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Jn this chapter you will learn

The concept of e payment system

Process of traditional and electronic payment system
Types of e payment methods

_,_________
lm INTRODUCTION
The last two decades have witnessed tremendous growth in internet based
businesses thus giving rise to electronic mode of payment and settlement. New
innovations in payment methods have provided numerous options to companies as
W ell as individuals to choose different modes of e payments which best suits their
needs and requirements. From paper based system to e-payment system, payment
mechanism has evolved over decades giving ways to new and innovative methods of
P/l}'rnents which are convenient and secure. These payment methods are providing
nu E-Payment Sya•
,e111a

opportunities to numerous ways of payments and circulation of mane~- in the economy

th us giving a boost to the economic growth by bringing buyers and sellers together
These new payments methods not only bring transparency in th ~ economy but als~
empowering the consumers by giving them safe and secure medium for perfonning
transactions. Electronic Payment System (EPS) enable a customer to pay for the goods
and services online by using integrated hardware and software sy~te~s. Electronic
payment methods are not just confined to inline payments m~de mtemet but it
comprises whole lot of digital activities using electronic mode usm_g digit~ cash, mobile
wallet and other modes which we will discuss in this chapter m detail. Due to the
development of technology new devices are being introduced wi th new PaYment
methods thereby reducing the usage of paper based payments including cash or
cheques. In the US, for example, use of cheques have declined from BS% of non-cash
payments in 1979 to 59% in 2002, and electronic payments have grown to 4 1%.

[IEE HISTORY AND EVOLUTION OF E-PAYMENT SYSTEM"----

Although Electronic Payment Systems are said to be in operations since 1960s but
its presence can be witnessed way back in 1920s when federal Bank first transferred
currency through telegraph in 1918 which was considered to be the birth of electric
money. According to Encyclopedia Britannica, "the use of credit cards originated in the
United States during the 1920s, when individual firms, such as oil companies and
hotel chains, began issuing them to customers." The first genral purose charge acrd
was introduced in 1950 by the Diners Club, followed by similar cards from Carte
Blanche and American Express. These early innovators set the foundation for the
coming credit card revolution via their pioneering usage of charge cards. In 1958,
Bank of America took a major step by introducing Bank of America's card, which
augmented the widespread usage of credit card for payments by consumers. This
increase in usage of bank cards led to further expansion of market with electronic
transactions bypassed the geographical boundaries. With advancement of technologies
payment system has taken giant leap from online payments to mobile payment system
which is characterized by convenience, global acceptance and wide coverage and has
transformed the way businesses and individuals make transactions these days.

Table 14.1 Evolution of Electronic Payment Methods

Year Development b1 Electroni~ Payment Methods
1918 Federal Reserve transferred currency through telegraph electric money for the ·
first time .
1946 First bank card title "Charge it" launched by John Biggins of the Flatbush
National Bank of Brooklyn in New York.
1950 Diner's Club International (IDC) first independent credit card company issued
"Diners Club" credit card to 200 people
 ,systems Bil
f11efl
/1'l
(' f
;\rnerican Express. and the Bank Americard (later called V1SA) arrived .
;\rnerican Express issued their first credit card and Bank of America issued
the BankAmericard (now Visa) bank credit card later in 1958.
First networked ATM launched
;\utomated Clearing House (ACH) developed to process large volumes of bank
transactions which has become a very important part of modern day payment
system involving banks and financial institutions and credit card companies
First national bank of Seattle issued First debit card to account holders of
large saving banks
First B2B online transaction made by Thomson Holidays , UK based Travel
operator
First online purchase recorded
NFC an electromagnetic wireless technology designed for communicating
between two devices became approved ISO standard .
First digital mobile wallet introduced M-Pesa
2007
Bitcoin, first digital online currency designed using cryptography
2009
Paytm one of the largest mobile payment app was launched in 2010
2010
Starbucks accepts mobile payments worldwide
2011
After Demonetisation digital payments were on the rise in urban as well as
2016
rural India.

2017
The aggregate number of digital transactions made in India added up to
Rs .125.53 lakh crore, according to data obtained from the National Payments
Corporation of India (NPCI)
2017 Google Launched its own payment App Google Tez now popular as Google Pay
2020 Digital Payment Apps like phonePe, PayTm, GooglePay, Mobiwik, AmazonPay
etc are popular portals fro online payments among businesses as well as
customers

IIJ TRADITIONAL PAYMENTS SYSTEM

Before discussing Electronic Payment System further, let's try to understand the
rocess of traditional payment system. A traditional system of payment requires a
uyer-to-seller transfer of cash or payment information by way of cheque . In case of
,sh payment buyer will withdraw cash form his bank account and pay to the seller,
nd then seller deposits the cash to his account. In case of payment through cheque or
-her Non-cash form payment is settled by adjusting i.e. crediting and debiting the
Jpropriate accounts between seller and buyer banks based on information conveyed
trough h . .
. _ c eque. Figure 12.1 shows the payment mechanism m both cases under
ad1hona1
Payment system.
 E-Psyment Systems

Buyer Bank

Adjustment
in case of
Goods and Services Payments
Cheque or
Draft

Seller Bank
4 -_ _ _D_e.:...po_s_it_ _ _ _ [ [ ~ler I]
Figure 14.1 Traditional Payment Systems

There are many drawbacks in the traditional payment systems which ha:e been
eliminated by electronic payment systems which faster and secure method and is being
widely adopted these days.
Some of these drawbacks are :-
1. Lack of Convenience: Traditional payment systems require the consumer to
be physically present for presentment of cheque or for making payment
whether made through cash or cheque or credit card. It does not provide the
convenience of making payment from any place. It requires payment to be
made at specified place which could be place of transaction, bank or any other
place specified in the deal.
2. Lack of Security: Another major disadvantage of traditional payment system
is that of security. In case of traditional payment system, chances of theft and
fraud are very high as there is no secure system available and it is prone to
leakage of confidential information at any point.
3. Lack of Universality: In the present context of multi-national businesses and
personal transactions been taken place across countries, it requires faster
transfer of money across the countries which are not possible with traditional
payment system even if banks are having branches near all over the world
until and unless they resort to online e-payment system.
4. Micro-transactions: Traditional Payment System may not be feasible for micro
payment system especially if payment is made through cheque, it cannot be of
very less amount whereas low cost transactions can easily be done on internet
even if they involve data flow between two entities in two different countries.
5. Forgery -. There are some security risks for the merchants when it comes to
payment made by cheque because cheques can easily be forged whereas
transactions done though online payment system are secured through
encryption and there are minimum chances of theft or fraud. Moreover If there
 gysf8111S IED
l'~t•s tes s rnoney in the account of the. one paying the cheque may be dishonoured
reas e payment sy stem provides multiple options like credit card where
1
woe b
ofle can pay eyon
d th
e amount stored in their accounts.

Of PAYMENT UNDER TRADITIONAL PAYMENT SYS_:._

f)Js TE:;;...M
_ _ _]

95t,
1, C cash is issued by the government or central bank and consisting of printed
1ne ·ch certain value that can be used to exchange goods debt or services. The
wht '
fPer. neXible and easy t? use, so t_hat much trade is finished through it. But, the
1
c3s11 : of cash transaction also bnngs much inconvenience to both sides of trade,
~~tauon the limitation of time and space, inconvenience for carrying and the
.\, as ·ty
sllv>' ntial insecun .
~!lseque

Z ~ote
' te can be defined from broad sense and narrow sense. Generally, the note
No various marketable documents used in the business activity, such as
. c\11des d . . .
Ill 'ties, stocks, bon s , promissory note, bills of exchange, tickets etc. From narrow
secUfl note refers to a proper noun, namely, the bill of exchange, promissory note and
sense,
cheque.

ll11tec1~0Ntc:PA_YM
_E_N_T_~_Y_
ST~E_M_.___"_ _ _ _ ______
Under electronic payment system transfer of funds take place through an
. termediary. Electronic Payment System can take place in different forms depending
:pon the choice of method used by the participants. As shown in figure 12.2 in an
clectronic payment system the cardholder presents a card to merchant who further
sends it to merchant acquirer (bank) for authorization. The merchant acquirer asks the

Transaction Merchant
Bank

Issuing Settlement Merchant

Bank Acquirer
l

e
Figure 14. 2 Electronic Payment System
 E-Payment Syste
ma
· • k The issuing bank approves th
isSumg bank for authorization through card networ · ally through ACH If e
transaction
tr . and the card network makes the settlement
. d · d then paymen t ge t s cancel!
gener . the
ansaction
. is approved payment is made and if it enie .
hant acquirer b an k ere ct·its th
ed.
Issumg bank charges the card holder and mere e
merchant's bank account.

FEATURES OF ELECTRONIC PAYMENT SYfil:.EM

t
Electronic payment has the following characteriS ics:
. " ....,,ation transmission by ct1·oit
. h • 101
• Adopting advanced technology to finis in ,.. • . f o• al '
transition, and all kinds of payment is realized by the digital orm.
t atic platform, that is to sa
• The electronic payment works on an open sys em Y, on
internet.
• It is a demanding technology for both hardware and software.
• It featured as convenient, fast, high-efficient and economical.
But, at present, electronic payment still has some defects on security and
payment's condition etc.
INTEROPERABILITY IN ELECTRONIC PAYMENT SYSTEM
Electronic Payments System like any other online information system is based on
interoperability which makes whole online payment environment easier and cost
efficient. Online payment systems require a well functioning interoperability to ensure
that all parties involved including banks customers suppliers, business owners,
intermediaries should gain.
Online payment system interoperability is of three types
(a) Scheme interoperability
(b) Network Interoperability
(c) Parallel System Interoperability
(a) Scheme Interoperability - Scheme interoperability is a d feature of open loop
payment system which is used by financial institutions where two or more
banks use same open loop system for fund transfers e.g cheques, EFTs, debit
and credit cards.
(b) Network Interoperability - Network interoperability exists where one
payment scheme negotiates exchange agreement. This type of agreement
allows one debit card holder from one country to use it in another country.
This exclusively used for cross border payments where credit card is used for
purchase in another country with domestic currencies.
(c) Parallel System Interoperability - In parallel System interoperability service
providers act as intermediaries between merchants and card networks. E.g. a
merchant accepting card from MasterCard as well as American Express
 ,r1efl
,systems BIi
._pg'/ • ·1 t ·
: provides simi ar ~ayd~f:n expenence to both card networks despite the fact
wat they operate m 11erent network systems

rs OF ELECTRONIC PAYMENT SYSTEM

ieNt::f'I
. to suyers
ef1t
:e11 11venience of Global Acceptance-Electronic Payment methods provide a
1· C~de range of payment options and enhanced financial management tools
Wlh 0 ugh which individuals can pay for numerous different types of
tr . f ki
transactions rangmg rom par ·ng payments to travel tickets or payments in
foreign currency.
Universal Acceptance-With electronic payment methods payments can be
2
· rnade over the phone, on the Internet, and through the post and accepted
everywhere.
Greater Security-Electronic payment system is safe and secure as it follows
3, d
strict encrypte secure system for making payments keeping buyer's identity
and details completely confidential and reduced liability for stolen or misused
cards.
4. consumer Protection-The electronic payment system provides additional
insurance by facilitating dispute resolution in the case of unsatisfactory
receipt of goods and services. This takes on increasing importance with the
expansion of e-commerce
s. Accessibility to Immediate Credit-E-payment system allow consumers to
transfer funds, purchase stocks, and offer a variety of other services without
having to handle physical cash. Using credit card it is very comfortable and
convenient to make payments without being worried about cash balance in
hand or in bank account.
6. Better Control over Payments-Electronic payments also provide the ability to
control payment for goods and services over time by allowin 6 buyers to pay at
will whenever they want or have sufficient funds to make payments.

enefits to Sellers
1. Speed and Security-Electronic payment system ensure faster processing of
transaction from verification and authorization to clearing and settlement. It
reduces the visibility of information as information is passed electronically
thus reducing the chances of types of fraud which occur in paper based
payment systems
2
· Reduces Cost-Electronic payment system provides companies freedom from
more costly labor, materials, and accounting services that are required in
Paper-based processing. It also reduces the time spent on reconciliation
th ereby increasing efficiency .

.......___
 E-Psyment Systems

3
· Effici~ncy-It leads to better management of cash flow, inventory, and ~nanciaJ
plannmg due to swift bank payment. Eliminates the storage, handling, anct
processing of paper checks.
4. Better Control-When used properly the electronic aspects of purchasing anct
prepaid cards can increase internal controls over high volume, small dollar
purchases

11D TYPES OF ELECTRONIC PAYMENTS INSTRUMENTS

E-Commerce or Electronics Commerce sites use electronic payment where
electronic payment refers to paperless monetary transactions. Electronic payment has
revolutionized the business processing by reducing paper work, transaction costs anct
labour cost. EPS being user friendly and less time consuming than manual processing
helps business organization to expand its market reach and expansion.

Credit Card

Debit Card

Account Based Electronic

system (stored Cheques
account)

Mobile
Banking

Online
Banking

E-cash
Electronic
currency System
(Stored Value)
Smart Card

Figure 12.3 Types of Electronic Payment Methods

Electronic Payments systems can be categorized as Account Based Systems (Stored

Account) and Electronic Currency Systems (Stored Value). In a stored account system,
the buyer and the merchant maintain accounts with a bank. The transactions are
registered and the actual transfer of funds takes place at a later stage through
settlement. Examples of Stored Account System include Credit Cards, Debit Cards
and Electronic Cheques. In Stored Value System like smart cards, mondex cards,
digital cash, certain amount of prepaid monetary value stored electronically on the
card.
Some of the modes of electronic payments are following :-
1. Credit Card - Payment using credit card is one of most common mode of
 ef1t systems

:-Psynumt Systems
t-f''"' ·c payment. Credit card · mg
tfori1 I h is small 1
~ec a11 account. t as also a ma . p astic card with .
y, and financial ~tJ'l.t card via card readers. Whengnetic strip embedded i~ ~nique number attached
handling, and cfed'. a.rd issuer bank pays O b a customer PUrch it which is used to read
~dit :riod after which he/ she: ehalf of the custom:;es a product via credit car~,
urchasing and tiJ!le PI payment cycle. an Pay the credit card ~d c~stomer has a certain
:, small dollar ofltb Y bill. It is usually credit card
r1I A credit card has a spending limit b
.1,,e entire credit card balance o ased on the user's cred"t h .
ff IP h . r pay a mini I istory; a user can pay
o d issuers c arge interest on any u . mum amount each billin . d C d"t
c~ t d npaid balan g peno . re 1
nnent where ode of paymen ar?un the World and provid ce. Credit cards are widely accepted
payment has Jll ..,,,erchant. Credit card can b e assurances for both th d
tile ,,. e Used for offl. e consumer an
ion costs and jllirie payments customers use credit card . me as well as online payments. For
al processing ~e merchant's system and complete th s m fo~ of plastic money to be swiped at
ount of purchase is added in the bale transact10n with entering PIN number. The
dit card pure h ases are similar
. to t 1 anceh due to p ai"d at th e end of month. Online
ere d e ep one purcha . h
esent an cannot provide proof of i·d
] pr .
the cash register. Online and teleph
.
entity as easil
ses m t at the card holder is not
h
Y as e or she can when standing
e.tarisactions• w h"ich require extra se one ·ty purchases are o ft en c al led card not present
] tr
d then entenng •
one time generated
cun which includ
es a mg
dd " c W number PIN
e.n
nurnber. password sent on customer's or user's phone

I Following are the parties involved in the cred·t

. 1
d
car system.
• The card holder - Customer
• The merchant - seller of product who can accept d "t d
ere 1 car payments.
• The card issuer bank - card holder's bank
• The acquirer bank - the merchant's bank
• The card brand - for example , visa or mastercard.

Table 14.2 CREDIT CARD PAYMENT PROCESS

Step 1 Bank issues and activates a credit card to customer on his/her request.
Step 2 Customer presents credit card information to merchant site or to merchant
from wh om he/ s he want to purchase a product/service.
n s (Stored Step 3 Merchant validat es customer's identity by asking for approval from card brand
1t system, company.
;tions are
Step 4 Card brand company authenticates the credit card and paid the transaction
: through
by credit. Merchant keeps the sales slip.
bit Cards
ex cards, Step 5 Merchant submits the - sales slip to acquirer banks and gets the service
'y on the chargers paid to him/her.
Step 6 Acquirer bank requests the card brand company to clear the credit amount
and gets the payment.
Step 7 Now card brand company asks to clear amount from the issuer bank and
mode of
amount gets transferred to card brand company.
----
 E-Payment $ysteins

....
.-. ..
Credit Cards
·•~
~"
Mobile
~
Pay~ate
-

Debit Cards

~t-
D¼Jf:t.!HI rM#iM a . ... liiJMIIII ~GMWii ?::~~
Qlt!BALw« (ojjfoi!iii ,_7tc1C1Bank . ."'t.....i:.i. ~,.J&K BN!Y, t.i} Un1o11Br.!, c1t1bank M ¼i
ew•wil'f 1".... . . . , ,w.... t BARCIAYS , ...... • - •

~. ..t·~ iiMiir!M HSBC «> ~--...

- I@ tr..._,_ DCBl= =it.
hWMIBri @ a-~:1 NII Mil Ejij\j@iliMM IOJ~~

• ,~~~Il
UM!M c,- . ICKfflf . Qi---
-~-·--•-=~~c 4r..ow......
=:
13iatliiiiliil
~
,~~ ...- - -ab
~ri.,rnfw~
D -

Figure 14.4 E-Payment Options

e

2. Debit Card - Debit card, like credit card is a small plastjc 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 debit card and
credit card is that in case of payment through debit card, amount gets deducted from
card's bank account immediately and there should be sufficient balance in bank
account for the transaction to get completed whereas in case of credit card there is no
such compulsion. Debit cards free customer to carry cash, cheques and even
merchants accepts debit card more readily. The restriction on amount being in bank
account also helps customer to keep a check on his/her spending. A debit card works
differently than a credit card as a debit card removes the amount of the sale from the
cardholder's bank account and transfers it to the seller's bank account instead of
charging purchases against a credit line Debit cards are issued by the cardholder's
bank and usually carry the name of a major credit card issuer, such as Visa and
MasterCard, by agreement between the issuing bank and the credit card issuer. By
branding their debit cards, banks ensure that their debit cards will be accepted by
merchants who recognize the credit card brand names.
 e.Ps'lf118n&
.
.,,.., ..,,,,,~
E-Payment $.Ysten,
8
srnart Card - Sniart card .
3.
P
~.-ance but
e<»
1·t h
as ka snia11
I
is again . .
lllicroprocessorsirnilar
h' to credit card arid debit card in
ma
11Pstore customer
·h · dwor re ated/personai . c 1P ernbedded in it. It has the capacity
d 1nforrn t·
10 rieY wh1c is re Uce as Per Usag e. 1t can b a 10n. Srnart card is also used to store
"'' !;tJ.
-~ cards are 'd secure
l-' st as they stor es inforrn
. e accessed
t' . only using a PIN of customer.
51'r11efl sive/prov, es ,a er Processing, •• a •on
!V!Ondex anct v· m encrypted format and are less
"''
'"'art cards. payment •Ystem . l,tob"I
4 Mobile •sa Cash cards are examples of

-,,ays:-·ted through a mobile deVice. M0 1

P•Yment system refers to payment servkes
,per•(a) SMS or USSD
1 e P"Ylnents can be initiated through following
(b) Mobile Internet
I l•CiM@lii
ibank f ~ s.-. (c) NFC

f,.. .. .,. aucolAMlc i•I SMS or Un•trnctured Supplementary Service Data (USSD) In SMs or ussn

---.. . --- .,.,... __

initiate the paynient.
b~s~d PaYm.ent model the consumer sends a payment request thmugh SMS to

(b) Mobile Internet - Payments are made thcough mobile ush,g h,temet access.
Payments through mobile via internet thmugh mobile websites whkh are
tailored to suit mobile enVimnment with suitable applications
(c) ContactJess or Near Field Conununfoation (NFC) - NFC technology
enable Stnartphones and othec deVices to establish radio communication with
each other by touchh,g them togethec oc bringing them into pmximity. A
consumer using a special mobile phone equipped with a smartcard waves
his/her phone near a readec moduie. The payment could be deducted from a
stic card with a unique pre-paid account or charged to a mobile or bank account directly afte~
t~ have a bank account
the examples. Google wallet, square, apple passbook lemon wallet are some o
authorization.
between debit card and
u n t gets deducted from
dent balance in bank
f credit card there is no
h, cheques and even
amount being in bank
ng. A debit card works
m t of the sale from th e
!Ilk account instead of
ed by the cardholder' s
uer, such as Visa· and
credit card issuer· By
ds will be accepted by

Figure 14.5 Mobile Payments through NFC

llif.l E-Paymenrs
Yste/lie
5. Internet Banking (EBPP System)- Electronic Bill Presentment and p '

consu~ers to view their bills online and make payments throug~ EFT through
or credit card accounts. These days many companies are resorting to sendin ¾ks
t'
System is a form of online bill payment systems for monthly bills. EBPP service;lllellt
0\li

bill statements customers in order to reduce paper wastage and persuade custog~Ille
pay the bills through online EBPP which is faster way of payments. There are tw~ers to
of electronic bill presentment - push and pull. The push method, which is ~~es
popularity, delivers electronic bills to customers via email. In some cases a ~~1llg
emb dd d · th 1nk i
e in e email· that takes the customer to a site · 1or
" reviewing
· · and Payj
' s
bill. Sometimes, a paper-based notification is sent to the customer as well. In th:g the
method, the customer's bill is posted to a secure Web site that requires P\J.U
authentication. An emerging trend is multi-channel bill presentment, combt~er
traditional and electronic bill presentment methods to increase the likelihood thating
customer receives timely notification of bills that are due. th e
6. E-Cash- E-cash or Electronic cash is a kind of system which permits a consu
to make payment for objects/ goods or services by a way of transmitting a number r:er
one computer to another as in similar the serial numbers on real currency notes. Th 111
.. al
d igit h b ese
cas num ers are unique one. Each number is issued by a bank and represe t
a specific amount of money. Unlike the real cash it is anonymous and reusable~ 8
~hen digital cash is sent from a consumer to a seller, there is no way to ~;;
information about the buyer. Digital cash transactions have now become more
common. In today's scenario most of digital cash systems start there functioning with a
involving bank, which issues cash numbers or other unique identifiers which carries a
specified value. Thus to get such a certificate, the person must have an account in the
-stated bank; when the person purchase digital cash certificates the money is
withdrawn from person's account. Thus an E-cash or electronic cash is digital money
that is used for online purchasing. To perform e-cash transactions, users need specific
software to enable him/her to download money from their bank account into their cash
wallet. In the process of buying, customers perform an exchange with the downloaded
money with the vendor for the product they make a purchase. The vendor afterwards
redeems the sought money in a bank which accepts e-cash deposits. An E-Cash is a
term that indicates a kind of storage of a value and exchange concept used and created
by people who don't make use paper documents or coins for buying services. This type
of system may work as an alternative means for government-issued physical currency
notes and coins.

Process of E-Cash
For using electronic cash, a consumer opens an account with an electronic cash
issuer and presents proof of identity. The consumer can then withdraw electronic _c~s!
by accessing the issuer's Web site and presenting proof of identity, such as a digi;
certificate issued by a certification authority, or a combination of a credit card num,tyer
.
and a venfiable .
bank account number. After the issuer .
venfies the consumer's identl e'
it gives the consumer a specific amount of electronic cash and deducts the sarn
 ntsrstems
fPSyrrte
uflt from the consumer's account. In ad . . .
IIIICI
tv11°cessing fee. dition, the issuer might charge a small
pfO ~.., e-cash transaction the consu .
10 ...... . all mer is requir d t d
electronic w et on his/her e o ownload and install software
_1Je d b computer. So t . . .
ciµ is used Y consumer to create d. . . , as o get DigiCash, an electronic
~ e:o the bank to get signed After t~gital. coins, and thus, these created coins are
seflt is withdrawn from the p~rson' e cams are signed, the equivalent amount of
0oeY . s account of .
iri sted in making a purchase, he/sh . concerned bank. When the person is
illtere on the contrary the vend e is supposed to send signed digital coins to the
vendor.
d osit of the coins into the hank
or cross-verifies th b k' . -£'
e an s signature and peuorms
the ep spective bank ·
ill there 'where they are credited to the vendor's account
Table 14.3 Top ten Digital Paym t M
en ethods used in India
----- Banking cards
• • Bank pte-paid cards
------=-
ussD
• • Point of Sale (PoS)
• ,Aadhaar Enabled Payment System
(AEPS) • Internet Banking
, UPI
• Mobile Banking

-, Mobile Wallets
• Bharat Interface for Money (BHIM) app
7. E-Wallet - An E -wallet holds credit card numbers, electronic cash, owner
identification, and owner contact information and provides that information at an E-
commerce site's checkout counter. E-wallets give consumers the benefit of entering
their information just once, instead of having to enter their information at every site
with which they want to do business. Electronic wallets make shopping more efficient.
When consumers select items to purchase, they can then click their E-wallet to order
the items quickly. Most popular E wallets in India are Paytm, PayUMoney and
Mobikwik.
Electronic wallets fall into two categories based on where they are stored :-
(a) Server-side wallet
(b) Client -side wallet
(a) A server-side electronic wallet stores a customer's information on a remote
server belonging to a particular merchant or wallet publisher. A server-based wallet is
acquired from a merchant's site. When consumers complete a merchant's Web form to
make a purchase they are invited to sign up for a free wallet where they provide a
Username and password. The information they add to the Web form, including credit
carct number and shipping information, is stored on the merchant's server or the
merchant's payment processor's server. When c?ns~mer~ go to the same site to make a
PUrchase in the future, their personal information is_ easily e~tracted for the purchase .
The servers will have encryption security as well, smc~ certificates are used to verify
the identity of all parties, the merchant is protected against fraud.
lliiGI E-Payment s
Ystel!J,
(b11 A c li ent-side electronic wallet stores a cons umer's information
. on h"is or 1..
own co mputer. It requires that consumers down 1oad and install. software . ' 1er
0 n the·
computer · They input . . . .
personal information 1·nto .the wallet, which
. is .secured
. cl!lr1lt
protected locally on the· t r's hard drive. When using a d1gita1 WaJJ
rr compu e .. , h • th et
consu~ers will not be required to fill out order forms eac sit~ o1:
ey purchase fro '
as the mformation required is readily available from their hard dnve and_ aut~rnaticai~
entered into the order fields of th~ on-line site. Many of the early electronic,waIJets \V y
1ient-side
·
C _
· Wallets that required users t<;> download the ·~ all e t so· ft ware .. •The
· Illa.in
ere
disadvantage of the client side wallet is that software is reqmred ~P be downloaded
0
every computer which .is used to. make purchases. Server-side wallets, on the ot~to
hand, remain on a server and thus require no download time or installation on a User~r
computer which gives server side wallet system an advantage over the client Sid s
wallet. e
8. Electronic cheque- An E-check is an electronic transfer of funds in which th
money is taken from a bank account, typically a checking account. The account':
routing number and account number are used to draw funds from the account. E-
checks can clear much faster than written checks. It includes all the components of a
paper check and can be used as a method of payment on the Internet.

The electronic checks users must register with a third party account serv~~ before _t hey are
able to write electronic checks. The account server also acts as a brlhng service

After registering a consumer can them contact a seller of good and services

The buyer sends an electronic check to the seller for a certain amount of money, using E-mail
or other transport methods

When deposited, the check authorizes the transfer of account balances from the account
against which the check was drown to the account to which the check was deposited.

Figure 14.6 Process of E-cheque

9. Electronic Fund Transfer- An electronic fund transfer (EFT) is a transfer of

funds initiated through an electronic terminal, such as telephone, computer, or
magnetic tape that instructs a financial institution to either credit or debits a
consumer's asset account. It refers to the computer-based systems used to perform
financial transactions electronically and provides for electronic payments and
collections. Compare with traditional paper check payments and collections, EFT is a
safe, secure, efficient, and less·expensive means for electronic payment.
According to different promoters, EFT can be divided into two categories: credit
transfer and debit transfer.
EFT's services may include:
• Automated teller machine (ATM) transfers;
 ,r,ef1
,sys"'ms IIIP
e-PsY
. ect deposits or withdrawals of funds·,
p1r
' rra.nsfers initiated by telephone;
' pol·nt-of-sale (POS) terminal transfers·,
' ,,-...a.nsfers resulting from debit card tran t·
, 11 sac ions .

.-t.d ONLINE F?~YMENT SERVICES

f companies across the globe . . . t
A 1ot o now provide easy solutions for onlme paymen
stetJl.S to e-commerce_ companies. These companies provide fast easy to use and
sY re services to busmesses and customers which can be used from numerous
sec:ns for payment available online. Such companies use stored card informations
:: provides eas~ to proceed services to users. Some most popular online payment
. es used are .-
servic
Table 14.4 Popular Online Payment Services
paypal Paypal the most dominant method available with
254 million users across the globe
t,---
A!Jlazon Pay A Digital Payment Service method which allows
customers to pay online using third party website
aoogle Pay Google pay provides smooth payment operations
because of large customer base having accounts and
stored information with google.
EBay Managed Payments E Bay managed Payments method allows its customers
to use its own payment portal without traveling to third
party website for payments
Apple Pay Apple provides easy secure alternative to debit and
credit cards users with its one click payment option
Gift Cards Gift Cards contain certain amount of money mainly
offered by retailers and major card providers like
Mastercard Visa and American Express
Digital Currencies Digital Currencies like cryptocurrencies and bitcoin are
gaining popularity but there is long path for
acceptability owing to legality and authorization, safety
and privacy.
Buy Now Pay Later Buy Now Pay Later is kind of instant financing offered
by inetrest free credit porviders. E. g, Afterpay and
Klama offers their customers to pay for the items
purchased at later date rather than full payment
instantly
 E-Payment ~-
1IHC1 -,,l
[SUMMARY ~ ---
i=~==-=========-=:=.::::::.;=:=-:::d~the process of transactio~
The electronic payment system has ma e well as merchant can have ¾q
payments easy and smooth as customers as ompared to traditional Pa functs
transfier electronically
· f: t
at much as er pace dd fficiency to the way businessYlllent
as c
system. Technology has come a long way _to a. e threats of security issues a es are
being operated but al?ng with this boon_it bn;1!sof loops for data thefts whichs WeU.
The vast network spread world wide provide~ a d data and fund transfers roses
a great risk to secure assurance of transactions to e-commerce and e p. n the
r
next chapter you will learn security issues ela~gfunds online. aYlllent
system and ways to ensure secured flow of data an

Key Terms
, . s tem (EPS) enable a customer t
E-Payment System - Electronic Payment ys o Pay
. . • 1·ntegrated hardware and sofitw
for the goods and services online by usmg are
systems.
E-cash - A system which permits a consumer t_o make payment for
objects/goods or services by a way of transmitting a unique number from one
computer to another.
E-wallet - E-wallets gives consum~rs the benefit of entering ·their information
just once, instead of having to enter their information at every site with which they
want to do business: ·
E-cheque - A system through which payment can be made through cheque
from a bank account online using electronic fund transfer.
EBPP - Electronic Bill Presentment and Payment System is a form of online bill
payment systems for monthly bills which allow consumers to view their bills online
and make payments through EFT
EFT - An electronic fund transfer (EFT) is a transfer of funds initiated through
an electronic terminal, such as telephone, computer, or magnetic tape that instructs
a financial institution to either credit or debits a consumer's asset account.

Discussion Questions

SHORT ANSWER TYPE QUESTIONS

1. Write short note on EDI. (BCom PU 2018)
2. Make a brief comparison of traditional paper syste~ with EDI based system .
3. Enumerate main components of EDI
4. What are· the main features of EDI?
s. What do you understand by the problem of integration interoperability and
compatibility?