Electronic payment

ELECTRONIC
PAYMENT
SYSTEM
 Introduction
E payments are payments that are made
electronically over the internet . Earlier
almost all the business transactions were
done through cash payments but now IT
revolution has led to the development of
new forms of payment
 Introduction
ELECTRONIC PAYMENT SYSTEM
Electronic Payment system is a financial exchange that
takes place online between buyers and sellers. The content
of this exchange is usually some form of digital financial
instrument {such as encrypted credit card numbers,
electronic cheques or digital cash) that is backed by a bank
or an intermediary, or by a legal tender. The various factors
that have leaded the financial institutions to
make use of electronic payments are:‐
1. Decreased technology cost
2. Reduced operational and processing cost
3. Increasing online commerce
Electronic payment system
payment(EFT , e-cash ,e check , e-wallet,micropayment)

Virtual
customer
businessman
product or service
1.Electronic payment system is a financial exchange
that takes place online between buyers and sellers
2.There are different methods to pay electronically like
credit cards , electronic cash etc.
 Traditional payment scheme
• Payment(credit card ,cash , check)

customer businessman
• Produce or service

⚫ In earlier days ,conventional cash were most popular

because they were the only payment type available
⚫ However with time banks came into existence and the
society underwent a financial revolution.
⚫ But all these modes of the conventional payment and
settlement process act as a bottleneck in the fast moving
electronic commerce environment
 Problems in traditional payment
system
⚫ Lack of convenience: Traditional payment systems require the consumer to either send
paper cheques by mail or require them to physically come over and sign papers before
performing a transaction.
⚫ There is a lack of security: This is because the consumer has to send all confidential data
on a paper, which is not encrypted, that may be read by anyone.
⚫ There is a lack of coverage: When we talk in terms of current businesses, they span
many countries or states. These businesses need faster transactions. This is not possible
without the bank having branches near all of the company offices.
⚫ There is a lack of eligibility because not all potential buyers may have a bank account.
⚫ Lack of support for micro-transactions: Many transactions done on the internet
are of very low cost though they involve data flow between two entities in two
countries. The same, if done on paper, may not be feasible at all.
BENEFITS TO BUYER
BENEFITS TO SELLERS
TYPES OF
E-PAYMENT
SYSTEM
Payment Systems: An electronic payment is any kind of non-cash
payment that doesn't involve a paper check. Methods of electronic payments include
credit cards, debit cards and the ACH (Automated Clearing House) network. The ACH
system comprises direct deposit, direct debit and electronic checks (e-checks).
Electronic payment systems have become more popular thanks to increased use of
Internet shopping. These systems do not just involve Internet transactions, as there are
more and more ways being developed to facilitate electronic money transfers. With
increasing technology, the range of devices and processes used to transact
electronically continues to increase while the use of cash and check transactions is
decreasing. This is mainly because it is much easier to carry cards or use cell phones
to pay for purchases compared to cash.
 PAYMENT CARDS
⚫ CREDIT CARDS
⚫ DEBIT CARDS
⚫ CHARGE CARDS
⚫ SMART CARDS
Credit card
⚫ A credit card is a plastic card issued by a financial institution
and allows its owner to option to borrow money from the issuer
for purchases
⚫ Each credit card account has a maximum limit of funds that can
be charged within a certain period and in total.
⚫ Owners of credit cards have the ability to borrow a certain
amount of money from the creditcard issuer, to be paid back
within 30 days without interest.
⚫ Most credit card issuers charge interest for loans taken longer
than 30 days to repay. Missed deadlines for payments, as well
as failing to pay off credit card debts will negatively impact a
credit score.
 CHARGE CARDS
⚫ Are similar to credit cards except they have no revolving
credit line so they have make payments every month.
Charge cards are a type of card that lets user to perform
their transaction and settle the payment every month or the
time period offered by the issuer company (billing
period). Most charge cards have good rewards
but charge high annual fees.
 SMART CARDS
It similar to credit card and debit card in appearance bt it has
a small microprocessor chip embedded in it.
E-CASH
⚫ Online payments via debit cards, credit cards or smart card
are the examples of e-money transactions.
⚫ E Cash is transferred directly from customer’s desktop,
laptops or cell phone to the merchant’s site.
E-wallets:
⚫ This type of online payment service
includes PayPal, Google Pay and Apple
Pay. The service lets customers make
prepayments and bank transfers to cover
online payments. PayPal is the leader in
this arena with more than 200 million
active users. Unlike e-wallets like Apple
Pay that only work on a particular brand of
devices, PayPal works across all types of
equipment that can access the internet.
(Esewa ,imepay etc)
Bank Transfers
⚫ Some online shopping sites allow customers to
send money directly from a bank account by
initiating a bank transfer. Most banks allow
customers to set up one-time or recurring
electronic payments for purchases and services.
E-CHEQUE
⚫ The electronic cheques are modeled on paper checks, except
that they are initiated electronically. They use digital signatures
for signing and endorsing and require the use of digital
certificates to authenticate the payer, the payer’s bank and bank
account. They are delivered either by direct transmission using
telephone lines or by public networks such as the Internet.
ELECTRONIC FUND TRANSFER
⚫ It is one of the oldest methods to transfer money.
⚫ It is the groundwork of groundless and cheque-less
culture, it is used to transfer money without any paper
money changing hands.
Benefits of EFT
⚫ Simplified accounting
⚫ Improved efficiency
⚫ Reduced administrative costs
⚫ Improved security
The digital token based
payment system
⚫ The digital token based payment system is a new form of
electronic payment system which is based on electronic
tokens rather than e-cheque or e-cash. The electronic
tokens are generated by the bank or some financial
institutions. Hence we can say that the electronic tokens
are equivalent to the cash which are to be made by the
bank. They facilitate peer-to-peer exchange without the
need of going through a third-party intermediary.
 Categories of Electronic
Tokens:-
1. Cash or Real Time:-In this mode of electronic tokens transactions
takes place via the exchange of electronic currency (e-cash).
2. Debit or Prepaid:- In this electronic payment system the prepaid
facilities are provided. It means that for transactions of information
user pay in advance. This technology are used in smart card,
electronic purses etc.
3. Credit or Postpaid;- These types of electronic token based on the
identity of customers which issue a card, their authentication and
verification by a third party. In this system the server authenticate the
customers and then verify their identity through the bank. After all
these processing the transaction take place. Example is E-Cheques.
 Benefits of the pre‐paid payment system (debit card)
⚫1. It is accepted at the entire merchant establishment
worldwide according to the affiliation of the credit given
company.
⚫2. It can be used to withdraw cash from the ATMs
⚫3. Reloadable anytime anywhere
⚫4. It can be used to withdraw cash in any international
currency
⚫5. It is usually backed up by personal accident insurance
cover
⚫6. Customer has the facility to get online and track spending
, check balance, change pin
 Features of Post paid payment system(credit card )
⚫ Global acceptance – accepted by all the merchant establishments according to
the network set by the credit card company.
⚫ Balance transfer option – It is possible to transfer outstanding funds from one
card to other cards with low interest rates.
⚫ Revolver facility – Customer can pay only a small amount of the total
outstanding and revolve the rest for the payment o the next month.
⚫ Cash advance facility – Customer can withdraw around 30% of the credit limit
at any ATM connected to the credit card company
⚫ Tele draft – These facilities are available at the door steps of the customer
⚫ Other services – Credit card can be used for railway tickets and airline ticket
purchase
⚫ Convenience – as the customer is not required to carry cash for any purchase
⚫ Easy availability – holder can load prepaid credit cards at anytime they need.
Risk factors in electronic
payment system
⚫ The Risk of Fraud: Electronic payment systems are not safe to the risk of fraud. The system
uses a particularly vulnerable protocol to establish the identity of the person authorizing a
payment. Passwords and security questions aren’t foolproof in determining the identity of a
person. As long as the password and the answers to the security questions are correct, the
system doesn’t care who’s on the other side. If someone gains access to your password or the
answers to your security question, they will have gained access to your money and can steal it
from you.

⚫ The Risk of Tax Evasion: The law requires that businesses declare their financial transactions
and provide paper records of them so that tax compliance can be verified. The problem with
electronic systems is that they don’t fit very cleanly into this paradigm and so they can make
the process of tax collection very frustrating for the Internal Revenue Service. It is at the
business’s discretion to disclose payments received or made via electronic payment systems in
a fiscal period, and the IRS has no way of knowing if it’s telling the truth or not. That makes it
pretty easy to evade taxation.
⚫ The Risk of Payment Conflicts : One of the features of electronic payment
systems is that the payments aren’t handled by humans but by an automated
electronic system. The system is prone to errors, particularly when it has to
handle large amounts of payments on a frequent basis with many recipients
involved. It’s important to constantly check your pay slip after every pay
period ends in order to ensure everything makes sense. Failure to do this
may result in payment conflicts caused by technical problems.

⚫ The Risk of Impulse(unplanned) Buying: Impulse buying is already a risk

that you face when you use non-electronic payment systems. It is magnified,
however, when you’re able to buy things online at the click of a mouse.
Impulse buying can become habitual and makes sticking to a budget almost
impossible.
⚫ Phishing: This is when fraudsters send emails, purporting to be from
reputable companies, in order to encourage individuals to reveal personal
information – such as passwords and credit card numbers.
⚫ Theft of data: This growing phenomenon, primarily caused by system
administrators and office workers with access to servers or their database
repository .the data and details we provide for the online electornic payment
may be theft by intruders or the e commerce site individuals. It is better to
use the secure sites for e transactions.
⚫ Fake online reviews: Five-star ratings can do wonders for online retailers, so
it pays to be uncertain of write-ups that lack detail, or are too positive. If
you are unsure about the validity of a review, try to check the source, and
trust your gut feeling: if it doesn’t seem right, the chances are the product is
substandard or it may even be a scam.
How a credit and debit card
payments work?
⚫ When you buy online using a card, the payment appears to
be instantaneous – you enter your card number, expiry
date and your card security code, and the transaction
(hopefully) completes.
⚫ But behind the scenes there are up to six parties involved
in completing your transaction and getting your money
from your current account (or credit card account) to the
retailer’s account.
Six steps of an online card transaction
These are the key stakeholders involved in your purchase.
⚫Cardholder: When you make your purchase, you - the
cardholder - are the first step in the process. You enter your
card and address details, giving permission for money to be
debited.
⚫Retailer: The retailer or service provider is responsible for
collecting your credit card details so that they can take
payment and fulfil your order.
⚫ Payment service provider: The payment service provider
replaces the role of a card reader terminal in a physical shop.
It does this by providing a secure payment website page for
you to enter your card details and security information.
Retailers typically pay a set-up fee and a per transaction fee
to their payment service provider.
⚫ Acquirer: Unless their payment service provider also has
an acquirer function, retailers will also have to pay for an
acquirer to process card transactions on its behalf. The
acquirer is responsible for receiving transaction details
once they’ve been collected by the payment service
provider. It then passes them through the card scheme and
to the issuer. The acquirer also receives the payment from
the card issuer and pays it into the retailer’s bank account.
⚫ Card scheme: The card scheme, for example Visa,
MasterCard or Maestro, controls the operation and
clearing of card payments, following the individual card
scheme’s rules. The card scheme will pass the transaction
details from the acquirer to the issuer, authorizing the
debiting of your bank account or credit card account. This
authorization is then passed on to the acquirer, which in
turn credits the retailer’s bank account.
⚫ Card issuer: The card issuer is the bank or building society
that provided you with your debit or credit card. It’s
responsible for debiting funds from your account to pass
to the card scheme.
 PAYMENT GATEWAY
Payment Gateways are the entities that act as a medium
for transaction processing between the entities ( e.g.
mastercard visa) and Certification authorities (CA) .
They issue public key certificates to entities.
Thanks
….