Digital Token-based payment system

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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-cheques or e-cash. 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.


Categories of Electronic Tokens:-

1. Cash or Real-Time:-

In this mode of electronic tokens, transactions take place via the exchange of electronic currency (e-cash).

2. Debit or Prepaid:-

In this electronic payment system, prepaid facilities are provided. It means that for transactions of information users pay in advance. This technology is used in smart cards, electronic purses, etc.

3. Credit or Postpaid;-

These types of electronic tokens are based on the identity of customers who issue a card, their authentication, and verification by a third party. In this system, the server authenticates the customers and then verifies their identity through the bank. After all this processing the transaction takes place. An example is E-Cheques.


The Digital Token-based system has the following issues for which they are established:-

1. Nature of transaction for which instrument is designed:-

In this category, the design issues of tokens take place. It may be designed to handle micropayments. It may be designed for conventional products. Some tokens are designed specifically and others generally. The design issue involves the involvement of parties, purchase interaction, and average amount.

2. Means of Settlement:- 

Digital Tokens are used when their format must be in cash, credit, electronic bill payments, etc. Most transaction settlement methods use credit cards while others used proxies for values.

3. Approach to Security, Anonymity, and Authentication:-

Since the electronic token is varying from system to system when the business transaction takes place. So it is necessary to secure it from intruders and hackers. For this purpose, various security features are provided with electronic tokens such as the method of encryption. The encryption method uses the digital signatures of the customers for verification and authentication.

4. Risk Factors:-

The electronic tokens may be worthless and if the customer has currency on the token then nobody will accept it, If the transaction has a long time between delivery of products and payments to merchants then the merchant exposes to the risk. so it is important to analyze risk factors in the electronic payment system.

                                   OR,


Digital Token-based Electronic Payment Systems

• None of the banking or retailing payment methods is completely adequate in their present form for the consumer-oriented e-commerce environment.

• there may be a sufficient delay in the payment process for frauds, overdrafts, and other undesirables to be identified and corrected 

• many of these payment mechanisms are being modified and adapted for the conduct of business over networks

 • Entirely new forms of financial instruments are also being developed

 • One such new financial instrument is "electronic tokens" in the form of electronic cash/money or checks 

• Electronic tokens are designed as electronic analogs of various forms of payment backed by a bank or financial institution.

• Simply stated, electronic tokens are equivalent to cash that is backed by a bank


There are three types of electronic tokens

Cash or Real-Time: Transactions are settled with the exchange of electronic currency. An example of online currency exchange is electronic cash (e-cash).

 Debit or Prepaid: Users pay in advance for the privilege of getting information.  Examples of prepaid payment mechanisms are stored in smart cards and electronic purses that store electronic money

Credit or Postpaid: The server authenticates the customers and verifies with the bank that funds are adequate before purchase. Examples of postpaid mechanisms are credit/debit cards and electronic checks



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