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ELECTRONIC PAYMENT SYSTEMS

What is an E-Payment System?

An integral part of e-commerce.

Can either be a: Simple electronic version of existing payment systems such as

cheques and credit cards

Or, based on the digital currency technology

Traditional Payment Systems

A conventional process of payment and settlement involves a buyer-to-seller transfer of cash or payment information (i.e., cheque and credit cards).

The actual settlement of payment takes place in the financial processing network.

Traditional Payment Systems

Problems with Traditional Systems

Lack of Convenience

Lack of Security

Lack of Coverage

Lack of Eligibility

Lack of support for micro-transactions

Modern E-Payment Systems

The traditional system does not depend on a central processing intermediary.

An electronic fund transfer is a financial application of EDI (Electronic Data Interchange), which sends credit card numbers or electronic cheques via secured private networks between banks and major corporations.

Modern E-Payment Systems

Types of E-Payment Systems

Credit Card

Smart Card

Debit Cards

Electronic Cheques

Peer-to-peer Payments

Credit Cards

An online shopping payment tool

This payment system has been widely accepted by consumers and merchants throughout the world

This form of payment system has several advantages: Privacy

Integrity

Compatibility

Good transaction efficiency

Acceptability

Convenience

Mobility

Low financial risk

Anonymity

A Credit Card Payment Form

Credit Card Process

Credit Cards: Pros & Cons

ADVANTAGES Increased Sales.

Faster Checkout

Cheaper than

More Security

More Choices

DISADVANTAGES Cost

Fraud

Chargebacks

Smart Cards

“Smart cards‟ are receiving renewed attention as a mode of online payment

Plastic cards with the memory chips

In some cases, with microprocessors embedded in them so as to serve as storage devices for much greater information than credit cards with inbuilt transaction processing capability.

This card also contains some kinds of an encrypted key that is compared to a secret key contained on the user’s processor.

Applications of Smart Card

Authentication, ID

Medical records

E-cash

Store loyalty programs

Personal profiles

Government Licenses

Mall parking

Smart Card: Pros & Cons

ADVANTAGES: Atomic, debt-free transactions

Feasible for very small transactions (information commerce)

(Potentially) anonymous

Security of physical storage

(Potentially) currency-neutral

DISADVANTAGES: Low maximum transaction limit (not suitable for B2B or most B2C)

High Infrastructure costs (not suitable for C2C)

Not (yet) widely used

Debit Cards

A small plastic card, resembling a credit card in appearance.

Used to make cash withdrawals from a bank account, or to pay for goods and services.

A 'prepaid' Debit Card is not linked to a bank account, but is 'loaded' with funds by over-the-counter payment or electronic transfer before use, and can be 'recharged' when necessary.

Debit Card Process

Card owners are usually issued with a Personal Identification Number used to verify their identity and authority to use the card. 

This PIN (generally a four digit number) should be kept secret, and typed into a terminal or ATM or entered on to an Internet form to verify your identity when using the card. 

Some Debit Card purchases can be confirmed with a signature. 

Both methods provide good security, though it is important for card owners to keep their card somewhere safe and inaccessible to others, and to report any loss at once. 

Debit Card : Pros & Cons

ADVANTAGES

Accepted by merchants because of its easiness, safety and quick money transaction utility

One time fee with no extra interests or surcharges like late fee, APR, etc.

A debit card can be used at anywhere, anytime for any buying.

You can use your debit card to obtain cash from an ATM without paying any extra charge

Anyone who has bank account can obtain a debit card.

DISADVANTAGES

Overdraft charges.

Non-sufficient funds or over-limit fee.

Some countries does not offer much security on a debit card than credit card

Easier for hackers than a credit card.

Electronic Cheque

Addresses the electronic needs of millions of businesses, which today exchange traditional paper cheques with the other vendors, consumers and government.

Works in much the same way as conventional paper cheque.

An account holder will issue an electronic document that contains the name of the financial institution, the payer’s account number, the name of payee and amount of cheque. Most of the information is in uncoded form.

E-Check: Pros and Cons

ADVANTAGES

Does not require consumers to reveal account information to other individuals when setting an auction

Does not require consumers to continually send sensitive financial information

It is less expensive than credit cards

It is much faster than paper based traditional cheque.

DISADVANTAGES

Relatively high fixed costs

Limited use only in virtual world and the fact that they can protect the users‟ anonymity.

E-Cheque System Process

Peer-to-Peer Payments

Newest and fastest-growing payment schemes. E

Enable the transfer of funds between two individuals

One of the first companies to offer this service was PayPal (paypal.com).

PayPal claimed, in late 2001, to have 8 million customer accounts, handling 25 percent of all eBay transactions and funneling $5 billion in payments through its servers annually.

Peer-to-Peer Model

Usage of E-Payment Systems

Factors against Online Payment Methods

Benefits of E-Payment Systems

Electronic payment is very convenient for the consumer.

Completing a transaction is as simple as clicking your mouse: All you have to do is confirm your purchase and you're done.

Electronic payment lowers costs for businesses.

The more payments they can process electronically, the less they spend 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.

Disadvantages

Most of the online banking require you to open an online account with them.

For secure online transactions, the site that hosts your account should follow strict security policies.

Identity theft!!

Electronic payments are resistant to forgery, the keys are vulnerable to attack.

This was not to discourage you from taking to electronic payments. It was rather to make you aware of the disadvantages of electronic payment systems. While we are moving towards a paperless environment, we are inviting issues related to electronic security.

E-Payments in Pakistan

At present several utility service providers along with many banks have started using electronic payment system in Pakistan.

The banking industry in Pakistan is mostly privatized and banks like HBL, HMB, Standard Chartered and MCB etc are using ATMs and POS for payment of utility bills electronically.

E-Payments in Pakistan

Another huge sector which is under development and growing massively the concept of branchless banking, such as Telenor EasyPaisa, MobiCash or UBL Omni, which involves banking payment transfers through banks and depositors backed up by a cellular network.

The utility service providers have also taken several steps so that they can work along with the banks to provide the service of electronic payment (KESC, SSGC, WAPDA, PTCL etc)

Conclusion

Technology has inarguably made our lives easier.

It has cut across distance, space and even time.

One of the technological innovations in banking, finance and commerce is the Electronic Payments.

Electronic Payments (e-payments) refers to the technological breakthrough that enables us to perform financial transactions electronically, thus avoiding long lines and other hassles.

Thank You