E-Payment System

E-Payment System

Introduction

• An electronic payment system, also known as an “Online Payment System/Digital Payment System“.
• Electronic payment systems have become an increasingly popular way to handle financial transactions due to their convenience and security.

Definition

• An electronic payment system(EPS) is a method of making financial transactions through electronic channels, such as the Internet or mobile devices.
• An electronic payment system (EPS) refers to the technology and infrastructure used to facilitate financial transactions and the exchange of money electronically. 
• Electronic payment (e-payment) systems provide a convenient and secure way to make financial transactions over the Internet.

Characteristic features

• These systems allow individuals and businesses to make payments or receive payments electronically without the need for physical cash, checks, paper-based methods, or other traditional payment methods.
• It enables individuals or businesses to transfer money electronically, without the need for physical currency or checks.
• Electronic payment systems typically involve multiple parties, including payment processors, financial institutions, merchants, and customers.
• These systems use a variety of technologies and protocols, including encryption, authentication, and authorization, to ensure the secure transmission of financial information.
• Examples of popular international electronic payment systems include PayPal, Venmo, Apple Pay, Google Wallet, and Bitcoin. Each system has its own unique features and capabilities, and businesses and individuals may choose to use one or multiple systems depending on their needs and preferences.

Types of EPS

• Electronic payment systems come in various forms, including credit cards, debit cards, online banking, e-wallets, and mobile payment systems.
• These payment methods offer a convenient, secure, and efficient way to transfer funds, and they are widely used for online purchases, bill payments, and peer-to-peer transactions.
• EPSs can include various types of electronic transactions, such as credit and debit card payments, online banking transfers, mobile payments, digital wallets, and cryptocurrency transactions.
• The type of electronic payment system that is used will depend on the user’s preferences, the type of transaction, and the level of security required.
• There are several types of electronic payment systems available, including:

  1. Card-based Payment System:

• • These systems rely on credit, debit, or prepaid cards, which are used to make payments at point-of-sale (POS) terminals or online merchants.
  • Examples of card-based payment systems include Visa, Mastercard, American Express, and Discover.

1. 1. 1. Smart Cards:

         • Smart cards can be used as a secure and convenient means of conducting e-commerce transactions.
         • A smart card is a credit card-sized plastic card that contains a microchip that stores information securely and can perform cryptographic functions.
         • Smart cards are more secure than traditional credit cards because the microchip provides additional security features such as encryption and the ability to generate dynamic authentication codes.

      2. Credit Cards:

         • This is the most widely used e-payment method.
         • Credit cards are a popular electronic payment method that allows users to make purchases without the need for cash.
         • A credit card is a payment card that allows consumers to borrow money from a financial institution, typically a bank, to make purchases or pay for services. The amount borrowed is then repaid, usually with interest, over time.
         • Credit cards are a widely used payment method for both in-person and online transactions.
         • Customers provide their card details, including card number, expiration date, and CVV code, to make online purchases.

      3. Debit Cards:

         • This is the most widely used e-payment method.
         • Debit cards are a popular electronic payment method that allows users to make purchases without the need for cash.
         • A debit card is a payment card that allows consumers to access funds in their checking account to make purchases or withdraw cash. When a consumer uses a debit card, the funds are immediately deducted from their account balance.
         • Unlike credit cards, debit cards do not allow consumers to borrow money from a financial institution. Instead, they can only spend the funds that are available in their account. This can be a useful tool for managing expenses and avoiding debt.
         • Debit cards are a widely used payment method for both in-person and online transactions.
         • Customers provide their card details, including card number, expiration date, and CVV code, to make online purchases.

      2. Mobile Payment System/Mobile or E-Wallets/Electronic Purse:

• • • An e-wallet, short for “electronic wallet” or “digital wallet,” is a software-based digital tool that allows individuals to securely store, manage, and transact various forms of digital currency and payment methods.
    • E-wallets have become increasingly popular as a convenient and efficient way to make digital and mobile payments.
    • E-wallets facilitate payments and transactions, making it easy for users to pay for goods and services, transfer money to others, and conduct online transactions.
    • E-wallets can store credit card information, debit card details, and bank account information.
    • These systems allow users to make payments using their mobile devices, often by scanning a QR code or using near-field communication (NFC) technology.
    • Examples of mobile payment systems include Apple Pay, Google Pay, and Samsung Pay.

    3. Electronic Funds Transfer (EFT)/Bank Transfers and Direct Debit Systems:

• • • These systems allow for the direct transfer of funds between bank accounts, either as one-time payments or recurring payments.
    • Examples of bank transfer and direct debit systems include Automated Clearing House (ACH) in the United States and SEPA (Single Euro Payments Area) in the European Union.
    • Automated Clearing House (ACH) payments involve transferring funds directly from one bank account to another, typically for online bill payments, transfers between bank accounts, or recurring payments.
    • EFT is a system that allows funds to be transferred electronically from one bank account to another.

    4. Electronic Checks(E-checks):

• • • E-checks are digital versions of paper checks.
    • They are used for online payments and are commonly used for paying bills.

   5. E-Cash :

• • • E-cash, short for “electronic cash,” is a digital representation of physical currency that can be used for electronic transactions.
    • E-cash is a form of digital currency that exists only in electronic form.
    • It does not have a physical counterpart like paper money or coins.
    • E-cash allows for online payments, purchases, and transfers of value in a way that mimics the properties of physical cash.
    • E-cash systems incorporate various security features to protect against counterfeiting and fraud because these features often include encryption and digital signatures.
    • E-cash is stored on their devices or accounts.
    • E-cash systems are suitable for microtransactions, allowing users to make small payments.

   6. QR Code Payments:

• • • Customers can make payments by scanning QR codes with their mobile phones.
    • This method is popular in some regions, especially for small businesses.

  7. Biometric Payments:

• • • Some payment systems use biometric data, such as fingerprints or facial recognition, to authenticate users for transactions.

   8. Mobile Banking Apps:

• • • Many banks provide mobile apps that allow customers to check balances, transfer money, and make payments from their mobile devices.

 9. Online Banking:

• • • Many banks offer online banking services that allow customers to pay bills, transfer money, and manage their accounts over the Internet.

 10. Online Payment Services:

• • • These systems allow users to make payments and receive payments online, typically via a third-party payment gateway.
    • Examples of online payment systems include PayPal, Stripe, and Square.

  11. Cryptocurrency Payment Systems/Digital Currencies:

• • • These systems allow for the use of cryptocurrencies, such as Bitcoin and Ethereum, to make payments and receive payments.
    • Digital currencies like Bitcoin and Ethereum enable peer-to-peer transactions using blockchain technology. These are often used for international and decentralized transactions.
    • In this system, Transactions are secured due to the use of cryptography and stored on a decentralized ledger called a blockchain.
    • Here, cryptocurrency is a digital asset designed to work as a medium of exchange.

Advantages

• One of the key advantages of electronic payment systems is their speed and convenience. Transactions can be completed in a matter of seconds or minutes, and there is no need to physically visit a bank or carry cash.
• Electronic payment systems also offer enhanced security features, such as encryption and authentication, which can help protect against fraud and identity theft.

Drawbacks

• They may be vulnerable to hacking or other cyberattacks, and they may require individuals to disclose sensitive personal or financial information. As a result, it is important to use a reputable payment system and to take precautions to protect your data and your financial transactions.

Payment Gateway System

Introduction

• Payment gateways are a crucial component of electronic commerce, providing a secure and efficient way for merchants to accept electronic payments and for customers to make purchases online.

Definition

• A payment gateway is a technology platform that enables merchants to accept electronic payments securely over the Internet.
• A payment gateway is a software application that allows merchants to securely accept and process electronic payments from customers for goods and services.

Characteristics Feature

• Payment Gateway acts as an intermediary between the merchant’s website or application and the financial institution that processes the payment.
• Payment gateways act as a bridge between the merchant’s website or point-of-sale system and the payment processor, which processes the payment and transfers the funds to the merchant’s account.
• Payment gateways use encryption and other security measures to protect sensitive payment information and prevent fraud.
• They also typically offer additional features such as fraud detection and prevention, chargeback management, and recurring billing.
• Payment gateways can be integrated into a variety of e-commerce platforms and software, making it easy for merchants to accept payments from customers around the world.
• It is important for merchants to carefully select a payment gateway provider that meets their business needs and offers the necessary security features and compliance with applicable regulations.
• Payment gateways can support various payment methods, including credit cards, debit cards, digital wallets, and bank transfers. They can also provide additional features, such as recurring billing and subscription management, to help merchants manage their payment processing more efficiently.

Components/Structure of Payment Gateway

• The structure of a payment gateway is designed to provide a secure and efficient way for merchants to accept electronic payments and for customers to make purchases online.
• The structure of a payment gateway can vary depending on the specific payment gateway provider, but most payment gateways have the following basic components:-

1. Merchant Interface:

   • This is the portal where the merchant can access and manage their account and view transaction details, reports, and analytics.

   •  The merchant is the entity that is selling goods or services and is responsible for integrating the payment gateway into its website or point-of-sale system.

   • The merchant is also responsible for managing the payment process and any related customer service inquiries.

   • The merchant interface also allows merchants to customize the look and feel of their payment page and set up payment options.

2. Payment Processor:
   • The payment processor is a financial institution that processes electronic payments on behalf of the merchant.
   • The payment processor receives payment information from the payment gateway and verifies the transaction, including checking for fraud or insufficient funds. The payment processor then transfers the funds from the customer’s account to the merchant’s account.
   • This is the entity that handles the payment transaction and transfers the funds from the customer’s account to the merchant’s account.
   • The payment processor communicates with the customer’s bank or credit card company to verify the payment details and ensure that the transaction is authorized.
3. Security:

   • Payment gateways use various security measures, such as encryption and tokenization, to protect sensitive payment information and prevent fraud.

4. API:

   • The application programming interface (API) is a set of protocols and tools that allow developers to integrate the payment gateway into their websites, mobile apps, or point-of-sale systems.

   • The API enables communication between the merchant’s website or system and the payment gateway.

5. Payment Gateways:

   • The payment gateway provider is a third-party service that provides the software application and infrastructure necessary to securely process electronic payments.

   • The payment gateway provider typically charges a fee for their services, which can include transaction fees, setup fees, and monthly fees.

   • Payment gateways support various payment options, such as credit cards, debit cards, digital wallets, and bank transfers.

   • The payment options may vary depending on the payment gateway provider and the merchant’s location.

6. Settlement:
   • Settlement is the process of transferring the funds from the customer’s account to the merchant’s account.
   • Payment gateways typically settle transactions within a few days, depending on the payment method and the bank or financial institution involved.

1. Customer initiates payment:
   
   • The customer begins the payment process by selecting the payment method and entering payment information, such as credit card details or a digital wallet address, into the merchant’s website or point-of-sale system.
2. Payment information is encrypted and transmitted:
   

   • The payment information is encrypted and transmitted securely from the customer’s device to the payment gateway.

3. Payment gateway sends information to payment processor:
   

   • The payment gateway sends the payment information to the payment processor, which verifies the transaction and checks for fraud, and also confirms whether there are sufficient funds available to cover the payment.

4. The payment processor sends transaction data to the bank:
   

   • If the payment is approved or verified, the payment processor authorizes the transaction and sends data to the bank or financial institution associated with the payment method.

5. Bank sends payment to payment processor:
   

   • The bank finally sends the payment to the payment processor, which then transfers the funds to the merchant’s account.

6. Payment gateway sends confirmation to the merchant:
   

   • Once the payment is processed, the payment gateway sends a confirmation message to the merchant, indicating that the payment has been received and processed.

Throughout this process, Payment gateway processing typically takes only a few seconds to complete the payment, and also payment processors work together to ensure the security of the payment information and to detect and prevent fraud. They also typically offer customer support and dispute resolution services to help resolve any issues that may arise during the payment process.