CHAPTER ONE

INTRODUCTION

1.0      Introduction

E-payment systems refer to the automated processes of exchanging monetary value among parties in business transactions and transmitting this value over the information and communication technology (ICT) networks. The common e-payment channels include the payment cards (debit or credit), online web portals, point of sales (POS) terminals, automated teller machines (ATM), mobile phones, automated clearing house (ACH), direct debit/deposit and real time gross settlement (RTGS) system (Nnaka, 2009).

The wider patronage of e-commerce is dependent on the availability of  secured and trusted e-Payment System (Baddeley, 2004). The various categories of e-commerce include Business-to-Business (B2B): business transactions between organizations that involve companies buying and selling to each other; Business-to-Consumer (B2C): business transactions between organization and consumers where goods and services are sold directly to the consumer; Consumer-to-Business (C2B): business transaction between consumers and organization, where consumers can fix prices for both goods and services offered and Consumer-to-Consumer (C2C):business transaction between consumers among others(Ayo, 2009).

1.1           Background of the Study

Payment of association fee by both new and old students has up till date become a normal routine for students of the Federal Polytechnic, Nasarawa, of  which the Nigerian Association of Computer Science Students (NACOSS) is not an exception. Most times these payment are usually stressful, unorganised  and sometimes inefficient, ranging from the point of the payer(students)  and payee(collector). This old method has not yielded any form of efficiency both in the collection process and record keeping. This situation has often been experienced by students of the association (NACOSS) where payment is made using table payment systems. This table payment system is often characterized by unnecessary long queue, thereby slow pacing the entire registration process of the students of the association. Secondly, this old method of table payment system, is highly insecure as it is exposed to the risk of theft and misappropriation of money e.t.c. Thirdly, the person saddled with the collection responsibility have his/her primary schedules assigned to him by the department thereby making him/her not to readily available. Thus, considering the above bottleneck surrounding this old method ofpayment system, the researcher proposed an alternative method which will remedy all these bottleneck faced by students of the association by introducing a highly secured and efficient e-payment system for the payment of the association fees using their debit card as a medium. This system conveys the advantage of convenience, accurate record keeping and highly secured.

1.2            Statement of the Problem

The current mode of fee payment to the association is through the table payment system and this mode of payment has led to inefficiency and improper record keeping and retrieval system.

This problem is addressed by developing a system that will enable the students of the association to pay their NACOSS dues conveniently and securely online using their credit and debit cards from wherever they are.

1.3     Aim and Objectives

This project aims to develop an e-payment system for NACOSS that enables the students to securely and conveniently  pay their fees online using credit or debit cards.

The objectives of this research work are as follows

       I.            To design a new system that enables the students pay their NACOSS fee online wherever they are using credit or debit cards.

    II.            To ensure proper record keeping.

 III.            To ensure easy retrieval of record.

1.4     Scope and Limitation of the Study

The study was carried out in NACOSS(Nigerian Association of Computer Science Students), Federal Polytechnic, Nasarawa chapter to present an alternative payment mode for the payment of the association dues through the online payment platform. The online payment platform ensures secured payment of the association dues. The students of the association will use this system to pay their dues. What this system will do after every successful payment made is to capture the students details as well as the financial information in order to ensure proper record keeping and easy retrieval method for future references. This research work is limited by the following factors

·        Financial constraints

·        Inadequate availability of necessary information

·        Time constraints

1.5     Significance of the Study

Electronic payment system have evolved from a simple system involving cash as a means of exchange to a more sophisticated system involving various institutions and related regulations providing payment instruments and infrastructures allowing for interconnections between various partners or business units in fulfilling their business or social obligations. The significance of this study is therefore to

       I.             Make the payment of the association dues more easier and convenient to the students and the association.

    II.            Improve the effectiveness of the existing payment system

 III.            Provide a reliable and more efficient payment mode for the association

1.6     Definition of Terms                                                       

Credit card: A payment card that authorizes the person named on it to charge goods or services to his account.

Debit card: Debit cards let buyers pay for goods and services with funds from their checking account and are an important part of any merchant’s business. Debit card give consumers more flexibility in their payment option and can be used in two ways: online and offline debit card.

Authorization: An authorization is the initial request a merchant makes for a customer’s issuing bank to release funds for payment.

Application Program Interface(API): A set of rules and protocols that tells separate software program how to communicate with one another.

Bank:  A financial institution that handles merchant accounts and issues lines of credit.

Card Association:Credit card – granting organizations, including Visa, MasterCard, American Express, and Discover, that make the rules regarding credit card acceptance in conjunction with the government.

Cardhodler: The authorized user of a credit card ho has established a line of credit (e.g., a typical customer), and is financially responsible for transactions completed using the card.

Cardholder Data: Sensitive information belonging to the authorized user of  a credit/debit card, including an individual’s name, address, payment card number, PIN and verification codes.

Cardholder Verification Value (CVV2):A three or four digit number that is printed on a card to verify its authenticity. The “2” refers to the printed code on the card. (CVV 1 is encoded on the magnetic stripe of the card)

Firewall:An integrated collection of security measures designed to prevent unauthorized electronic access to a networked computer system.

Gateway: A payment processing solution that protects cardholder data during the payment transaction process.

Issuing bank or issuer:A bank or other financial institution that issues credit cards. Issuers charge cardholders interest and associated fees as they apply to the use of the various branded cards. Issuing bank hold the majority of the power in the credit card industry because they set the rate and terms of credit issued and repaid.

PIN: A personal identification number commonly used to verify a transaction being made with a debit card. EMV(chip and PIN) cards may also require entering a pin to verify card-present  purchases.

CHAPTER TWO

LITERATURE REVIEW

In today’s world many people across the globe make payments electronically rather than in person or cash. Vassiliou(2004) defines electronic payment as a form of financial exchange that takes place between the buyer and seller facilitated by means of electronic communication. According to (Cobb, 2004), the value of electronic payment goes way beyond the immediate convenience and safety of cards to a greater sphere of contributing to overall economic development.

A report by financial research and consulting firm Celent in india, indicates that the value of retail e-payments in india is expected to reach between US$150 billion to US$180 billion by the end of 2010.

“More than two thirds of all non-cash transactions payments in the United States are made electronically, with the biggest increase in electronic payment occurring between 2003 and 2006 according to a US central bank. The central bank’s non-cash payments study found that about 19 billion more electronic payments were made in 2006 that 2003”. Undoubtedly the last three decades have witnessed major advancement in payment technologies.

There are several payment markets that can be identified each using specific forms of money. “The business-to-consumer (B2C) payment is used in commercial activities where the merchant is paid directly by the consumer for goods and services”(Radu, 2003), This type of payment is also called retail payment. The direct payment between two persons is called person-to-person (P2P). Administrative-to-consumer (A2C) payment addresses the payment of taxes toward the government. Finally, the payment intervening between companies buying and those offering products and services is referred to as Business-to-Business(B2B)(Radu, 2003).

2.1     Electronic payment models

The implementation of EPS is dependent on the consumer’s payment behaviour. Thus, EPS are designed to address consumers with credit, debit or prepaid behaviour. “Commerce always involves a payer and payee who exchange money for goods and services, and at least one financial institution which links “bits” to “money” (Asokan, et.al., 2000). In most existing payment systems, the latter role is divided into two parts an issuer (used by the payer) and an acquirer(used by the payee). Electronic payment from a payer payee is implemented by a flow of real money from the payer via the issuer and acquirer to the payee.

2.1.1  Credit Cards

In pay-later (credit) payment systems, The payee’s bank account is credited the amount of sale before the payer’s account is debited (Asokan,et.al., 2000). Credit card system fall into this category. Credit card allow customers to make purchases up to a prearranged ceiling. The credit that is granted is either settled in full by the end of a specific period. Generally a month or can be settled in part, with the remaining balance extended as credit(Asokan, et.al., 2000). Credit cards are internationally known to customers and accepted by merchants. They are also easy to use on the internet, as only the credit card details need to be sent to the beneficiary in order to effect a payment (Vassiliou 2004).

2.1.2  Debit Instruments

In pay-now payment systems, the payer’s account is debited at the time of payment. ATM card  based system fall into this category. According to (Vasiliou, 2004), debit instruments allow the payer to have purchases directly charged (debited) to funds on his/her account at a deposit-taking institution such as a bank. Debit instruments includes directs debits, debit cards and cheques.

2.1.3  Prepaid Payment Services

In prepaid payment systems, a certain amount of money is taken away from the payer by debiting that amount form the payer’s bank account before purchases are made (Asokan, et.al., 2000). This amount of money can then be used for payments later. This payment system requires that consumers make the provision of funds before engaging any payment transaction. Smartcard-based electronic purses, electronic cash as well as (certified/guaranteed) bank cheques fall in this category (Asokan, et.al., 2000). E-zwich payment system also falls into this category.

Asokan argues that, both pay-now and pay-later could be classified as direct payment systems: a payment requires an interaction between payer and payee. There is also indirect payment systems where either the payer or payee initiates payment without the other party (payee or payer respectively) involved on line (Asokan, et.al., 2000).

2.1.4  Cumulative Collection Services

Cumulative collection services are mainly used for the processing of smaller e-payment which are cumulated and then paid (Vassiliou, 2004). The payment service provider collects all transaction of registered customers and submits them periodically (e.g. at the end of each month) as a single charge to the customer. The collection procedures could be compared to the delayed payments to settle credit or delayed card bills (Vassiliou, 2004).

One benefit of cumulative collection services as indicated by Vassiliou(2004) is that customers who do not have access to, or do not wish to use their credit or debit cards online might be able to use these services. A further benefit is that no sensitive information needs to be transmitted in a transaction.

Vassiliou(2004) further argues that, cumulative collection services are capable of providing a more cost-efficient facility for micro-payments than traditional payment instruments.

2.1.5  Payment Portal Services

“Payment portals are payment service providers that offer a wide range of the different payment options described in the previous sections and provide merchant accounts to online retailers in general” (Vassiliou, 2004). Payment Portals take care of the payment side of the e-commerce operations for merchants. Merchant can redirect the customers to the payment portal’s site when making online payments, where customers are given a choice between several means of payment. After successful completion of the payment, the portal notifies the e-merchant that the order can be shipped. (Vassiliou, 2004)

2.1.6  Mobile Phone Payments

Several initiatives have emerged for initiating e-payments from mobile phones by using short message (SMS) or phone calls. These have also been referred to as m-payments (Vassiliou, 2004). Vassiliou further indicates that most m-payments initiatives follow a simple model where the customer(payer) first identifies him/herself to the merchant by providing his/her phone number or by calling the merchant. The merchant forwards the payment and customer information to the payment service provider(e.g. through the mobile network). The service provider then presents the payment information to the payer for confirmation and upon confirmation(e.g. with a PIN number) records the transaction. The communication between the customer and the payment provider and/or merchant can take place through phone calls and/or short messages.

2.2     On-line vs Off-line 

Payments can be performed on-line, involving an authorization server (usually as part of the issuer or acquirer) in each payment, or offline without contacting any third party during payment. The obvious problem with off-line payments is how to prevent payers from more money than they actually possess.

On-line systems obviously require more communication, but not necessarily tamper-resistant hardware(Asokan, et,al., 2000). In general, they are considered more secure than off-line systems.

2.3     Benefits of Electronic Payments

A study by the Federal Reserve Financial Service Policy Committee indicates that electronic payment transactions in the United States have exceeded check payments for the first time in history. The total number or electronic equalled 44.5 billion dollars in 2003, while the number checks paid totalled 36.7 billion dollars. Obviously a trend among consumers can be identified. Consumers are becoming more comfortable in doing business electronically and using a digital medium to conduct their business.

According to a study by (Fiallos& Wu), the arrival of internet has taken electronic payments and transactions to an exponential growth level. Consumers could purchase goods from the internet and send unencrypted credit card numbers across the network, which did not provide much security and privacy. But a wide variety of new secure network payments schemes have been developed as consumers became more aware of their privacy and security.

Electronic payments as argued by (Cobb, 2005) have a significant number of economic benefits apart from convenience and safety. These benefits when maximized can go a long way to contributing immensely to economic development of a nation.

Automated electronic payments help deepen bank deposits thereby increasing funds available for commercial loans-a driver of overall economic activity. According to (Cobb, 2005), efficient safe and convenient electronic payment carry with them a significant range of macro-economic benefits. “The impact of introducing electronic payment is  akin to using the gears on a bicycle. Add an efficient electronic payments system to an economy, and you kick it into a higher gear. Add better-controlled consumer and business credit, and you notch up economic velocity even further.” (Cobb, 2005).

Hord (2005) further emphasises the fact that electronic payment lowers cost for businesses. The more payments that is processed electronically, the less money is spent on paper and postage. Offering electronic payment can also help businesses improve customer retention. “A customer is more likely to return to the same e-commerce site where his or her information has already been entered and stored” (Hord, 2005).

According to (Cobb, 2005), “electronic payments can thus lower transaction costs stimulate higher consumption and GDP, increase government efficiency, boost financial intermediation and improve financial transparency”. She further added that “Governments play a critically important role in creating an environment in which these benefits can be achieved in a way consistent with their own economic development plans.

(Humphery, et.al., 2001) also support the fact that the introduction and use of electronic payment instruments holds the promise of  broad benefit to both business and consumers in the form of reduced costs, greater convenience and more secure, reliable means of payment and settlements for a potentially vast range of goods and services offered worldwide over the internet or other electronic networks. One such benefits is that electronic payments enable bank customers to handle their daily financial transactions without having ot visit their local bank branch. Electronic payments products could save merchants time and expense in handling cash (Appiah and Agyemang, 2006).

2.4     Enhancing E-Payments Security

According to (Taddesse&Kidan, 2005), the most common method of securing e-payments using cryptographic based technologies such  as encryption and digital signatures. Applying these technologies reduce speed and efficiency  and as a result compromise has to be made between efficiency and security. The following are some of the technological means to secure e-payments

·        Secure Electronic Transaction (SET): This is an open standard developed by Master Card and Visa to provide a solution to security problems for online credit card payment system (Ulah, 2010). This is achieved by providing digital certificate for both customer and merchant. According to (Taddesse&Kidan, 2005), this did not found acceptance because it was complicated and required both  customer and merchant to download 5MB of software.

·        3D Secure is a Visa alternative to SET and does not require certificate to authenticate (Ulah, 2010).

·        Smart Card Security: Data stored on a smart card is encrypted and cannot be assessed without password/PIN and thus provide strong security (Taddesse&Kidan, 2005) argue that magnetic strip cards i.e., debit cards etc are being replaced by smart cards. Proper policies, procedures and appropriate Government laws must also be put in place to ensure technologies provide maximum security.

2.5     Challenges of Electronic payment

In a research work by Taddesse&Kidan (2005), the following have been identified as barriers for the introduction, adoption and growth of the Electronic Payment Systems

·        Behavioural constraints: The fact that African society is cash based, people are accustomed to using cash for most of their transactions.

·        Bank attitude: Banks are very conservative; they use few innovative products and marketing techniques.

·        Lack of confidence: The security issue is one of the major challenges in the development of e-payment in Africa.

·        High rates of illiteracy: Low literacy rate is a serious impediment for adoption of e-payment as it hinders the accessibility of banking services. For citizens to fully enjoy the benefits of e-payments, they should not only know how to read and write but als0o possess basic ICT literacy.

·        High cost of internet: The cost of internet access related to per capita income is a critical factor compared to developed countries, there are higher cost of entry into the e-payments and e-commerce market. The include start-up investments costs, high cost of computers and telecommunication and licensing requirements.

·        Resistance to changes in technology among customers and staff due to

a.     Lack of awareness on the benefits of new technologies

b.     Fear of risk

c.      Lack of trained personnel in key organizations

d.     Tendency to be content with the existing structures

e.      People may be resistant to new payment mechanism.

2.6     Historical Background of Nigerian Association of Computer Science                       Students (NACOSS)

The Nigerian Association of Computer Science Students (NACOSS) is a student professional body with presence in almost all tertiary institutions in Nigeria (both private and government owned). NACOSS was founded by group of students in July 1993 with the backing of  Nigerian Computer Society(NCS) as its parent body. The aim of NACOSS is to provide avenue for students in any IT related field to highlight and champion issues of interest in a coordinated and organized manner. NACOSS members (NACOSSites) are students studying computer related disciplines in tertiary institution including Computer Science,  Computer Engineering, Information and Communication Technology e.t.c.

NACOSS, Federal Polytechnic, Nasarawa chapter started in the year 1997, shortly after the successful accreditation of computer science department in the institution by the National Board for Technical Education (NBTE) on the 23^rd July, 1997. NACOSS started in this chapter with the National Diploma students before the accreditation of the Higher National Diploma (HND) program in the year 2007/2008 academic sessions.

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