Electronic Cash System | Payment Processing Solutions

Electronic cash ( e-cash) system differ in implementation but every electronic cash system must have the following properties:-

  • Monetary value:-

Monetary value is present if the electronic cash is backed by hard currency, a bank-certified cashier’s check or bank-authorized credit.

When e-cash created by one bank is accepted by the others, reconciliation must occur without any problems.

  • Interoperability:-

Electronic cash must be interoperable. To be interoperable, electronic cash must be exchangeable for goods, services, paper cash, other electronic cash, lines of credit, or any purpose for which money is used.

Interoperability depends on the acceptance of electronic cash by an international clearinghouse because parties to most transactions will not be using the same bank.

  • Storable and Retrievable:-

Electronic cash must be storable and retrievable. Remote storage and retrieval will allow users to exchange e-cash from office, home or while traveling.

The cash could be stored on a remote computer’s memory, e.g. smart cards, electronic wallets.

  • Security:-

Electronic cash should not be easy to alter or copy while being stored or exchanged. Procedures must be in place to verify that the electronic cash is spent only once i.e. double spending issue should be taken care of.

When used, e-cash is transferred directly and immediately to the participating merchants and vending machine. Similar to regular cash, e-cash enables transactions between customers without the need for banks or other third parties.

Working of an electronic cash system:-

Step 1: A customer or merchant signs up with one of the participating banks or financial institutions.

Step 2: The customer receives specific software to install on his or her computer. The software allows the customer to download  ”electronic coins” to his or her desktop. The software manages the electronic coins. The initial purchase of coins is charged against the customer’s bank account or against a credit card.

Step 3: When buying the services from a website that accepts e-cash, the customer simply clicks the “Pay with e-cash” button. The merchant’s software generates a payment request, describing the items purchased price time and date

Step 4: The customer can then accept or reject this request. When the customer accepts the payment request, the software residing on the customer’s desktop subtracts the payment that is sent to the bank or financial institution of the merchant and then is deposited to the merchant’s account.

The entire process takes a few seconds. The merchant is notified and in turn ships the goods.

Before purchases can be made, both the merchant and the customer need to establish banking arrangements and internet links with the bank that is issuing the e-cash.

The customer first requests a transfer of funds from his bank account into the e-cash system. The e-cash system then generates and validates e-cash coins which the customer is able to use on the issuing bank its private key.

The customer is then able to send e-cash to any merchant who will accept this form of payment using the software provided by the e-cash service provider. The customer encrypts the message and endorses the coins using the merchant’s public key.

The merchant then decrypts the message with its private key and verifies the validity of the coin using issuing bank’s public key. The merchant is then able to turn e-cash into real funds to be credited to the merchant’s bank account.

Electronic cash is a form of payment that is exchanged electronically. Customers withdraw electronic coins from a bank and pay merchants with them. The merchants then deposit the coins to the bank.

This system involves computers networks over which the payment is made.

There are many important features to an ideal electronic cash system.

One of them is providing anonymity to the customers as in case of real cash. Customers should be able to engage in transactions without having their identities revealed.

It is also critical that two transactions made by the same person are not traceable by either the bank or the merchant.

Another important aspect of electronic cash is the prevention of duplication. Unlike real cash, it is possible to make identical duplicates of electronic coins.

An ideal e-cash system should secure the anonymity of honest customers while revealing the identity of cheating customers and merchants.

Because true electronic cash is not traceable, the problem of money laundering may arise. Money laundering is a technique used by criminals to cover money that they have obtained illegally into cash that they have obtained illegally into cash that they can spend without being noticed as proceeds of illegal activity.

Electronic cash has been successful in some parts of the world, but it has not yet become a global commercial success, Making electronic cash a popular alternative payment system requires wide acceptance and solutions. Establishing electronic cash as a popular payment method requires that a standard is developed for electronic cash acceptance.

An ideal e-cash system should have the following characteristics:

  • Independence:-

The security of an electronic coin should not depend on the physical of a coin. It should be possible to transfer it electronically over a secure network.

  • Security:

One should not be able to copy and forge the cash. It is fairly easy to make exact duplicates of an electronic document. This exposes the electronic system to the danger of double-spending. Therefore, making the system secure is directly related to the prevention of copying the coins.

  • Untraceability (Privacy):-

One cannot trace the relationship between the user and its purchases. In the real cash system, when a customer spends a bill, neither the bank nor the merchant can trace the identity of the customer. This feature should be made available in the e-cash system in such a way that the customer’s identity is revealed only if he cheats.

  • Off-line payment:-

The merchant doesn’t need to be linked to the bank before accepting a coin from the customer. He can simply collect coins from a different customer. He can simply collect coins from different customers and deposit them later with the bank when he brings them to exchange the e-cash for cash. Off-line schemes should also protect against cheating merchants who try to deposit a coin twice.

  • Transferability:-

Once an electronic coin is issued to a customer, he should be able to transfer all or a portion of the coin’s value to another customer. The system must protect both the first and second customers from cheating against each other.

  • Divisibility:-

The customer should be allowed to divide the value of an electronic coin in any number of pieces he wants and to spend it one piece at a time.

Also Read:-

What do you mean by e-commerce?

Why is e-commerce important? 

What are the functions of e-commerce?

Advantages and Disadvantages of E-commerce