Electronic payments

• The use of technology in modern banking services that we know as electronic payment systems make banking performance more optimal, various activities can be implemented quickly and accurately while impacting productivity 

• Electronic payments are payment mechanisms that use electronic media that do not involve cash 

• Electronic payment systems can also define as a type of inter-organizational information related to transaction systems, linking various associations, and linking to individual clients. Need for complex interaction is required between partners, the technology, and the environment. 

• According to the Federal Financial Institutions Examination Council (2010), electronic payment is a new payment practice for retail where a merchant retrieves payment information for goods and services and places this information in an electronic template that creates electronic files for processing over the network. 

• Electronic payments may be defined as an electronic value transfer of a payment from the payer to the recipient through an electronic payment mechanism. The e-payment service comes with a web-based user interface that allows customers to access, manage their bank accounts and transactions remotely 

•  In general, e-payment refers to electronic payment in the context of e-commerce online transactions conducted over the Internet. Electronic payments can also be defined as a paperless payment process 

• An e-payment system is a way of making transactions or paying for goods and services through an electronic medium, without the use of checks or cash. It’s also called an electronic payment system or online payment system.

• E-Commerce or Electronics Commerce sites use electronic payment where electronic payment refers to paperless monetary transactions.

• Electronic payment has revolutionized business processing by reducing paperwork, transaction costs, labor costs

• Being user-friendly and less time-consuming than manual processing, helps business organizations to expand their market reach/expansion.

Benefits of e-payment systems

• People are almost comfortable with online shopping and e-payments. With this trend, accepting online payment is a must for any business.

• E-payments are making shopping and banking more convenient. They are helping customers to reach more clients locally and globally.

• E-payments are faster making the transactions efficient.

• With e-payments, customers can pay online at any time from anywhere, making them easily accessible and convenient for customers.

• It’s easy to integrate online payment solutions with businesses as many payment processing solution providers offering different types of solutions.

• Online payment solutions come with security and risk and anti-fraud tools making them reliable and secure not only for customers but also for merchants.

• E-payments are proved to be highly effective for international transactions, as they are cheaper, easier, faster, and generally are real-time.

Pros and Cons of Using an E-payment System

E-payment systems are made to facilitate the acceptance of electronic payments for online transactions. With the growing popularity of online shopping, e-payment systems became a must for online consumers — to make shopping and banking more convenient. It comes with many benefits, such as:

• Reaching more clients from all over the world, which results in more sales.

• More effective and efficient transactions — It’s because transactions are made in seconds (with one click), without wasting customer’s time. It comes with speed and simplicity.

• Convenience. Customers can pay for items on an e-commerce website at any time and anywhere. They just need an internet-connected device. As simple as that!

• Lower transaction costs and decreased technology costs.

• Expenses control for customers, as they can always check their virtual account where they can find the transaction history.

• Today it’s easy to add payments to a website, so even a non-technical person may implement it in minutes and start processing online payments.

• Payment gateways and payment providers offer highly effective security and anti-fraud tools to make transactions reliable.

Drawbacks

• E-commerce fraud is growing at 30% per year. If you follow the security rules, there shouldn’t be such problems, but when a merchant chooses a payment system that is not highly secure, there is a risk of a sensitive data breach which may cause identity theft.

• The lack of anonymity — For most, it’s not a problem at all, but you need to remember that some of your personal data is stored in the database of the payment system.

• The need for internet access — As you may guess, if the internet connection fails, it’s impossible to complete a transaction, get to your online account, etc.

Some advantages of electronic payments include, but are not limited to:

• Convenience - Customers can buy and pay for products online 24 hours a day, 7 days a week no matter where they are located, as all it takes is a device with an internet connection.  Both types of electronic payment system discussed, whether a one-time payment or a recurring payment, is more convenient compared to a shopping visit in a physical store.

• Speed - The payment is done immediately and there is no need to wait for the approval.  The process of paying online becomes even faster when using an e-wallet that has the user’s payment data already stored.  It’s important that an e-commerce website is easy to navigate and has a quick loading time as consumers have limited time nowadays and they are seeking easier and efficient ways to buy goods.

• Increased sales and profits – Online payments can help merchants globalize their business and attract customers from around the world.  Reaching more people likely results in an increase in sales, providing a business with more economies of scale. When operations are optimized, this is likely to increase profits for the business.

• Reduction in transaction costs and time - In electronic commerce, where online payments are being used, funds are transferred digitally between the buyer and seller, eliminating transaction and time costs that are typical to point of sale or cash transactions.  For instance, cash payments require trips to financial institutions from the customer’s end whereas electronic payments are accessible with a simple click.

The drawbacks of e-payment services include:

• Security concerns –The fraud risk in electronic payment system transactions is one of the main concerns of online merchants.  Partnering with a regulated payment service provider that offers a secure payment gateway is the first and most important step for merchants who want to accept online payments.  A payment gateway that is equipped with the latest security features will protect the business from fraudulent transactions.

• Increased costs required to protect sensitive data – merchants should reassure their customers that the credit card details used on their online store are secured.  One of the features that indicate that sensitive data is protected from being stolen is the SSL protocol which can be recognized by the website address, as it will start with ‘HTTPS, and is symbolized by a locker on the URL bar of the website.

                              OR,

 Electronic Commerce Payment Systems

Special electronic payment systems have been developed to pay for goods electronically on the Internet. Electronic payment systems for the Internet include systems for credit card payments, digital cash, digital wallets, accumulated balance digital payment systems, stored value payment systems, peer-to-peer payment systems, electronic checks, and electronic billing presentment and payment systems.

Some of the e-payment are described below:-

•     Credit cards account for 80 percent of online payments in the United States and about 50 percent of online purchases outside the United States. The more sophisticated electronic commerce software has capabilities for processing credit card purchases on the Web. Businesses can also contract with services that extend the functionality of existing credit card payment systems. Digital credit card payment systems extend the functionality of credit cards so they can be used for online shopping payments. They take credit cards safer and more convenient for online merchants and consumers by providing mechanisms for authenticating the purchaser’s credit card to make sure it is valid and arranging for the bank that issued the credit card to deposit money for the amount of the purchase in the seller’s bank account.

•  Digital wallets make paying for purchases over the Web more efficient by eliminating the need for shoppers to enter their address and credit card information repeatedly each time they buy something. A digital wallet securely stores credit card and owner identification information and provides that information at an electronic commerce site’s “checkout counter.” The digital wallet enters the shopper’s name, credit card number, and shipping information automatically when invoked to complete the purchase. Amazon.com’s 1-Click Shopping, which enables a consumer to fill in shipping and credit card information automatically by clicking one button, uses electronic wallet technology. MSN Wallet, MasterCard Wallet, and America Online’s Quick Checkout are other digital wallet systems.

•  Micropayment systems have been developed for purchases of less than $10, such as downloads of individual articles or music clips, which would be too small for conventional credit card payments. Accumulated balance payment systems or stored value payment systems are useful for such purposes.

•   Accumulated balance digital payment systems enable users to make micropayments and purchases on the Web, accumulating a debit balance that they must pay periodically on their credit card or telephone bills. IPIN has been widely adopted by online music sites that sell music tracks for 99 cents. It invoices customers through existing consumer billing services such as telephone and wireless service companies, Internet service providers, and banks. PaymentOne and Trivnet enable consumers to charge small purchases to their monthly telephone bills.

•  Stored value payment systems enable consumers to make instant online payments to merchants and other individuals based on the value stored in a digital account. Online value systems rely on the value stored in a consumer’s bank, checking, or credit card account, and some of these systems require the use of a digital wallet. E-account offers a prepaid debit account for online purchases, and RocketCash is a new online stored value system aimed at teenagers.

•  Smart cards are another type of stored value system used for micropayments. A smart card is a plastic card the size of a credit card that stores digital information. The smart card can store health records, identification data, or telephone numbers, or it can serve as an “electronic purse” in place of cash. The Mondex and American Express Blue smart cards contain electronic cash and can be used to transfer funds to merchants in physical storefronts and to merchants on the Internet. Both are contact smart cards that require the use of special card-reading devices whenever the cards need to transfer cash to either an online or offline merchant. (Internet users must attach a smart card reader to their PCs to use the card. To pay for a Web purchase, the user would swipe the smart card through the card reader.)

•   Digital cash (also known as electronic cash or e-cash) can also be used for micropayments or larger purchases. Digital cash is currency represented in electronic form that moves outside the normal network of money (paper currency, coins, checks, credit cards). Users are supplied with client software and can exchange money with another e-cash user over the Internet or with a retailer accepting e-cash. eCoin.net is an example of a digital cash service. In addition to facilitating micropayments, digital cash can be useful for people who do not have credit cards and wish to make Web purchases.

•  New Web-based peer-to-peer payment systems have sprung up to serve people who want to send money to vendors or individuals who are not set up to accept credit card payments. The party sending money uses his or her credit card to create an account with the designated payment at a Web site dedicated to peer-to-peer payments. The recipient “picks up” the payment by visiting the Web site and supplying information about where to send the payment (a bank account or a physical address). PayPal has become a popular peer-to-peer payment system.

•  Digital checking payment systems, such as Western Union MoneyZap and eCheck, extend the functionality of existing checking accounts so they can be used for online shopping payments. Digital checks are less expensive than credit cards and much faster than traditional paper-based checking. These checks are encrypted with a digital signature that can be verified and used for payments in electronic commerce. Electronic check systems are useful in business-to-business electronic commerce.

•  Electronic billing presentment and payment systems are used for paying routine monthly bills. They enable users to view their bills electronically and pay them through electronic fund transfers from bank or credit card accounts. These services support payment for online and physical store purchases of goods or services after the purchase has taken place. They notify purchasers about bills that are due, present the bills, and process the payments. Some of these services, such as CheckFree, consolidate subscribers’ bills from various sources so that they can all be paid at one time. Table 4-3 summarizes the features of some of these payment systems.