In today’s era, most of the transactions in day-to-day life are done online, from purchasing groceries to various bill payments. All of this has become possible because of the electronic payment system (e-payment system). An E-payment system facilitates electronic payment for the purchase of any goods or services through internet-based shopping. It is also called an online payment system. An e-payment system settles the payments directly from banks or e-wallets without using physical cash or cheques. The usage of e-payment systems is increasing rapidly since everything is available online now.
Different opportunities have emerged for various businesses because of the introduction of online payment services, especially after the lockdown in many areas due to the COVID-19 pandemic. During the lockdown, people could not go out of their homes to get their essential goods and services and depended on buying things online. Today, a huge section of the population of India has shifted to online platforms for various needs.
What is the working process?
Before knowing further about the e-payment system, let us first understand how this system works. It mainly includes five participants through which the amount is transferred from one person/account to another.
An e-payment system includes the following participants:
- The merchant: The business entity or the owner provides a platform for buying different goods or services online. The merchant performs various functions such as displaying products available for selling, fulfilling customers’ requirements based on trending environment, timely delivery options, managing storage facilities, and financial aspects.
- The customer/the cardholder: The customer is the buyer of products or services available online and also a person who holds a card for making payments.
- The issuing bank: This is the customer’s bank or financial institution that provides the credit or debit card to their customers. The payment is debited from this bank.
- The acquirer: It is the bank or financial institution in which the merchant holds the account. The payment is credited to this bank account. It is responsible for processing payments when the cards or other payment options are used.
- The payment processor: This participant helps connect the acquirer with the merchant and settle the payment transactions. It decides the route through which the transaction takes place and provides risk-management solutions while processing the payment through the payment gateway.
Now, let us take a look at how an e-payment transaction takes place :
When the customer visits the website or any application for shopping and finalises the products or services after entering the delivery address and providing other details, the last step is to select the payment option in which various payment methods are available. Once any of the e-payment methods is selected, the bank, card, and other related details are to be entered. The customer is then redirected to another page in which payment authentication is done. If the payment authentication details are entered correctly, the customer will get a successful transaction confirmation message. After this process, the payment settlement is done by transferring the funds from the customer’s bank account to the merchant’s bank account.
What are the available options in an e-payment system?
Following are the various e-payment methods that are available for online transactions :
- Card Payments: Card payments can be done through cards issued by banks or virtual cards issued by different entities online. Credit cards, debit cards, smart cards, stored value cards, virtual payment cards, etc., are various types of cards used for e-payment. The transaction limit may vary for different cards.
- Internet banking: Internet banking is a method in which money can be digitally transferred directly from one bank account to another with the help of the internet. Many customers use this method for various payments because it does not require them to register on any application or website or provide card details. The bank in which the customers have their account provides login details for their own websites.
- E-wallets/mobile wallets: These are forms of wallet that are maintained virtually in mobile applications. The money is added to the wallet from a bank account or through credit/debit cards. This method is also used widely by customers.
- UPI Payments: UPI (Unified Payment Interface) payment method is developed by NPCI (National Payment Corporation of India). It is an instant real-time payment system to facilitate online interbank transactions. UPI payments can be done through various mobile apps. In this method also the amount is transferred directly from one bank account to another.
- Payments done via wearable devices: Wearable devices are devices such as smart watches or activity trackers linked with bank accounts for making payments through those devices. This method is becoming more popular these days.
- Prepaid vouchers: Sometimes, few entities issue online prepaid vouchers for shopping which can be used under specific terms and conditions. These vouchers can be used for making the full payment or part payment depending upon the terms of vouchers. It can be for a fixed amount also.
- Biometric payments: Biometric payment is a method in which different body parts are scanned for making payments. Eye tracking, fingerprint scanning, facial recognition, etc., are examples of this method. This method is used in place if entering PIN during payment authentication.
- QR Payments: A QR code is a code that contains a pixel pattern of barcodes or squares arranged in a square grid. QR stands for ‘Quick Response’. Every part of the code contains information such as name, bank account details, transaction details, etc. Payments are done by just scanning the code and entering the PIN or password for payment.
- AI-based payments: With rapid inventions in technology, nowadays AI (Artificial Intelligence), i.e., machine/software-based payments, are also developing. Getting business transactions done has become easier with this method by using chatbots, speakers, deep learning tools, machine learning tools, etc. The customers need to enable the mic option for this facility in their mobile applications.
Pros and cons of e-payments
Some of the advantages of an e-payment system are as follows :
- Speed: The process of transferring funds from a bank account to another has become easier and faster. There is no need to wait for any approval as the funds are transferred immediately.
- Increase in sales: As today’s generation is using online shopping facilities more frequently, there has been an increase in the sales growth of various entities, and the e-payment system has also played a major role in this. The amount can even be refunded if the customer is not satisfied with any product or service.
- Convenience: With the help of different e-payment methods, online shopping has become convenient for customers. Customers can also raise queries if they face any trouble while using this system.
- Cost and time saving: As the customers can use an e-payment system at any point in time, from any place of the world, and according to their convenience, both time and cost can be saved to some extent.
Although there are various benefits of an e-payment system, there are few drawbacks also. A major drawback is its security risk. It means that sometimes, there is a possibility of systems getting hacked by an outsider. As a result of which confidential information related to bank accounts or personal details may get leaked.
If any business entity wants to run its business for a long time, it must provide online payment options. It will be beneficial for both the company and its customers.
1) Pros and Cons of Cheque payments
2) All You Need to Know About Electronic Checks
3) Differences between E-checks and Paper Checks
4) Digital Payments: Definition and Methods
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Q. What are the modes of internet banking?
Ans. The modes of Internet banking are NEFT (National Electronic Funds Transfer), RTGS (Real-Time Gross Settlement), IMPS (Immediate Payment Services), and ECS (Electronic Clearing Services).
Q. Which mobile applications can be used for e-payments?
Ans. One can use mobile apps such as Google Pay, Phone pe, Amazon pay, Paytm, Paypal, MobiKwick, Freecharge, and others for e-payments.
Q. Can any website provide an online payment option for an online shopping facility?
Ans. Yes, any website can provide an online payment option against shopping for any product or service.
Q. Is the customer required to register on any website or application to use the e-payment facility?
Ans. Yes, the customer must register on the website or application through which the payment is to be made and provide the bank details, card details, and any other details as required by that website or application.