electronic payment (E-Payment) system is the process of making payments via an

electronic or digital system. Customers use this system when they perform online transactions
to pay for products or services without physical payment modes such as cash, cheques or
demand drafts.
The procedure of conducting business online has been dramatically changed by the e-
commerce payment systems which have made it simple for both businesses and customers.
A payment gateway is used to link a virtual storefront to the payment processing network of
your choosing in an online payment system. A robust payment gateway provides multiple
secure e-commerce payment

Debit Card:

is a small plastic card with a unique number mapped with the bank account number. It is
required to have a bank account before getting a debit card from the bank. The major
difference between a debit card and a credit card is that in case of payment through debit
card, the amount gets deducted from the card's bank account immediately and there should be
sufficient balance in the bank account for the transaction to get completed; whereas in case of
a credit card transaction, there is no such compulsion.

Advantages of a Debit Card

 Easy to obtain. Once you open an account most institutions will issue you a debit
card upon request.
 Convenience. Purchases can be made using a contactless or chip-enabled terminal or
by swiping the card rather than filling out a paper check.
 Safety. You don't have to carry cash or a checkbook.
 Readily accepted. When out of town (or out of the country), debit cards are usually
widely accepted (to not have an interruption in service, make sure to tell your
financial institution you’re leaving your city).

Disadvantages of a Debit Card

 No grace period. Unlike a credit card, a debit card uses funds directly from your
checking account. A credit card allows you to borrow funds on credit, leaving
disposable cash in your account.
 Check book balancing. Balancing your account may be difficult unless you record
every debit card transaction.
 Potential fraud. Most financial institutions will try and protect their customer from
debit card fraud. However, a customer could potentially be liable for a portion of
fraudulent debit card transactions. Be sure to check with your financial institution to
learn the details.
 Fees. Using your debit card for ATM transactions may be costly if the ATM is not
affiliated with your institution

Credit Cards

Payment using credit card is one of most common mode of electronic payment. Credit card is
small plastic card with a unique number attached with an account. It has also a magnetic strip
embedded in it which is used to read credit card via card readers. When a customer purchases
a product via credit card, credit card issuer bank pays on behalf of the customer and customer
has a certain time period after which he/she can pay the credit card bill. It is usually credit
card monthly payment cycle. Following are the actors in the credit card system.

 The card holder − Customer

 The merchant − seller of product who can accept credit card payments.
 The card issuer bank − card holder's bank
 The acquirer bank − the merchant's bank
 The card brand − for example , visa or Mastercard.

Credit Card Payment Process

Step 1 Bank issues and activates a credit card to the customer on his/her request.

Step 2 The customer presents the credit card information to the merchant site or to the merchant
from whom he/she wants to purchase a product/service.

Step 3 Merchant validates the customer's identity by asking for approval from the card brand
company.

Step 4 Card brand company authenticates the credit card and pays the transaction by credit.
Merchant keeps the sales slip.

Step 5 Merchant submits the sales slip to acquirer banks and gets the service charges paid to
him/her.

Step 6 Acquirer bank requests the card brand company to clear the credit amount and gets the
payment.

Step 6 Now the card brand company asks to clear the amount from the issuer bank and the
amount gets transferred to the card brand company.

Benefits of Credit Cards

1. Easy access to credit: Credit cards function on a deferred payment basis, which means
you get to use your card now and pay for your purchases later. The money used does not go
out of your account, thus not denting your bank balance every time you swipe.

2. Building a line of credit: it allows banks to view an active credit history, based on your
card repayments and card usage. Banks and financial institutions often look to credit card
usage as a way to gauge a potential loan applicant's creditworthiness, making your credit card
important for a future loans or rental applications.

3. EMI facility: If you plan on making a large purchase and don't want to sink your savings
into it, you can choose to put it on your credit card as a way to defer payment. In addition to
this, you can also choose to pay off your purchase in equated monthly installments, ensuring
you aren't paying a lump sum for it and denting your bank balance. Paying through EMI is
cheaper than taking out a personal loan to pay for a purchase, such as a television or an
expensive refrigerator.

4. Incentives and offers: These range from cash back to rewards point accumulation each
time you swipe your card, which can later be redeemed as air miles or used towards paying
your outstanding card dues. Lenders also offer discounts on purchases made through a credit
card, such as on flight tickets, holidays or large purchases, helping you save.

5. Flexible credit: Credit cards come with an interest-free period, which is a period of time
during which your outstanding credit is not charged interest. Ranging between 45-60 days,
you can avail free, short-term credit if you pay off the entire balance due by your credit card
bill payment date. Thus, you can benefit from a credit advance without having to pay the
charges associated with having an outstanding balance on your credit card.

6. Record of expenses: A credit card records each purchase made through the card, with a
detailed list sent with your monthly credit card statement. This can be used to determine and
track your spending and purchases, which could be useful when chalking out a budget or for
tax purposes. Lenders also provide instant alerts each time you swipe your card, detailing the
amount of credit still available as well as the current outstanding on your card.

7. Purchase protection: Credit cards offer additional protection in the form of insurance for
card purchases that might be lost, damaged or stolen. The credit card statement can be used to
vouch for the veracity of a claim, if you wish to file one.

Disadvantages of Credit Cards

1. Minimum due trap: A number of credit card holders are deceived into thinking the
minimum amount is the total due they are obliged to pay, when in fact it is the least amount
that the company expects you to pay to continue receiving credit facilities.

This results in customers assuming their bill is low and spending even more, accruing interest
on their outstanding, which could build up to a large and unmanageable sum over time.

2. Hidden costs: Credit cards have a number of taxes and fees, such as late payment fees,
joining fees, renewal fees and processing fees. Missing a card payment could result in a
penalty and repeated late payments could even result in the reduction of your credit limit,
which would have a negative impact on your credit score and future credit prospects.

3. Easy to overuse: With revolving credit, since your bank balance stays the same, it might
be tempting to put all your purchases on your card, making you unaware of how much you
owe. This could lead to you overspending and owing more than you can pay back, beginning
the cycle of debt and high interest rates on your future payments.
4. High interest rate: If you do not clear your dues by your billing due date, the amount is
carried forward and interest is charged on it. This interest is accrued over a period of time on
purchases that are made after the interest-free period. Credit card interest rates are quite high,
with the average rate being 3% per month, which would amount to 36% per annum.

5. Credit card fraud: With advances in technology, it is possible to clone a card and gain
access to confidential information through which another individual or entity can make
purchases on your card. Check your statements carefully for purchases that look suspicious
and inform the bank immediately if you suspect card fraud. Banks usually waive off charges
if the fraud is proven, so you will not have to pay for purchases charged by the thief.

E-Wallet

The E-Wallet can be thought of as a prepaid account that enables users to store a variety of
debit cards, credit cards, and other payment methods in a safe environment without having to
enter their credentials each time they wish to make a purchase. The use of electronic wallets is
expanding every day. E-wallets enable customers to skip entering card information each time,
thus promoting a rapid checkout. PhonePe, PayTM, Mobikwik, Amazon Pay, etc are some of
the well-known digital or E-wallets in India.

RTGS

Real Time Gross Settlement is an electronic method to transfer money from one
bank to another bank on a real-time or gross basis within the country. The term
Real-Time means that the Payment is made instantly without any delay and may take
around 30 minutes from receiving the request for remittance of funds. The Gross
Settlement means the money is transferred on one to one basis.

NEFT

is a one-to-one payment facility that is regulated by the Reserve Bank of India across
various public and private sector banks. As per NEFT, one can transfer funds to
another individual with an account in a different bank. However, to enable this
facility, the concerned bank accounts must be NEFT-enabled. The payments as per
the NEFT are processed and settled in half-hourly batches.

Immediate payment service:

It is a real-time electronic fund transfer facility like NEFT or RTGS. IMPS service is
convenient since it is quick, paperless and does not require one to have a detailed information
related bank account to transfer funds. To avail the IMPS facility, one is required to have the
beneficiary’s mobile number linked to the bank account and the MMID. The IMPS payments
can be made 24/7 and 365 days in a year. Thus, there is no disparity or hindrance in
transferring funds with IMPS even during bank or public holidays.
Unified Payments Interface:

It is a system that powers multiple bank accounts (of participating banks), several banking
services like fund transfer and merchant payments in a single mobile application.

Ex: BHIM, SBI UPI app, HDFC UPI app, etc.

UPI is a single platform that merges various banking services and features under one
umbrella. A UPI ID and PIN are sufficient to send and receive money. Real-time bank-to-
bank payments can be made using a mobile number or virtual payment address (UPI ID).UPI
is an initiative taken by the National Payments Corporation of India (NPCI) together with the
Reserve Bank of India and Indian Banks Association (IBA). NPCI is the firm that handles
Ru-Pay payments infrastructure, i.e. similar to Visa and MasterCard. It allows different banks
to interconnect and transfer funds. UPI is considered as the advanced version of IMPS. A UPI
ID is a unique identification for a bank account that can be used to send and receive
funds.The PIN can be chosen by the account holder.
Aadhaar enabled payment system:

It is an Aadhar based digital payment mode. Customers need only their Aadhar number to
pay to any merchant. It allows banks to bank transactions. customers will need to link their
Aadhaar numbers to their bank accounts.

Mobile wallets:

It is a Virtual wallet that stores payment card information on a Mobile Device. They provide
convenient ways to use Store-Payments.

E-money

E-Money transactions refer to situation where payment is done over the network and the
amount gets transferred from one financial body to another financial body without any
involvement of a middleman. E-money transactions are faster, convenient, and saves a lot of
time.

Online payments done via credit cards, debit cards, or smart cards are examples of e-money
transactions. Another popular example is e-cash. In case of e-cash, both customer and
merchant have to sign up with the bank or company issuing e-cash.

is an electronic medium for making payments. It includes credit cards, debit cards, electronic
funds transfer (ETF), and automatic clearance house systems. It is a cumulative term used for
technologies and financial cryptography enabling it.

It is generally known as an electronic store of monetary amounts on a technical device that

may be widely used for making and accepting payments to businesses other than the e-money
issuer. The mechanism acts as a prepaid bearer instrument that does not necessarily include
bank accounts in transactions.
E-money products can be software-based or hardware-based, depending on the technology
used to keep the monetary value. Also, many e-commerce platforms like Amazon, Flipkart,
and many more allowing e-money transactions, customers can now purchase almost all the
goods and services available online.

Features of Electronic Money

 Store of value: Just like physical currency, electronic money is also a store of value,
the only difference being, that with electronic money, the value is stored electronically
unless and until withdrawn physically.
 Medium of exchange: Electronic money is a medium of exchange, i.e., it is used to
pay for the purchase of a good or when acquiring a service.
 Unit of account: Just like paper currency, electronic money provides a common
measure of the value of the goods and/or services being transacted.
 Standard of deferred payment: Electronic money is used as a means of deferred
payment, i.e., used for the tools of providing credit for repayment at a future date.

Advantages of Electronic Money

 Increased flexibility and convenience: Transactions can be entered into from
anywhere in the world, at any given time, with one click of a button. It removes the
hassle and tediousness involved with the physical delivery of payments.
 Historical record :The usage of electronic money is becoming increasingly popular
because it stores a digital historical record of each and every transaction made. It
makes tracing back payments easier and also helps with making detailed expenditure
reports, budgeting, and so on.
 Prevents fraudulent activities: Since electronic money makes available a detailed
historical record of each and every transaction made, it is very easy to keep track of
transactions and trace them back through the economy. It increases security and helps
prevent fraudulent activities and malpractices.
 Instantaneous: The use of electronic money brings with it a kind of
instantaneousness that has not been experienced before in the economy. Transactions
can be completed in split seconds with the click of a button from virtually anywhere
in the world. It eliminates problems of physical delivery of payments, including long
queues, wait times, etc.
 Increased security: The use of e-money also brings with it an increased sense of
security. To prevent loss of personal information while transacting online, advanced
security measures are implemented like authentication and tokenization. Stringent
verification measures are also employed to ensure the full authenticity of the
transaction.
Disadvantages of Electronic Money
 Necessity of certain infrastructure: To use electronic money, the availability of
certain infrastructure is necessary. It includes a computer or a laptop, or a smartphone,
and a stable internet connection.
 Possible security breaches/hacks: The internet always comes with the inevitability
of possible security breaches and hacks. A hack can leak sensitive personal
information and can lead to fraud and money laundering.
 Online scams: Online scamming is also possible. All it takes for a scammer is to
pretend to be from a certain organization or a bank, and consumers are easily
convinced to give away their bank/card details. Despite the increased security and
presence of authentication measures to counter online scams, they are still something
to be looked after.

A third-party payment processor

is a service that allows businesses to accept online payments. These payment processors
facilitate transactions between the customer and the business by transferring funds from
the customer’s bank or credit account to the business’s bank account. enable businesses
to accept various online payment methods, without setting up and maintaining their own
merchant account with a bank. This is a significant benefit, particularly for small or new
businesses, since working with a payment processor can be a quicker, more accessible way
to begin accepting online payments.

E-cheques

are cheques that are written and processed electronically. This means that the funds are
transferred from the payer’s account to the payee’s account through an electronic network
instead of a physical cheque. These cheques are also known as “digital cheques” or
“electronic cheques”.

 Faster: E-cheques are processed faster than traditional paper cheques. This is because
there is no need to wait for the cheque to be physically delivered to the payee.
 More Secure: E-cheques are more secure than traditional paper cheques because they
are processed through an electronic network. This means that there is less chance for
them to be lost or stolen.
 Easier to Track: E-cheques can be easily tracked through online banking systems.
This makes it easy to see where the funds are going and who they are being
transferred to.
 Reduces Paper Waste: E-cheques reduce paper waste because they do not require
the use of physical cheque stock. This means that fewer trees need to be chopped
down in order to produce paper cheques.
 Saves Time and Money: E-cheques save time and money because they eliminate the
need for manual processing. This means that there is less chance for human error and
that the funds will be transferred more quickly.The payer fills out a form with the
necessary information, including the amount to be transferred, and submits it to the
bank. The bank then verifies the funds and processes the transaction.
Online -Banking: types

Mobile Banking:
Customers may easily and quickly use mobile payment to make purchases using their
smartphones. A user only needs to download a mobile payment app from the applications store.
They must then link their bank account to that app in order to add money to their wallet and
make purchases, as well as to make payments directly from their bank account.When a
consumer chooses to use that app to pay on an e-commerce website, the app receives a payment
request, which it must approve before the payment can be processed.

Electronic Clearing System (ECS):

The Electronic Clearing System is a creative provision for occupied individuals. With this
provision, an individual’s credit card bill is consequently charged from the same individual’s
savings bank account, so one doesn’t have to stress over missed or late payments.

Smart Cards:

A smart card is a card that stores data on a microchip or memory chip or a microprocessor in
lieu of the magnetic stripe found on debit cards and credit cards. Smart cards are not utilised
for transferring or moving monetary data alone, but also they can be utilised for an
assortment of identification grounds. Exchanges made with smart cards are scrambled or
encrypted to shield the exchange of data from one party to another. Each encoded exchange
can’t be hacked and doesn’t transmit any extra data past what’s required for finishing the
single exchange or transaction.

Telephone Banking:

Telephone banking is an assistance given by a bank or other monetary foundation or other

financial institutions, that empower clients to perform via telephone a scope of monetary
exchanges which don’t include cash or financial instruments, without the need to visit an
ATM or a bank branch.

Internet banking:

Web-based banking is an assistance presented by banks that permits account holders to get
their record information by means of the web or the internet. Web-based banking or Internet
banking is otherwise called “Web banking” or “Online banking.”
Internet banking through customary banks empowers clients to play out every standard
exchange, for example, bill payments, balance requests, stop-payment requests, and balance
inquiries. Some banks even proposition online credit card and loan applications.Account data
can be acquired day or night, and should be possible from any place.

A payment gateway

a technology used by merchants to accept debit or credit card purchases from customers.
The term includes not only the physical card-reading devices found in brick-and-mortar
retail stores but also the payment processing portals found in online stores.

Brick-and-mortar payment gateways also have begun accepting phone-based payments using
QR codes or Near Field Communication (NFC) technology

Working:

The payment gateway is a key component of the electronic payment processing system, as it
is the front-end technology responsible for sending customer information to the merchant-
acquiring bank, where the transaction is then processed. In the past, terminals would accept
credit cards using magnetic strips and required paper signatures from the customer.

With the development of chip technologies, the signature phase could be removed in favor
of a personal identification number (PIN) entered directly into the payment gateway
hardware. The accuracy of the entered identification number is handled using the Luhn
algorithm. Today, contactless purchases are also available, with many customers now using
their phones as payment devices instead of plastic credit cards.

The architecture of a payment gateway will differ depending on whether it is an in-store

gateway or an online payment portal. Online payment gateways will require application
programming interfaces (APIs) that allow the website in question to communicate with the
underlying payment processing network. In-store payment gateways will use a POS terminal
that connects to the payment processing network electronically using either a phone line or
an internet connection.

Major risks associated with e-payment systems.

1. Fraud: One of the major risks of e-payment systems is fraud. Fraudsters can steal
personal information, such as credit card details, and use them to make unauthorized
transactions. Phishing scams and malware attacks are also common methods used by
fraudsters to steal personal information.
2. Hacking: E-payment systems are vulnerable to hacking attacks, where attackers gain
unauthorized access to the system and steal sensitive data. Hacking attacks can lead to
financial losses for both customers and businesses, as well as damage to the reputation
of the e-payment system.
 3. Identity Theft: E-payment systems are also at risk of identity theft. Hackers can steal
personal information, such as social security numbers and bank account details, and
use them to create fake identities. This can lead to unauthorised transactions and other
fraudulent activities.
4. Technical Issues: Technical issues, such as system downtime and software glitches,
can also pose a risk to e-payment systems. These issues can lead to failed transactions,
delays in payments, and other problems.
5. Security Breaches: E-payment systems can also risk security breaches, where
attackers gain access to sensitive data, such as credit card details and personal
information. These breaches can lead to financial losses for both customers and
businesses, as well as damage to the reputation of the e-payment system.
6. Chargebacks: Chargebacks occur when a customer disputes a transaction, leading to
a reversal of the payment. E-payment systems are at risk of chargebacks, which can
lead to financial losses for businesses.

digital signature:

is a mathematical technique used to validate the authenticity and integrity of a digital

document, message or software. It's the digital equivalent of a handwritten signature or
stamped seal, but it offers far more inherent security. A digital signature is intended to solve
the problem of tampering and impersonation in digital communications.

Digital signatures can provide evidence of origin, identity and status of electronic documents,
transactions or digital messages. Signers can also use them to acknowledge informed consent.
In many countries, including the U.S., digital signatures are considered legally binding in the
same way as traditional handwritten document signatures.

How do digital signatures work?

Digital signatures are based on public key cryptography, also known as asymmetric
cryptography. Using a public key algorithm -RSA -- two keys are generated, creating a
mathematically linked pair of keys: one private and one public.

Digital signatures work through public key cryptography's two mutually authenticating
cryptographic keys. For encryption and decryption, the person who creates the digital
signature uses a private key to encrypt signature-related data. The only way to decrypt that
data is with the signer's public key.
If the recipient can't open the document with the signer's public key, that indicates there's a
problem with the document or the signature. This is how digital signatures are authenticated.

Digital certificates, also called public key certificates, are used to verify that the public key
belongs to the issuer. Digital certificates contain the public key, information about its owner,
expiration dates and the digital signature of the certificate's issuer. Digital certificates are
issued by trusted third-party certificate authorities (CAs), such as DocuSign or GlobalSign,
for example

Digital signature technology requires all parties trust that the person who creates the signature
image has kept the private key secret. If someone else has access to the private signing key,
that party could create fraudulent digital signatures in the name of the private key holder.

 Security. Security capabilities are embedded in digital signatures to ensure a legal

document isn't altered and signatures are legitimate. Security features include
asymmetric cryptography, personal identification numbers (PINs), checksums and
cyclic redundancy checks (CRCs), as well as CA and trust service provider (TSP)
validation.

 Timestamping. This provides the date and time of a digital signature and is
useful when timing is critical, such as for stock trades, lottery ticket issuance and
legal proceedings.

 Globally accepted and legally compliant. The public key infrastructure (PKI)
standard ensures vendor-generated keys are made and stored securely. With
digital signatures becoming an international standard, more countries
are accepting them as legally binding.

 Time savings. Digital signatures simplify the time-consuming processes of

physical document signing, storage and exchange, enabling businesses to quickly
access and sign documents.

 Cost savings. Organizations can go paperless and save money previously spent
on the physical resources, time, personnel and office space used to manage and
transport documents.
 Positive environmental effects. Reducing paper use also cuts down on the
physical waste generated by paper and the negative environmental impact of
transporting paper documents.

 Traceability. Digital signatures create an audit trail that makes internal record-
keeping easier for businesses. With everything recorded and stored digitally, there
are fewer opportunities for a manual signee or record-keeper to make a mistake or
misplace something.