E-Payment System

by : Dr. Anubha, Dept. of Commerce

E-Payment System
It’s a payment mechanism which enables individuals, businesses,
government and non profit organisations to make cashless payments
for goods and services through cards, mobile phones over the internet.
Examples : payment through debit card, credit card, smart card, net
banking etc
Advantages of E-Payment
• Increased speed and convenience
• Eliminates the security risks
• Competitive advantage
• Time saving
• Environment friendly
Disadvantages of E-Payment
• Security concerns
• Disputed transactions
• Increased business costs
• Lack of anonymity
• Necessity of internet
 E-Payment
Modes

Credit Digital
Debit cards Smart card E-Wallet
cards Cash
 Credit Cards
Credit is small plastic card with a unique number linked with an account.
It has magnetic strip or chip embedded init which is used to read by credit
card reader.
Parties involved in credit card payment :
•A cardholder obtains a credit or debit card from an issuing bank, uses the
account to pay for goods or services.
•A merchant is any type of business that accepts card payments in exchange
for goods or services.
•A merchant bank establishes and maintains merchant accounts. Merchant
banks allow merchants to accept deposits from credit and debit
card payments.
•Payment processors are companies that process credit and debit card
transactions. Payment processors connect merchants, merchant banks, card
networks and others to make card payments possible.
•Issuing banks are the banks, credit unions and other financial institutions
that issue debit and credit cards to cardholders through the card
associations.
•Card associations include Visa, Mastercard, Discover and American
Express. The card associations set interchange rates and qualification
guidelines, and act as the arbiter between issuing banks and acquiring
banks among other vital functions.
 Debit Card
Debit card is also like credit card. It is required to have a bank account before
having debit card.
How to Use a Debit Card Online?
If you're paying for something online, you can use your Debit Card. Here is a
step-by-step guide to help you complete your payments online using Debit
Cards-
•Once you are at the payment checkout, you need to choose “Pay Using Debit/
Credit Card. Once you select on the option, you need to specify the type of
card, i.e., Debit Card and whether it is a Visa or Mastercard.
•Then, type the 16-digit Debit Card number which is on the front side of your
Debit Card. You will also have to enter the expiration date of the card.
•Once you’ve entered the Debit Card details, you may be asked for a CCD,
CVV, or similar security code. In most cases, it is a three or four- digit code
that helps prove that you are authorised to use the card. This code is mostly
found on the back of the cards.
•Once you are through the payment portal, you will be asked to enter a unique
transaction code or an OTP (one-time password) that is sent to the mobile
number linked to your Debit Cards. Once you enter the number, your
transaction is verified, and you receive a notification.
•To use a Debit Card online, you will need to know the correct billing address
which is linked to the card being used.
 Smart Card

Secure and reliable Smart Card has played a key role in improving multifaceted digital security. A smart
card is capable of storing and processing the data securely in a network of computers. The scope of
smart cards is increasing day by day in diverse applications like banking, telephone services, and medical
records systems etc. Smart-Card is a secure portable storage device which is used in various applications
requiring controlled access to sensitive information. It is in the size of a credit/ debit card, incorporated
with one or more integrated circuit chips.
It functions as a microprocessor, memory and provides an input-output interface. The International
Organization for Standardization (ISO) specifies certain voluntary international standards in many
scientific and technological fields. However, till to date, ISO has not defined any standards for the devices
termed as “Smart Cards.”
• How does the Smart Card Works?
• A smart card is connected to the host computer or controller via a card reader which gets
information from the smart card and accordingly passes the information to the host computer or
controller.

• Advantages of Smart Card:

• Might be promptly reconfigured
• Reusable
• Secure transactions
• Gives more security
• More tough and dependable
• Permit numerous provisions to be saved in one card
 Digital Cash
What is Digital Cash?

Digital Cash acts much like real cash, except that it’s not on paper. Money in your bank account is converted to a digital code. This
digital code may then be stored on a microchip, a pocket card (like a smart card), or on the hard drive of your computer.

The concept of privacy is the driving force behind digital cash. The user of digital cash is assured an anonymous transaction by any
vendor who accepts it. Your special bank account code can be used over the internet or at any participating merchant to purchase an
item. Everybody involved in the transaction, from the bank to the user to the vendor, agree to recognize the worth of the transaction, and thus
create this new form or exchange.
How does Digital Cash work?
• This example shows how digital cash might work through a banking institution. The bank creates a digital
bank note by signing a message which specifies the serial number (with a primary or public key) and value of
the note, and sends it to Person A. Person A, as he withdraws it, uses Chaum's technique (A Cryptography
technique) to alter the serial number so that the bank will not recognize the note as being from this
withdrawal. This note is now returned to the bank with the new serial number. The bank now has a note with
a new serial number. Person A then pays Person B electronically by sending the bank note to him. Person B
checks the note's validity by decrypting using the bank's public key to check its signature (new serial number
validity). Person B then sends the note to the bank, which checks the serial number to confirm that this bank
note hasn't been spent before. The serial number is now different from that in Person A’s withdrawal, thereby
pre- venting the bank from linking the two transactions. The enabling bank merely checks the new serialized
key account for the amount of the transaction and transfers the money by sending out a depository
notice. Person B using the same encrypting technique returns the depository notice with the new serialize
account. The enabling bank does not know who the merchant is only that money is available for payment. In
some respects, this is a debit card transaction with no information other than the amount of the
transaction. All initial depositor information is in the primary key account not the password account.

Special software to enable these dual track procedures was developed by Digicash. However this venture was
not successful, nor was it successful for its successor corporation, CyberCash, Inc.
 Online Banking
Online banking allows a user to conduct financial transactions via the Internet. Online banking is also known as Internet banking or web banking.

Online banking offers customers almost every service traditionally available through a local branch including deposits, transfers, and online bill payments.

With online banking, consumers aren't required to visit a bank branch to complete most of their basic banking transactions.
They can do all of this at their own convenience, wherever they want—at home, at work, or on the go.
Online banking requires a computer or other device, an Internet connection, and a bank or debit card.
In order to access the service, clients need to register for their bank's online banking service. In order to register, they need to create a password.
Once that's done, they can use the service to do all their banking. Banking transactions offered online vary by the institution. Most banks generally
offer basic services such as transfers and bill payments. Some banks also allow customers to open up new accounts and apply for credit cards
through online banking portals. Other functions may include ordering checks, putting stop payments on checks, or reporting a change of address.
Checks can now be deposited online through a mobile app. The customer simply enters the amount before taking a photo of the front and back of
the check to complete the deposit.
 EFT
• What is EFT?

• An electronic funds transfer (EFT) is any transfer by two corresponding banks or financial institutions that is strictly handled by
computerized systems. In other words, this is a broad term for modern transaction methods. As long as it doesn’t involve direct human
contact and is facilitated through a computer, then it’s considered an EFT. You can think of it as an umbrella term of sorts, so EFTs can be
wire transfers, direct debits, ACH payments, and more. EFTs have exploded in popularity following the invention of the internet, eCommerce,
and digital cash. Virtually all components of a traditional transaction are being digitized — invoices, receipts, payments, and EFT systems are
an essential component of this. So why accept electronic checks, digital debit transactions, etc. if credit cards are so popular these days?

• Cost and convenience.

• EFTs are significantly cheaper than credit cards — averaging at around 1% in fees as opposed to 3% or so for cards. For businesses of all
types and sizes, this offers a significant incentive to support and encourage customers to use EFT methods.

• While features and specifics change payment type to payment type, there are some common characteristics across all EFT payment types.

 Funds are typically transferred with 24-48 hours. Fees typically hover around 1%

 EFTs are popular for recurring debits and credits.

 Customers enjoy having the payment flexibility EFTs offer.

 ACH
• What is ACH?

• ACH, or automated clearing house, is like a check without the paper.

• ACH payments are a type of EFT. If EFT stood for electric cars, then ACH would be a Tesla or Nissan Leaf. So
ACH can be a type of EFT but EFT can’t be a type of ACH.

• It’s a computer-based clearing and settlement facility that exchanges funds between two depository institutions.
ACH is most commonly used in recurring invoicing (monthly auto-drafts) and direct deposit programs. ACH is
cheap to send money with and relatively easy to set up, making it an attractive option for businesses that conduct
large, recurring bills (think B2B or consulting fees).

Typical uses of ACH

• Direct deposits: This is the most popular use of ACH payments. By paying employees with ACH employers
drastically reduce fees and increase employee satisfaction and convenience.
• Direct debits and credits: There’s widespread use of ACH payments in subscription/repeat billing situations. Think
automatic drafts via gyms, utilities, insurance, etc. If you work in any sort of SaaS or retainer-based business, you
need to support ACH.
• Taxes: ACH is the most common form of tax payment.
 ALP
The ledger is a permanent summary of all amounts entered in
supporting journals which list individual transactions by date. Every
transaction flows from a journal to one or more ledgers. A
company's financial statements are generated from summary totals in the
ledger.

ALP is a method of automatically depositing or withdrawing funds from an

individual account, when account holder authorize the bank or 3rd party to
do.
Automatic transaction posting can reduce account errors associated with
manual transaction posting. It can also reduce the time it takes to gather
and analyze the information presented in the financial statements by
reducing the need for correcting or adjusting entries.
Risks in E-Payment
• Disputed Transaction
• Lack of security or trust
• Lack of Account trail
• Lack of anonymity
• Impulse buying
• Payment conflicts
• Frauds - phishing , skimming , impersonating
• Costing
• Technological failure
References
Madan, S (2020). Ecommerce, scholar Tech Press

https://tidalcommerce.com/learn/eft-vs-ach
https://www.thebalance.com/ach-debit-for-consumers-315440
https://www.investopedia.com/terms/o/onlinebanking.asp
https://www.fisglobal.com/en/insights/merchant-solutions-
worldpay/article/how-credit-card-processing-works
https://www.hdfcbank.com/personal/resources/learning-
centre/pay/how-to-use-debit-cards