Analysis of Safety in Using E-Payment Systems - Term Paper Example

Introduction E-commerce has become a prevalent way of carrying out business in the twenty first century. As many organisations embrace globalisation, the need to make quick payments to stakeholders cropped up. It is imperative to note that payment is an integral part of e-commerce. Electronic payment therefore allows stakeholders to make financial transactions online to any recipient across the globe with ease. This has spurred the interest of business community, scholars, providers of financial services and the government in exploring diverse issues that pertain to e-payment systems. This paper therefore is an overall analysis of safety in using e-payment systems. (Sumanjeet, 2008) The paper first looks at the various types of electronic payment systems that are available in the global market. It then expounds on the safety problems experienced by stakeholders when using e-payment systems. There is further explanation on how the aspect of safety affects buyers and sellers in the global business. Finally, the paper explicates on the precautions that need to be put in place to avoid loss of funds by stakeholders when using electronic payment systems. (Muthy, 2002) Types of e-payment systems As many organisations continue to embrace the concept of e-commerce, innovations have been done pertaining to electronic transactions in order to meet the need in the global market. This resulted in diverse types of electronic payment systems. These can be grouped into four namely; electronic cheque system, electronic credit card payments, smart card e-payment system and the electronic cash system. (Sumanjeet, 2008) i. Electronic cash payment system This is also usually referred to as e-cash. This is where the exchange of cash money is carried out electronically. In this case, there is the use of systems that are digital in nature, the internet and computer. Both crediting and debiting can be carried out using electronic cash payment system. There are also various systems within the electronic cash payment system. (Sumanjeet, 2008) These include decentralised and centralised systems. Among the centralised arrangement include cashU, Paypal and WebMoney among others. This type of electronic payment system has not been embraced by many organisations due to cryptography problems. It is only the Mark Twain bank that incorporated the system but later discarded it due to various technical hiccups. It is basically applied in versatility of diverse applications and new markets. (Muthy, 2002) This entails digital exchange and storage of value with limited convertibility of the value therein. In this system, there is the need to maintain a very large data base. This payment system is known to have myriad risks such as financial risks, mobility problems and high inefficiency. (Sumanjeet, 2008) ii. Electronic credit card payments This electronic payment system was put in place to extend the overall function of the traditional credit card. It is commonly used as a mode of payment during online shopping. Research shows that there is a wide acceptance of this electronic payment mode as compared to electronic cash payments. This is considering the fact that it allows a degree of efficiency in overall transaction. (Sumanjeet, 2008) There is also enjoyment of privacy, mobility, compatibility, anonymity, and mobility among the users of this service. This makes it the most accepted type of e-payment currently used in the global market. In this mode of payment, there is need for the card holder to reveal card information via the internet. (Sumanjeet, 2008) This is done by giving the information on Company websites where purchasing is carried out. This means that the service or product provider has to get credit card information of the purchaser. In this case, the purchaser has to authorise the charging of his or her credit card. The payment is then facilitated by the organisation that issued the credit card. (Muthy, 2002) iii. Smart card e-payment system The card essentially is made of plastic and usually has encrypted memory chip. Some smart cards may have microprocessors which aid in storage of user’s relevant information. Usually, the processing ability in smart cards is inbuilt. Smart cards mostly have a key that is comparable to hidden code. This method of electronic payment is very common in the Asian and European nations. It is asserted to be much more secure than the credit card electronic mode of payment. A good example that is currently in use is the Visa smart card. In this case, funds can be transferred from user’s bank account to the smart card. The smart card holder can use the card to make purchases online. This is easily facilitated by intermediaries such as PayPal. (De Kare-Silver, 2000) iv. Electronic cheque system This mode of payment was invented to cater for the services of the traditional cheques that have been used since time immemorial. In this case, the holder of an account issues a document electronically. The document clearly shows the account number of the payer, the bank or financial institution, cheque amount and payee’s name. This mode is advantageous in the sense that they are cheap, fast and consumers don’t have to divulge confidential account information to other stakeholders. (Sumanjeet, 2008) They are quite prevalent in the business to business transactions, retail businesses and government business transactions. The order form is filled by the purchaser who attaches a signed payment advice usually encrypted with secret key. The information is then decrypted by the vendor by his secret key and checks all the buyer’s particulars. These include cheque and certificates. He then attaches and endorses deposit slip. All the particulars are checked by vendor’s bank and ensure the cheque is cleared by clearing institutions. The money is then credited to the account of the vendor and credit advice emailed to him. (Pastore, 2001) Safety problems in using e-payment systems It is essential to acknowledge that e-payment systems heavily rely on information technology in carrying out transactions. Electronic payment system innovations have been received with a lot of enthusiasm from stakeholders. There are however safety problems that have been noted to accompany the use of electronic payment systems. This highly emanate from the use of information technology in exchange of essential information between buyers and sellers. According to the Federal Trade Commission, fraudsters are currently using all manner of tricks in order to steal from people who use electronic payment systems to make transactions. (Sumanjeet, 2008) One of the strategies that are currently is spoofing. This entails the fraudsters sending emails to users of e-payment systems so that they are tricked into revealing their personal information. Once the information is revealed, the crooks act so fast to withdraw cash from customers’ cards. Some of them go even as far as using the information to purchase goods online. After some time, the owners of cash realise that they have no money in the accounts or even have debts to pay. This is the current situation that is quite alarming as far as the use of electronic payment systems is concerned. (Haynes, 1997) Some of the fraudsters even go to the extent of sending unwanted emails to customer that influence them to hoax customer service. This is done by the fraudsters directing customers to a phony website. They pretend to be very honest and trust worthy. In actual sense, most of them act as if they care about the customers and may go out of their way to help. This makes many people to fall into the trap of the fraudsters very easily. Through this, many people have been conned their cash from credit cards among other electronic payment systems. (Sumanjeet, 2008) As earlier on illustrated, electronic payment systems rely a great deal on information technology. This means that stakeholders in the transactions have to use computers and internet as a means of communication. This has resulted in reduced safety and security as far as using electronic payment systems is concerned. This is considering the fact that with technology, fraudsters can easily have unauthorised access to personal computers of those who carry out electronic transactions. (Sumanjeet, 2008) This is what is referred to as IP spoofing. There is also alteration of links whereby when someone sends a message, it fails to reach the recipient but goes to the site of the hacker. This is basically carried out by putting the fraudsters address before the recipient’s. Fraudsters also use spyware to access personal information saved in the computer hard disk. This allows the hackers to easily access individual’s personal information that is relevant in electronic payment. This makes them to succeed in withdrawing funds from accounts of electronic payment users. (Pastore, 2001) Criminals are currently even carrying out alterations of electronic databases that pertain to electronic payment systems. This is carried out such that the fraudsters easily reduce the money in the electronic account. Research shows that in as much as electronic credit cards are prevalent in North America, they have not been embraced in Pakistan, India and China. This is considering the fact that these nations are experiencing myriad security problems in the overall use of electronic credit card payment system. (Sumanjeet, 2008) Further analysis shows that in the recent past, a fraudster managed to scan many yahoo mails. These were mostly used by auction participants to carry out payments through PayPal. All the funds were lost in this case. This definitely shows that electronic cash does not have a hundred percent security. This revealed the fact that electronic cash has no utmost protection in as far as fraudulent ventures is concerned. It is quite apparent that electronic payment systems have two major ways of authenticating payments. This is password and username. (King, et al 2004) This was actually thought to be a safe way of ensuring that sensitive information is secured. This is not the case anymore. Initially, it was perceived that hackers were some geniuses who would access people’s passwords through computing knowledge. As the internet continues to be readily available to all, felons easily search for password crackers which are freely downloaded. This enables even a novice to have unlawful access to sensitive information used in authenticating electronic payment. This has resulted in increased fraud in as far as electronic payment systems are concerned. (Sumanjeet, 2008) Research also shows that there is an inherent risk in using PayPal as a way of carrying out transactions across the universe. This is considering the aspect of impersonality in e-commerce. This also pertains to the gaps in regulatory aspects of PayPal transactions. The available regulations on fraud protection for this service do not cover PayPal to PayPal transactions. This gives a chance to fraudsters to easily rob money from account holders. Research has also shown that after getting essential information such as one’s credit card number, fraudsters even go to the extent of opening a new credit card account using the name of the card holder. (Sumanjeet, 2008) They then use the card to purchase goods and definitely never pay the bills. In most cases, they change the address given to the credit card issuer. This is easily carried out by simply calling the service provider. This makes the initial credit card owner not to know immediately whether there is something amiss with his or her credit card. Through the initial credit cardholder’s personal information, fraudsters easily open accounts in different banks and write bad cheques to the accounts. This results in massive loss of financial resources from unsuspecting electronic payment users. (Sumanjeet, 2008) Current research reveals that there have been extreme fraudulent schemes on electronic payment systems. An example is that which was reported to have happened between July the year two thousand and five and January the year two thousand and seven. This is where the TXJ Companies carried out a breach of systems and this resulted in data of many credit card holders being exposed. It was reported that approximately forty five point five million credit cards data was exposed in this fraud. This shows the risk of using electronic payment system to carry out business transactions. (Sumanjeet, 2008) In another incident that happened in the year two thousand and nine, one man by the name Gonzalez was reported to have sourced essential information from one hundred and thirty million debit and credit card holders. The information was accessed from Hannaford brothers, Heartland Payment Systems and 7-Eleven retailers. This shows how vulnerable the use of electronic payment systems is to fraudsters. This definitely shows that there is no hundred percent assurance of safety or security when using electronic payment systems. (Sumanjeet, 2008) Impact of e-payment systems safety on buyers and sellers As illustrated above, making financial transactions via electronic payment systems does not provide users with a hundred percent safety. The current safety situation has had diverse impacts on stakeholders in the global business arena. Research shows that many buyers have lost lump sums of cash through internet fraud. (Sumanjeet, 2008) In this case, it is usually the liability of the card holder not to reveal personal card information to strangers. It is clear that some card holders have lost a lot of funds and this has had very negative impacts on their financial stability. There are very few cases where buyers or card holders have been refunded their funds. (Sumanjeet, 2008) For instance in United States, one has to sign an affidavit to prove fraudulent transactions. Online merchants have also felt the pinch of using electronic payment systems. Majority of them have lost the value of services or goods sold. This is after realising that the purchaser was fraudulent and therefore the genuine card holder is not in a position to pay for the services or remitted goods. This has made many global online sellers to lose a lot of revenue. This has also made them to be too cautious and sometimes they end up banning transactions that are actually legitimate. The issue of fraud in using electronic payment systems has also severed relationships between affected buyers and sellers. (Kamm, et al 2004) This is with each party blaming the other for not taking necessary precautions. Companies such as PayPal are known to have experienced losses after a hacker accessed auctioneers yahoo accounts. This was after their affected clients put forth multiple complaints on the responsibility of the Company in offering maximum protection to PayPal users. Another impact on the sellers is the fact that online sellers tend to spread this risk across their prices. Some of online sellers that have been conned have had to increase their prices in order to cater for the losses. (United Nations, 2001) Precautions that should be put in place With all the security issues illustrated above, it is essential that adequate precautions be put in place to prevent or minimise the loss of funds among stakeholders. One of the strategies that need to be incorporated includes securing electronic payment systems. This includes incorporating secure codes. Protection policies are not sufficient in handling safety problems that are currently prevalent in using electronic payment systems. Security keys can help to some extent offer protection from fraudsters. However this does not also offer a hundred percent guarantee. It is essential that in case of purchases, the seller ensures that goods are sent to the initial address of the card holder. (Sumanjeet, 2008) This arrangement can definitely help to downplay fraud problems when using electronic payment systems. It is also highly recommended that cyberspace laws and regulations be put in place so that electronic transactions can be regulated. Through this, signs of fraud can be easily monitored and the actions hindered altogether. It is quite essential that card holders stop revealing confidential card information to any strangers. In case changes have to be made, then this should be carried out on the original website where applications were made. Changes on addresses and personal electronic payment information should not be made through phone calls. Card issuers should always deal with the initial email address of the card holder and ignore any other emails from unknown email addresses. Simple precautions such as logging out of electronic payment websites helps prevent hackers from easily accessing passwords and usernames hence easily carrying out fraud. (Sumanjeet, 2008) The use of up to date antivirus and antispyware play a great role in preventing hackers from accessing personal information from computers. It is essential that electronic payment users be equipped with security packages in software mode. This helps to carry out automatic deletion of internet history. Other imperative measures include installing web- filters and firewalls on computers used for the transactions. These precautions can help to prevent fraud related to electronic payment systems. It is however recommended that stakeholders always look out for innovations in preventing fraud on e-payment systems. This is considering the fact that criminals are constantly innovating their way out of previously established precautionary measures. (Minnow, 1995) Conclusion Fraud on electronic payment systems has been a thorn in the flesh for e-commerce stakeholders. As innovations such as electronic cheque system, electronic credit card payments, smart card e-payment system and the electronic cash system continue to be embraced, safety and security problems also continue to skyrocket. This is carried out through the use of spyware and sending unsolicited emails to card holders. This is referred to as spoofing. In most cases, the criminals seek to find usernames, passwords and credit card numbers. This information is used by criminals to purchase goods and carry out withdrawals on accounts. This situation has had negative impacts on stakeholders. It is evident that many buyers have lost a lot of cash through fraud when using e-payment systems. Merchants have lost value of goods and services. Organisations that offer electronic payments have lost cash in refunding affected customers. This has also severed relationships between online buyers and sellers. Lack of adequate security on e-payment systems has resulted in online shops hiking their prices to cater for the financial risks. It is therefore recommended that adequate precautions such as installation of antispyware, security codes and incorporation of cyberspace regulations among others interventions be put in place. This will help prevent and minimise the problem of fraud on electronic payment systems. Read More