefundable. Yes. For ACH, values are stored from bank to bank for a few days until the transaction is completed. None Wire transfer takes place immediately while ACH payments takes two to three days to complete because they are processed in 51

58 Third Party Management Traceability Privacy Ease of use Durability Transaction cost Security Transaction size batches. Yes. By the banks. Transaction history can be traced when disputes arises. Low. More information is needed for B2B payments compared to B2C payments. E.g. invoice and authentication. Low. The systems must link with existing Enterprise Resource Planning Systems (ERP) that integrate the corporate data into EDI systems. High. The money is not lost easily. Transaction cost is lower than other electronic payment methods. High. Digital signature is used. Generally used for large value transactions Electronic payment methods classification evaluation Digital currency Debitcredit system Specializ ed system Token schemes B2B system Evaluation criteria Smart card based Computer disk based Mobile phone based Debit card Credit card Electronic cheque order Electronic money Credit model Debit model EFT ACH Risk of payment transfer X X X X X X 52

59 Value storage Debt storage Process Delay X X X X X X X X X X X X X X X X X X Third Party Management X X X Traceability X X X X Privacy H H H L L L L H H L L Ease of use Durability H H M H H M M H H L L L L L H H H H L L H H Transaction cost H H H M M L L L L M M Security M M M H H H H M M H H Transaction size S- M S- M S- M M M M M S S L L Legend H High M- Medium L- Low The criteria above were chosen because they are important to either the customer or merchant who use electronic payment methods. The risk of payment transfer, value storage, debt storage, process delay, third party management, privacy, ease of use, durability, security and transaction size can play a part in influencing the type of electronic payment method that a payer choose to use. In contrast, traceability, durability, transaction cost and security are of interest to merchants in case something goes wrong during transactions. 53

60 8.6.4 Definitions The definitions of the criteria chosen for the above evaluation are listed below. 1. Risk of payment transfer Electronic payment method consists of many forms of risks. An example of risk is fraudulent activities. The customers, merchants, or intermediary should bear this risk. 2. Value storage Some electronic payment method allows storage of credit so that the payer need not owe anyone money. The credit will be deducted automatically each time after use. 3. Debt storage Some electronic payment method allows storage of debt so that the payer need not possess any money before doing a payment. The amount of debt will be sent to the payer at the end of each month and only then is the payer required to pay. 4. Process delay Some transactions take a long time to be approved. Different electronic payment methods have different processing time. Process delay is the amount of time required to conclude the transaction. 5. Third party management Some risks of electronic payment method are managed by third party such as bank. Some electronic payment methods guarantee of genuineness also comes from third party. Third party management is the guarantee of the electronic payment method from third party. 6. Traceability Banks and merchants generally like to keep track of transaction in case any issue arises. Traceability means the extent to which a transaction history can be traced. 7. Privacy. Some payer prefers to remain anonymous. Privacy means transaction history cannot be checked. 8. Ease of use Ease of use is how fast users can learn how to use an electronic payment method. Sometimes electronic payment systems need new hardware or software. If users find it complex to use, then the ease of use is low. 9. Durability. The electronic money should not be easily lost during processing. For example, the electronic money should remain durable even during a system crash. 10. Transaction size 54

61 Electronic payment can generally be classified into 3 levels which are tiny value, medium value and large value transactions. Different electronic payment methods are used for different transaction size. 11. Security. Electronic payment method represents many forms of risks. It must have the security to ensure that no one else can copy, steal or divert the information of the payer. The security includes transactions that have multiple parties involved. 12. Transaction Cost. Include any direct costs for the customer, merchant and intermediary. In addition, transaction cost also includes processing time for all parties The size of transaction The size of transaction for e payment generally falls into 3 categories: tiny value, medium level and large value [16]. However, this categorization is not suitable for use in this report as it is in US currency. For this project, a new categorization is proposed with some minor modification from [1] in regards to the exchange rate: Categorization for UK ( 1=USD1.8) Tiny value: < 1 Medium value: Large value: > 600 Categorization for Malaysia ( 1=RM7) Tiny value: < RM7 Medium value: RM7 RM4000 Large value: > RM4000 The values are rounded up so respondents of the questionnaire will not be confused by the pence or cents in the value. The exchange rate is also assumed to be correct as of 5 th of January The categorization is important so that the different e payment methods suggested in Section 4.1 can be evaluated on the basis of its suitability for use depending on the different sizes of transaction. 55

62 9. Appendix G 9.1 How SET works Merchant Clearing House Merchant 3. Merchant software bank forwards encrypted message 2. Merchant and consumer computers verify each other s identity. SETencrypted and authenticated order and payment information sent to merchant server. 4. Clearing house verifies account and balance with issuing bank 5. Issuing bank transfers funds to merchant bank Consumer 1. Consumer makes purchase, selects Payment with SET option 6. Monthly statement issued with debit for purchase Consumer s card issuing bank 9.2 What is the double-spending problem? Since e-money is a group bits, a piece of e-money is very easy to duplicate. A trivial e- payment system would allow a piece of e-money to be copied and both copies can be spent [16]. A millionaire could be made in a matter of a few minutes. Therefore, e-payment systems must be able to prevent or detect double spending. Online e-payment systems prevent double spending by requiring merchants to contact the bank's computer with every sale [20]. The bank computer maintains a database of all the spent e- money and can easily indicate to the merchant if a given piece of e-money can still be spent. If the bank computer says the e-money has already been spent, the merchant refuses the sale. [22] This is very similar to the way merchants currently verify credit cards at the point of sale. Offline e-payment systems detect double spending in a couple of different ways. One way is to create a special smart card containing a tamper-proof chip called an Observer [22]. The Observer chip keeps a mini database of all the pieces of e-money spent. If the owner of the smart card attempts to copy some e-money and spend it twice, the chip would detect the attempt and would not allow the transaction. Since the Observer chip is tamper-proof, the owner cannot erase the mini-database without damaging the smart card. 56

63 The other way offline e-payment systems handle double spending is to structure the e- money and cryptographic protocols to reveal the identity of the double spender [22]. The advantage of these kinds of offline systems is that they don't require special tamper-proof chips. The entire system can be written in software and can run on ordinary PCs or cheap smart cards. It is easy to construct this kind of offline system for identified e-money. The particulars of each transaction are appended to the piece of e-money and travel with it as it moves from person to person, merchant to vender. When the e-money is finally deposited, the bank checks its database to see if the piece of e-money was double spent. If the e-money was copied and spent more than once, it will eventually appear twice in the "spent" database. The bank uses the transaction trails to identify the double spender [22]. With identified e-money, both offline or online, the bank can always reconstruct the path the e-money took through the economy. The bank will know what everyone bought, where they bought it, when they bought it, and how much they paid. 57

64 10. Appendix H 10.1 Sample questionnaire for Malaysian students. Students attitudes towards electronic payment methods Thank you for taking time to fill out this questionnaire. Your reply is very much appreciated. The aim of this questionnaire is to analyze the attitudes and responses of Leeds and Malaysian degree students on various electronic payment methods. All the data provided will be strictly confidential and for project use only. If you would like to view the results of this survey or have any questions, please me at [email protected]. To answer the following questions, please tick in the boxes provided. Section 1 1. What is your gender? a. Male b. Female 2. Have you done any of the following transactions online? If yes, please tick the appropriate box and proceed to section 2. You may tick more than one where applicable. If no, please leave it blank and proceed to section 3. a. Purchase a product b. Pay for a service c. Pay bills d. Others (Please specify) Section 2 1. Which electronic payment methods do you use and what is the reason for using it? If you use more than one method or choose that method due to more than one reason, please tick or fill in the appropriate boxes. 58

65 Methods Convenient Privacy Reliable specify) (Please Others Mondex ecash Credit card Debit card Bank to bank wire transfer Paypal Escrow Electronic cheque Electronic money order Others (Please specify) 2. How satisfied are you after using those electronic payment methods? a. Very satisfied b. Satisfied c. Not satisfied 59

66 3. In regards to using electronic payment methods to pay, what is the maximum amount of money you are willing to spend? a. Up to RM1 b. Up to RM10 c. Up to RM50 d. Up to RM100 e. Up to RM500 f. Up to RM1000 g. More than RM Have you had any bad experience using existing electronic payment methods? a. Yes b. No 5. If yes, would you consider using electronic payment methods again in the future? a. Yes b. No Section 3 1. What is the reason for not doing any of the activities mentioned in section 1? a. Afraid of fraudulent activities b. No trust in the security of electronic payment methods c. Prefer paying offline or in person d. Afraid of fraudulent activities e. Slow internet access speed f. Do not know how to use electronic payment methods g. Others (Please specify).. THANK YOU VERY MUCH FOR YOUR COOPERATION 60

67 10.2 Sample questionnaire for Leeds students. Students attitudes towards electronic payment methods Thank you for taking time to fill out this questionnaire. Your reply is very much appreciated. The aim of this questionnaire is to analyze the attitudes and responses of Leeds and Malaysian degree students on various electronic payment methods. All the data provided will be strictly confidential and for project use only. If you would like to view the results of this survey or have any questions, please me at To answer the following questions, please tick in the boxes provided. Section 1 3. Educational qualifications a. Male b. Female 4. Have you done any of the following transactions online? a. Yes b. No 5. If yes, please tick the appropriate box and proceed to section 2. You may tick more than one where applicable. If no, please leave it blank and proceed to section 3. a. Purchase a product b. Pay for a service c. Pay bills d. Others (Please specify) Section 2 61

68 2. Which electronic payment methods do you use and what is the reason for using it? If you use more than one method or choose that method due to more than one reason, please tick or fill in the appropriate boxes. Methods a. Convenient b. Privacy c. Reliable specify) Others (Please a. Mondex b. ecash c. Credit card d. Debit card e. Bank to bank wire transfer f. Paypal g. Escrow h. Electronic cheque i. Electronic money order j. Others (Please specify) 62

69 2. How satisfied are you after using those electronic payment methods? d. Very satisfied e. Satisfied f. Not satisfied 6. In regards to using electronic payment methods to pay, what is the maximum amount of money you are willing to spend? h. Up to 1 i. Up to 10 j. Up to 50 k. Up to 100 l. Up to 500 m. Up to 1000 n. More than Have you had any bad experience using existing electronic payment methods? c. Yes d. No 8. If yes, would you consider using electronic payment methods again in the future? c. Yes d. No Section 3 1. What is the reason for not doing any of the activities mentioned in section 1? h. Afraid of fraudulent activities i. No trust in the security of electronic payment methods j. Prefer paying offline or in person k. Slow internet access speed l. Do not know how to use electronic payment methods m. Others (Please specify).. 63

70 THANK YOU VERY MUCH FOR YOUR COOPERATION 10.3 Table of results from questionnaires obtained from Malaysian students Participants Section 1 Section 2 Section 3 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q5 Q1 P1 A B A P2 A B B P3 B B B P4 A B A P5 A A A C,A C C B A P6 A B B P7 B B B P8 A B A P9 A B B P10 A A A C,A A C B A P11 A A A C,D B D B B P12 A A A C,A B C B B P13 B B A P14 A B B P15 A B B P16 B B B P17 B B B P18 A A A C,A B C B A P19 B B D P20 A B D P21 A B B P22 B A A C,A B D B A P23 A B B P24 B B B P25 A B B 64

71 P26 A B E P27 A B B P28 B B D P29 B B B P30 A B B P31 A B B P32 B B B P33 B B C P34 B B B P35 B B A 10.4 Table of results from questionnaires obtained from Leeds students Participants Section 1 Section 2 Section 3 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q5 Q1 P1 A A A C,A B C B A P2 A A A C,A B C B A P3 A A A C,A B C B A P4 A A A C,A B C B A P5 A A A,C C,A A D B B P6 B A A D,C B C B A P7 B A A F.C B C B A P8 B B A P9 B A A F,A B C B B P10 A A A,B C,A A D B A P11 A A A,B C,A A D B A P12 A A A,B C,A B D B A P13 B A A F,A B C B B P14 B A A,B C,A B D B A P15 B B A P16 A A A,C C,C B C B A 65

72 P17 B A A C,A B C B A P18 A A A,B C,A A C B A P19 A A A F,A B C B A P20 A A B C,A B C B A P21 B A A F,A B C B A P22 B A B C,A B C B A P23 A A A,B C,A B C B A P24 A A A,B C,A B C B A 11. Appendix I Transcript of the interview. 1. How is the current e commerce market in Malaysia? The current E-Commerce market is predominantly 'online bill payments' using credit card. This contributed to the highest transaction volume through the Malaysian Internet space. On-line merchandising is also a big area, even though comparatively to the American and European market, Malaysia is still very small. This will increase substantially as more and more customers are driven to the Internet to pay their bills which could be another stepping stone to more online merchandising activities online. The other significant area of E-Commerce is in the B2B space where corporate companies are performing business to business' transactions. Local telecommunication companies and some Banks are actively pushing enterprise solutions such as sales force automation to their corporate customers. Some of the manufacturing players are already going into E-Procurement and E-Payments which are another potential growth area of E-Commerce. Nevertheless, the Malaysian e-commerce market is still relatively small compared to other European countries. 2) How the Banks safeguard E-Payment? The Banks in Malaysia are all adopting standard security protocols namely SSL 128 bit encryption. There are also Banks in Malaysia (such as Maybank) that allow customers holding other bank's card to pay their bills online and they are termed as 'Off-Us' transactions. In such a case, the customer will register with the bank and uses an ID and password to logon to his account. 66

73 The fear on E-Payment is the risk of fraud and if the encryption is not properly installed, tampering may occur resulting in attempts to fraud. Other aspects of encryption security relates to 'chinese wall'. This is a software application that acts as a filter between a company's private network and the internet itself. 3) The various methods/products of E-Payment available currently The only e-payment methods available for use in Malaysia now are the credit card. Other aspects of E-Commerce that are catching are is E-Cash, E-Cheques and E-Drafts. It is still not in circulation yet as this involves connection with an intermediary whereby the parties involved needs to set up an account to transact. 4) Age Group in terms of Card Holders: Below 25-4% 26 to 30-23% 31 to 40-40% 41 to 50-23% 51 to 60-9% Above 61-1% 5) Problems with E-Banking/E-Payments experienced by the Bank thus far One of the biggest problems for the Banks today in E-Banking is education and adoption. Although the number of online banking users is growing at a fast rate, there is still a large group of customers, mainly students that are either on the verge of using online banking or have not started. Incentive programs are being implemented to stimulate usage such as exciting rewards like Tag Huer watch, 29" Sony Wega TV, Montblanc, etc to redeem with credit card points accumulated. The other significant area of concern is the Internet connection. Majority of ISP subscribers in Malaysia are still hooked to a 56K connection speed while the broadband adoption is being rolled out at a slower than expected pace. Banks are limited in terms of presenting richer contents and functions online because the consumers at the other end are restricted by the slow connection speed. 6) Focus on E-Commerce Security Integrity - ensure info on the web has not been altered by unauthorized party. 67

74 Nonrepudiation - ensure participants are not denied online actions. Authenticity - ability to identify the identity of a person or activity that you are dealing with. Confidentiality - info available to those authorized to view. Privacy - ability to control the use of info about oneself. Availability - ensure the sites continue to function as intended. 7) E-Payment Usage Some data extracted from a survey conducted by a Malaysian Consultant in 2002 to ascertain the state of E-Commerce activities within the Malaysian market. Based on 383 respondents surveyed, only 21% uses electronic payment methods. a. Electronic payment methods users: Sex - 68% (Male) and 32% (Female) Age - 81% (between 18-25) Education - 3% (Secondary), 3% (Technical Institution), 20% (College), 58% (University), 14% (Post Graduates) and 2% (Prefer not to say) b. Reasons of usage in Malaysia(allowed multiple response) - 61% to buy things - 51% to save time - 49% its more convenient to shop online - 37% to shop anytime - 27% to buy things cheaper - 24% to get a better product selection - 19% to get the latest products/models - 16% to avoid going to the store - 9% to have the products delivered faster - 7% to see how online shopping works - 1% others c. Why people choose to use E-Payment vs manual payment? - 81% say it is convenient 68

75 - 6 say it saves time - 5% say it is faster - 3% say no service charge for Internet Banking - 2% because Internet Banking sites offers gift promotions - 2% because Internet Banking sites offers cash rewards - 1% others d. Why most people do not use electronic payment methods? - 63% have concern over the security of transactions - 10% do not know to use electronic payment methods - 7% slow internet connection speed - 5% afraid of making mistakes - 5% feels that it is too troublesome to register online account - 3% find it too troublesome to remember the account number - 2% feels that the human touch is lacking - 2% feels that it is not as convenient as phone - 2% feels that the PIN verification at login is too troublesome - 1% others 69