E-commerce payment system

An e-commerce payment system facilitates the acceptance of electronic payment for online transactions. Also known as a sample of Electronic Data Interchange (EDI), e-commerce payment systems have become increasingly popular due to the widespread use of the internetbased shopping and banking.

There are numerous different payments systems available for online merchants. These include the traditional credit, debit and charge card but also new technologies such as digital wallets, ecash, mobile payment and e-checks. Another form of payment system is allowing a 3rd party to complete the online transaction for you. These companies are called Payment Service Providers (PSP).

The Early Years

The term e-commerce was originally conceived to describe the process of conducting business transactions electronically using technology from the Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT). These technologies, which first appeared in the late 1970s, allowed for the exchange of information and the execution of electronic transactions between businesses, typically in the form of electronic purchase orders and invoices. EDI and EFT were the enabling technologies that laid the groundwork for what we now know as e-commerce. The Boston Computer Exchange, a marketplace for used computer equipment started in 1982, was one of the first known examples of e-commerce. Throughout the 1980s, the proliferation of credit cards, ATM machines and telephone banking was the next step in the evolution of electronic commerce. Starting in the early 90s, e-commerce would also include things such as enterprise resource planning (ERP), data warehousing and data mining.

It wasnt until 1994 that e-commerce (as we know it today) really began to accelerate with the introduction of security protocols and high speed internet connections such as DSL, allowing for much faster connection speeds and faster online transaction capability. predicted explosive growth in e-commerce related businesses. Industry experts

E-Commerce Begins to Emerge

In response to these expert opinions, between 1998 and 2000, a substantial number of businesses in Western Europe and the United States built out their first rudimentary e-commerce websites. The definition of e-commerce began to change in 2000 though, the year of the dot-com collapse when thousands of internet businesses folded. Despite the epic collapse, many of the worlds most established traditional brick-and-mortar businesses were emboldened with the promise of e-commerce and the prospect of serving a global customer base electronically. The very next year, business to business transactions online became one of the largest forms of e-commerce with over $700 billion dollars in sales.

Many of the dot-com collapses first-mover failures served their offline competitors very well, providing evidence of what not to do in building a viable online business. For example, Webvan, which was one of the more infamous dot-com failures, trail blazed the path for Albertsons and Safeway, two of the largest national supermarket chains, who each have developed their own successful online grocery delivery businesses.

What is Financial EDI? Financial EDI (FEDI) is the computer-to-computer exchange of payment and payment-related information between companies using a standard format. Unlike other forms of EDI, such as exchange of price quotes or purchase orders, financial EDI always involves a bank because a financial transaction (a payment) is being effected. Due to this fact, a new business opportunity now exists for banks in the cash management industry.

Who Uses Financial EDI? In the most general sense, the marketplace for financial EDI consists of two distinct segments. Originators - companies or government agencies who electronically initiate payments and the associated remittance information to their suppliers using the standard EDI format. Receivers - companies and government agencies who electronically receive payments and the related remittance information using the standard EDI format.

In financial EDI, a bank acts as the financial intermediary between originators and receivers for both the actual payment and the associated payment data.

How Does Financial EDI Work? In the classic EDI scenario, the following actions take place: 1. The buyer, or originator, electronically extracts payment information from the company's accounts payable system, 2. Formats the data into an EDI standard (ANSI 820 transaction set), 3. Transmits an ANSI 820 file to the company's bank, 4. The bank then takes the 820 data and puts it into the format necessary for it to be carried through the Automated Clearinghouse Network as an ACH transaction, 5. The ACH network then delivers the payment and data to the seller's bank. The bank credits the seller and, 6. Electronically transmits the payment-related information in the 820 format to the seller's accounts receivable system where the payment is then posted automatically.

Benefits of Financial EDI By using financial EDI, all the steps described above are done electronically with the payment and related information exchanged from one computer system to another, with no manual intervention. Today, of course, most payments are made by check with a hard copy of remittance information attached. The manual processing which results by using paper is less efficient, less accurate and most importantly more expensive than electronic processing. This is why financial EDI is a rapidly growing way of doing business.

Benefits of Financial EDI for Banks For banks in the cash management industry, offering financial EDI services is one way to defend the revenue generated by current check business, whether it is in disbursements or collections, since over time, a great many of these payments will be converted to electronic EDI transactions. However, because of the investment required, not every cash management bank will be an EDI player. nic processing. This is why financial EDI is a rapidly growing way of doing business.

Difficulties of EDI

A complex manual EDI enrollment process Individual enrollment process by provider/location/payer Varied approval times by payer Unavailability of enrollment specialist (illness, vacation, leaves) Inability for all parties to view status of the enrollment process by payer Lengthy tracking process (60-90 plus days) Lack of formalized methods to handle process expectations and errors Inability to offer self-service enrollment processing to customers Lack of effective tools for tracking thousands of separate forms Step-by-step enrollment workflow not automated by software

EDI and the Internet

EDI is a very reliable and secure method of electronically sending business documents from one company's computer directly to another company's system. But even with EDIPro and other new developments, it is relatively expensive. The cost is the primary reason why less than 1% of businesses in the United States have EDI capabilities. The Internet is relatively inexpensive to access, but because of its open structure it provides limited security for your information. To address this problem, EDI and Internet Service Providers have introduced "EDI over the Internet" and Intranet (i.e. limited access Internet sites) capabilities.

This shows a layered architecture. For each layer the communication from sender to receiver is shown and the possible response, which forms part of the control mechanism for that layer, is also shown. Each layer is depending on the services of the next following lower layer. The sender application system sends an application message (e.g. a purchase order) and may receive a response from the receiving application system (e.g. purchase order acknowledgement). The nature of the control loop in this layer depends on the type of application. The EDI translator sends the application message in an EDIFACT interchange, and may receive a response to the interchange from the receiving EDI translator. Such a response merely acknowledges receipt of the EDIFACT interchange.
The EDI Internet handler sends the EDIFACT interchange in a secure EDI document and receives a secure response from the receiving EDI Internet handler. This guideline focuses on the various types of security services recommended for use in this layer.