E-Commerce - Payment Systems
ELECTRONIC PAYMENT MEANING :
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)
Types of Epayment :
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.
E-Commerce - Payment Systems
Credit Card Payment Proces
Step Description
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.
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.
E-Commerce - Payment Systems
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.
E-Commerce - Payment Systems
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