BCA-601

E-commerce
Unit IV

Electronic Payment System

An Electronic Payment System is defined as a mode of payment over an
electronic network, such as the Internet. The Indian economy has developed at
a rapid pace since the growth of e-commerce, electronic payments, and digital
payments have gone a long way. Electronic payments have been rising since the
implementation of demonetization and will continue to do so with the current
government ensuring that these types of payments are promoted.

 Electronic Payment System allows customers to pay for goods and services
electronically without the use of cheques or cash.
 Businesses need a strong and secure electronic payment system in online
dealings.
 Electronic Payment System is regulated in India by the RBI.
 The system is safe, speedy, and cost-effective in comparison with paper-
based payment systems.

What is an Electronic Payment System?

Electronic Payment System allows people to make online payments for their
purchases of goods and services without the physical transfer of cash and
cheques, irrespective of time and location. The key components of this payment
system are the payers and payees, financial institutions, electronic devices,
communication networks, payment gateways, and mobile payment apps. As the
global economy continues to evolve, the dependency on physical modes of
payment is gradually giving way to digital alternatives that offer speed,
convenience, and efficiency. These systems facilitate a diverse range of
financial activities, from online purchases and bill payments to person-to-person
transfers.
Types of Electronic Payment System
India, being the fastest-growing economy and a developing nation, has
witnessed significant growth in various types of Electronic Payment Systems,
driven by technological advancements and efforts to promote a cashless
economy. The prominent types of Electronic Payment Systems in India range
from the Unified Payments Interface (UPI) to Debit and Credit cards. Listed
below are the types of Electronic Payment Systems:

1. Unified Payments Interface (UPI):

UPI has become a widely adopted and popular electronic payment system in
India. It enables users to link multiple bank accounts to a single mobile
application, allowing seamless and instant fund transfers between individuals
and merchants.

2. Mobile Wallets:
Mobile Wallet services like Paytm, PhonePe, and Google Pay have gained
widespread acceptance. Users can load money into these digital wallets and use
the balance for various transactions, including mobile recharge, bill payments,
and online shopping.

3. Debit and Credit Cards:

Debit and Credit card usage is prevalent in India, with various banks issuing
these cards for electronic transactions. Cards are commonly used for Point-of-
Sale (POS) transactions, online purchases, and cash withdrawals from ATMs.

4. Immediate Payment Service (IMPS):

IMPS enables instant interbank electronic fund transfers through mobile phones,
internet banking, or ATMs. It is particularly useful for peer-to-peer transactions
and small-value payments.

5. National Electronic Funds Transfer (NEFT):

NEFT is a nationwide electronic payment system that facilitates one-to-one
funds transfer between bank accounts. It operates on a deferred settlement basis
and is widely used for both individual and corporate transactions.

6. Real-Time Gross Settlement (RTGS):

RTGS is another electronic fund transfer system that allows real-time settlement
of large-value transactions. It is typically used for high-value interbank
transfers.

7. Prepaid Instruments:
Prepaid Instruments, including prepaid cards and gift cards, provide users with
a convenient way to make electronic payments with a pre-loaded amount.

Advantages of Electronic Payment System

 24/7 Accessibility: Electronic Payments can be made at any time, providing
round-the-clock access to financial transactions.
 Global Accessibility: Users can make payments and transfer funds globally
without being restricted by geographical boundaries.
 Instant Transactions: Electronic Payments are processed quickly, allowing
for near-instantaneous transfer of funds between accounts.
 Faster Settlement: Compared to traditional payment methods, electronic
transactions often result in faster settlement times.
 Record-Keeping and Tracking: Electronic Payment Systems facilitate
easy record-keeping for both businesses and individuals.
 Encryption and Authentication: Electronic Payment Systems employ
robust encryption and authentication protocols to secure transactions and
protect sensitive information.

Disadvantages of Electronic Payment System

 Security Concerns: Electronic Payment Systems are susceptible to security
breaches, including hacking, phishing, and identity theft.
 Technical Issues: Electronic Payment Systems rely on technology, and
technical glitches or system failures can disrupt transactions.
 Fraud Risk: Despite security measures, Electronic Payment Systems are not
immune to fraud. Unauthorized transactions, stolen credentials, or fraudulent
activities can occur, leading to financial losses for individuals and
businesses.
 Privacy Concerns: Users may be concerned about the collection and storage
of personal information by electronic payment providers.
 Transaction Fees: Some electronic payment systems impose transaction
fees, which can add up over time.

Regulatory Bodies Governing Electronic Payment System in India

 The Regulatory Framework for the Electronic Payment System in India is

governed by the Reserve Bank of India and other relevant authorities. The
Reserve Bank of India has the authority to oversee and regulate payment and
settlement systems.
 The Payment and Settlement Systems Act, 2007 provides the legal
framework for the regulation and supervision of payment systems in India.
 The National Payments Corporation of India (NPCI) issues guidelines for
the UPI. The Information Technology Act, 2000, provides a legal framework
for electronic transactions and addresses issues related to electronic
governance.
 The Securities and Exchange Board of India (SEBI) regulates securities
and capital markets, and it also regulates electronic payments where security
transactions are involved.
 The Ministry of Finance, through its various departments, provides
overarching policy direction and guidance related to the financial sector,
including Electronic Payment Systems.
 The Department of Telecommunication oversees the Telecommunications
sector, and its regulations impact mobile-based electronic payment services.
Mobile network operators and telecom service providers are subject to the
regulations set by the DoT.
 The Insurance Regulatory and Development Authority of India
(IRDAI) regulates the insurance sector in India. In the context of electronic
payments, it may have oversight over the insurance-related transactions
conducted through digital payment systems.
Regulations Relating to Electronic Payment System

1. Reserve Bank of India (RBI)

The RBI plays a central role in regulating EPS in India through various
guidelines and frameworks:
 Payment and Settlement Systems Act, 2007: This legislation provides the
legal foundation for the regulation and oversight of payment systems in
India. It empowers the RBI to supervise and regulate the functioning of EPS
to maintain financial stability and consumer protection.
 Guidelines on Prepaid Payment Instruments (PPIs): The RBI issues
guidelines that govern the issuance and operation of prepaid payment
instruments, including digital wallets and prepaid cards. These guidelines
outline parameters, such as issuance limits, reload limits, and Know Your
Customer (KYC) requirements.
 Unified Payments Interface (UPI): The RBI regulates UPI, a real-time
payment system, through guidelines that cover transaction limits, security
protocols, and dispute resolution mechanisms. UPI has emerged as a popular
channel for peer-to-peer and merchant transactions.
2. National Payments Corporation of India (NPCI)
 Operational Guidelines: NPCI develops and enforces operational
guidelines for payment systems it manages, including UPI, Immediate
Payment Service (IMPS), and Bharat Bill Payment System (BBPS). These
guidelines ensure standardized and secure operations.
 Security and Risk Mitigation Measures: NPCI implements security
measures and risk mitigation strategies to safeguard electronic transactions.
These measures include encryption standards, two-factor authentication, and
continuous monitoring for potentially fraudulent activities.

3. Other Regulatory Bodies

Several other regulatory bodies also have a role in governing EPS
 Securities and Exchange Board of India (SEBI): SEBI, while primarily
focused on securities market regulations, may have implications for EPS,
especially in areas related to digital wallets and financial instruments.
 Insurance Regulatory and Development Authority of India
(IRDAI): IRDAI oversees the insurance sector, and regulations related to
EPS in insurance transactions may fall under its purview.
 Consumer Protection Regulations: Consumer protection regulations,
focusing on transparency, disclosure, and dispute resolution, impact EPS to
safeguard user interests.
 Data Protection and Privacy Laws: The introduction of data protection
laws, such as the Personal Data Protection Bill, addresses concerns related
to the handling and protection of user data within EPS. These regulations
collectively form a robust framework, ensuring the secure and efficient
functioning of electronic payment systems in India. It's important to stay
updated on any amendments or new regulations introduced by these
regulatory bodies.

Conclusion
In conclusion, the Electronic Payment System refers to a mode of payment
which does not include physical cash or cheques but rather includes Debit Card,
UPI, etc. Regulated by the RBI, NPCI, and other regulatory authorities possess
various legal issues but hold advantages too. The recent announcement of the
linkage of fast digital payment systems of the central bank of India and
Singapore, Unified Payments Interface (UPI) and Pay. Now, closely aligns with
the G20 financial inclusion priorities of driving faster, cheaper and more
transparent cross-border payments and shows that the future is in electronic
payment systems.

Topic Digital Token Based Electronic

Payment System
A digital token-based electronic payment system is a financial technology
(FinTech) solution that facilitates secure and efficient transactions using digital
tokens rather than traditional currencies like cash or credit cards. These systems
leverage blockchain technology or other cryptographic methods to create and
manage digital tokens, enabling a variety of payment scenarios. Here are key
components and features of a digital token-based electronic payment system:
1. Digital Tokens: Digital tokens are units of value that represent real or virtual
assets. These tokens are created, stored, and transacted electronically. They can
represent various assets, such as:
1. Cryptocurrencies like Bitcoin, Ethereum, and Ripple.
2. Digital representations of physical assets (e.g., real estate,
commodities).
3. Utility tokens that grant access or usage rights to a particular
platform or service.
4. Security tokens that represent ownership in an asset, such as
company shares.
2. Blockchain Technology: Many digital token-based payment systems are built
on blockchain technology, a decentralized and immutable ledger. Blockchain
ensures transparency, security, and trust in transactions by recording every
transaction in a tamper-resistant manner across a distributed network of nodes.
3. Smart Contracts: Smart contracts are self-executing agreements with predefined
rules encoded on the blockchain. They automatically execute when certain
conditions are met, enabling trustless and automated transactions.
Use Cases:
1. Cryptocurrency Payments: Digital tokens like Bitcoin and Ethereum
can be used for everyday transactions, online shopping, and
investment.
2. Tokenized Assets: Real-world assets, such as real estate or art, can be
tokenized and traded on blockchain platforms, allowing for fractional
ownership and increased liquidity.
3. Tokenized Securities: Security tokens represent ownership in a
company, fund, or asset. They can streamline the process of buying
and selling securities, making it more efficient and accessible.
4. Tokenized Loyalty Programs: Businesses can create loyalty tokens
that customers can earn and redeem within a loyalty ecosystem.
5. Cross-Border Payments: Digital tokens enable faster and cheaper
cross-border transactions compared to traditional banking systems.
6. Micropayments: Digital tokens are well-suited for micropayments,
allowing users to pay small amounts for content or services.
4. Wallets: Users need digital wallets to store and manage their digital tokens.
These wallets can be hardware-based, software-based, or even mobile apps,
providing secure access to tokens.
5. Security: Security is a critical aspect of digital token-based payment systems.
Features like encryption, multi-factor authentication, and private key
management are essential to protect users’ assets.
6. Regulation: The regulatory environment for digital tokens varies by jurisdiction.
Some tokens may be considered securities, and their issuance and trading may
be subject to specific regulations.
7. Scalability: Scalability challenges, especially for blockchain-based systems, are
being addressed to handle a larger volume of transactions quickly and cost-
effectively.
8. Interoperability: To facilitate widespread adoption, some digital token-based
systems are working on interoperability solutions to enable tokens from
different blockchains to be used interchangeably.
9. Decentralization: Many systems aim for decentralization to reduce reliance on
centralized intermediaries, enhance security, and increase transparency.
Digital token-based electronic payment systems are part of the broader
evolution of finance and commerce. They offer new opportunities for
innovation, financial inclusion, and efficiency while also presenting challenges
related to regulation, security, and scalability. These systems have gained
significant attention and are likely to continue evolving and impacting various
industries.

E-Commerce - Payment Systems

E-commerce sites use electronic payment, where electronic payment refers to
paperless monetary transactions. Electronic payment has revolutionized the
business processing by reducing the paperwork, transaction costs, and labor cost.
Being user friendly and less time-consuming than manual processing, it helps
business organization to expand its market reach/expansion. Listed below are
some of the modes of electronic payments −

 Credit Card
 Debit Card
 Smart Card
 E-Money
 Electronic Fund Transfer (EFT)
 Credit Card

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 Proces

Step Description

Bank issues and activates a credit card to the customer on his/her

Step 1
request.

The customer presents the credit card information to the merchant

Step 2 site or to the merchant from whom he/she wants to purchase a
product/service.

Merchant validates the customer's identity by asking for approval

Step 3
from the card brand company.

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

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

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

Debit Card

Debit card, like credit 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.

Debit cards free the customer to carry cash and cheques. Even merchants accept
a debit card readily. Having a restriction on the amount that can be withdrawn in
a day using a debit card helps the customer to keep a check on his/her spending.

Smart Card

Smart card is again similar to a credit card or a debit card in appearance, but it
has a small microprocessor chip embedded in it. It has the capacity to store a
customer’s work-related and/or personal information. Smart cards are also used
to store money and the amount gets deducted after every transaction.

Smart cards can only be accessed using a PIN that every customer is assigned
with. Smart cards are secure, as they store information in encrypted format and
are less expensive/provides faster processing. Mondex and Visa Cash cards are
examples of smart cards.

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 emoney 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.
Electronic Fund Transfer

It is a very popular electronic payment method to transfer money from one bank
account to another bank account. Accounts can be in the same bank or different
banks. Fund transfer can be done using ATM (Automated Teller Machine) or
using a computer.

Nowadays, internet-based EFT is getting popular. In this case, a customer uses

the website provided by the bank, logs in to the bank's website and registers
another bank account. He/she then places a request to transfer certain amount to
that account. Customer's bank transfers the amount to other account if it is in the
same bank, otherwise the transfer request is forwarded to an ACH (Automated
Clearing House) to transfer the amount to other account and the amount is
deducted from the customer's account. Once the amount is transferred to other
account, the customer is notified of the fund transfer by the bank.

Topic Emerging Financial Instruments

These new investment tools and products are designed to meet modern financial
demands and technological advancements.

1. Digital & Tokenized Assets

 Tokenized Securities – Stocks, bonds, or real estate assets represented as

blockchain-based tokens.
 Central Bank Digital Currencies (CBDCs) – Government-backed digital
money aimed at improving financial transactions.
 Stablecoins – Cryptocurrencies pegged to stable assets like the U.S. dollar,
reducing volatility in digital finance.
 NFTs (Non-Fungible Tokens) – Unique digital assets used in finance, real
estate, and intellectual property rights.

2. Sustainable & Impact Investing

 Green Bonds – Bonds issued to fund environmentally friendly projects.

 Carbon Credits & Tokenized Carbon Offsets – Tradable permits for
companies to compensate for carbon emissions.
 Social Impact Bonds (SIBs) – Investments where returns are tied to the
success of social projects.
3. DeFi (Decentralized Finance) & Crypto Innovations

 Yield Farming & Staking – Earning passive income by lending or holding

cryptocurrencies in DeFi platforms.
 Flash Loans – Instant, collateral-free loans executed via smart contracts in
blockchain-based lending.
 Algorithmic Stablecoins – Crypto assets that maintain a stable value
through automated supply adjustments.

4. AI & Alternative Investment Strategies

 AI-Driven ETFs & Robo-Advisors – Automated investment strategies

using AI and machine learning.
 Alternative Data Funds – Hedge funds leveraging non-traditional data
sources like social media and satellite imagery.
 Revenue-Based Financing (RBF) – A funding model where investors
receive a portion of a business's future revenue.

Online Banking Trends & Innovations

Online banking has evolved with digital transformation, providing more

convenient, secure, and efficient services.

1. Digital-Only & Neobanks

 Neobanks (e.g., Revolut, Chime, N26) – Fully digital banks with no

physical branches, offering lower fees and innovative financial products.
 Super Apps – Platforms like WeChat Pay and Alipay that integrate
banking, payments, investments, and social features.

2. Embedded Finance & Open Banking

 API-Driven Open Banking – Banks share financial data securely with

third-party providers to enhance services.
 Buy Now, Pay Later (BNPL) – Alternative lending solutions (e.g.,
Affirm, Klarna) enabling short-term instalment payments.
 Banking-as-a-Service (BaaS) – Financial services integrated into non-
financial platforms (e.g., fintech companies offering banking features).

3. AI-Powered Banking & Automation

 AI Chatbots & Virtual Assistants – Automating customer service and

personalized financial insights.
  Fraud Detection & Risk Management – AI-driven systems identifying
fraudulent transactions in real time.
 Predictive Analytics – AI analyzing customer data to offer customized
financial products.

4. Blockchain & Security Innovations

 Biometric Authentication – Fingerprint, facial recognition, and voice

authentication for secure banking.
 Smart Contracts – Automating banking agreements without
intermediaries.
 Decentralized Identity Verification – Blockchain-based identity
management for secure transactions.

The Future of Finance

The integration of emerging financial instruments and online banking is

transforming how people invest, borrow, and transact. As digital assets gain
traction and banking becomes more AI-driven, financial services will become
more accessible, efficient, and personalized.