This document discusses different electronic payment systems used in e-commerce. It describes e-cash, credit cards, debit cards, smart cards, e-wallets, and electronic funds transfer. It provides details on credit cards and debit cards, including how they work, their advantages and disadvantages. Credit cards offer benefits like easy access to credit, rewards programs, and purchase protection, but can also lead to debt issues if not managed properly due to high interest rates and potential overspending. Debit cards provide convenience but have limitations like restricted funds access and potential fees for using other banks' ATMs.

1. Post Graduate and Research Department of Commerce
E-Commerce
Dr. T.VENKATESAN
Principal
Vivekananda College
Tiruvedakam West
Madurai

2. ELECTRONIC PAYMENT SYSTEM

3. ELECTRONIC PAYMENT SYSTEM
Meaning
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, labour cost. Being user friendly and less time
consuming than manual processing, helps business
organization to expand its market reach / expansion. Some of
the modes of electronic payments are following.

4. E-Cash
Credit Card
Debit Card
Smart Card
E-Wallet
Electronic Fund Transfer (EFT)

5. E-CASH:
E-Cash means that money that is exchanged electronically over
computer or telecommunications networks. It also means that
any of various systems of payment for purchases made on the
Internet.
Advantages of E-Cash:
Anonymity and non-traceability can be maintained with e-cash.
User ids are kept highly confidential.
There are hardly any issues regarding "double spending".
Real-time checking of all transactions makes the possibility of
multiple expenditures negligible.
There is no requirement of additional secure hardware.
The existing POS (point of sale) hardware can be updated and
used.

6. Disadvantages of E-Cash:
There are communication overheads; security and
anonymity cost become a bottleneck of the system.
This can happen at times during real-time
verifications.
The bank has to maintain massive, detailed, and
confidential databases.
The bank needs to synchronize its server every time
transaction is made. It would be insanely impractical
to maintain.

7. 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 master card.

8. Advantages of Credit Cards:
Easy access to credit- the biggest advantage of a credit card is
its 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.
Building a line of credit- credit cards offer you the chance to
build up a line of credit. This is very important as 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 future loan or rental applications.

9. 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.
Incentives and offers- most credit cards come packed with
offers and incentives to use your card. 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.

10. 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.
.

11. 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.
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.

12. Disadvantages of Credit Cards:
Minimum Due trap- the biggest con of a credit card is the
minimum due amount that is displayed at the top of a bill
statement. 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.

13. Hidden Costs- credit cards appear to be simple and
straightforward at the outset, but have a number of hidden
charges that could rack up the expenses overall. 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.
Ease of 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.

14. 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.
Credit Card Fraud- though not very common, there are
chances you might be victim of 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.

15. 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 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. Having restriction
on amount being in bank account also helps customer to keep
a check on his/her spending.

16. Advantages of Debit Cards:
Easy to Apply: The debit cards can be easily got in the bank.
The user should have an account in the bank and he/she will
have to fill the form for getting debit card and its respective pin
number for security purpose.
More Comfortable: Payment of costly items or things can be
easily bought using debit cards rather than writing a check or
counting the cash. People can be relaxed while purchasing many
items. They needn’t take care of insufficient cash in their pocket.
Safe: Keeping debit cards are safer than keeping large amount of
cash or checkbook. Since, money can be easily taken from the
purse.
Convenient for Travelers: Debit cards are accessible all over
the world. So, people can easily swipe if during the purchase.
Instead of changing the currency for each country.

17. Disadvantages of Debit Cards:
Limited Money Access: Debit card takes money from the
savings account. So, unlike credit card which give us unlimited
money from its account debit cards has limited time period.
Managing the Account Balance: Monitoring the debit card
transactions regularly is main requirement for using checkbook.
Keeping track of ATM and purchase transactions is very
difficult.
Less Safety: Anyone who has the debit card and pin number can
access the money. There is no high security for the debit cards
since, any user can use it instead of the account holder.
Technologies are improving by making it compulsory for the
access of account holder alone.
Additional Fee: Debit cards can be accessed without any fee
only in that specified bank ATM. Accessing from another bank’s
ATM will cost additional fee and it increases for each
transactions. Since, the respective bank ATM cannot be
available everywhere, this can be huge disadvantage for the
user.

18. Smart Cards (or) Stored Value Cards:
Smart card is again similar to credit card and debit card
in appearance but it has a small microprocessor chip
embedded in it. It has the capacity to store customer
work related/personal information. Smart card is also
used to store money which is reduced as per usage.
Smart card can be accessed only using a PIN of customer.
Smart cards are secure as they stores information in
encrypted format and are less expensive/provides faster
processing. Mondex and Visa Cash cards are examples of
smart cards.

19. Advantages of Smart Cards:
 More Secure
This simple technology has revolutionized the payment card
industry and increased the level of card security. These cards use
encryption and authentication technology which is more secure
than previous methods associated with payment cards. The
microprocessor chip embedded at the heart of the smart card
requires contact to the card reader and certain areas of the chip can
be programmed for specific industries.
 Safe to Transport
Another advantage to having a smart card is their use in the
banking industry (and many other sectors). These cards give the
holder freedom to carry large sums of money around without
feeling anxious about having the money stolen. In this regard, they
are also safe because the cards can be easily replaced, and the
person would have to know the pin number to access its stored
value. This takes care of the problem with cash; once it is stolen it
is nearly impossible to trace and recover it.

20. Double as an ID Card
A third advantage of using a smart card is that they can
provide complete identification in certain industries. There
are numerous benefits of using smart cards for identification.
A driver's license that has been created using smart card
technology can give the police the ability to quickly identify
someone whose been stopped for speeding or reckless
driving. These cards can be used by health professionals to
identify someone who is brought in by an ambulance but
unconscious or unable to speak.

21. Prevents Fraud
 Other benefits of using smart cards for identification can be
used by governments to prevent benefits and social welfare
fraud to ensure the right person is receiving the welfare benefit.
Some countries are using the smart cards to identify temporary
workers who have been given work permits. This has the
potential to reduce immigration fraud.
 Smart cards are just as easy to use as a credit or debit card, but
considerable more secure. They are lightweight and easy to
carry. This makes it easy to have one card to pay for parking,
access to the office, and for buying lunch at the office cafeteria.

22. Disadvantages of Smart Card:
Easily Lost
Like a credit card, smart cards are small, lightweight
and can be easily lost if the person is irresponsible. Unlike
credit cards, smart cards can have multiple uses and so the
loss may be much more inconvenient. If you lose a card that
doubles as a debit card, bus pass and key to the office, you
could be severely inconvenienced for a number of days.
Security
A second disadvantage of the using smart cards is their
level of security. They are more secure than swipe cards.
However, they are not as secure as some in the general
public would believe. This creates a false sense of security
and someone might not be as diligent as protecting their
card and the details it holds.

23. Slow Adoption
If used as a payment card, not every store or restaurant
will have the hardware necessary to use these cards. One of
the reasons for this is since the technology is more secure, it
is also more expensive to produce and use. Therefore, some
stores may charge a basic minimum fee for using smart cards
for payment, rather than cash.
Possible Risk of Identify Theft
When used correctly for identification purposes, they
make the jobs of law enforcement and healthcare
professionals easier. However, for criminals seeking a new
identity, they are like gold, based on the amount of
information it can contain on an individual.

24. E-Wallet
E-wallet is a type of electronic card which is used for
transactions made online through a computer or a smart
phone. Its utility is same as a credit or debit card. An
E-wallet needs to be linked with the individual's bank
account to make payments.

25. Advantages of E-Wallet:
Lower Costs: Employing the use of digital wallets
removes the need for intermediaries, in a variety of forms.
Purchases in-store may no longer require a cashier
because the purchasing process becomes as simple as a
tap or scan of a mobile device. Applications like Square
can replace expensive POS (point of sale) systems that
will reduce transaction costs for the business.
Competitive Advantage: Digital wallet applications
provide a more convenient transaction processing method
for customers, giving businesses that employ this
technology a competitive edge in the market. It redefines
the user experience of paying and incorporates a novelty
aspect to each purchase.

26. Modern: Traditional cash-only businesses, such as
craft fairs and flea markets, can now accept debit and
credit cards. This opens up an entirely new aspect to
payment methods in large markets, introducing many
business opportunities and greater potential revenue.
Convenience: Users are able to get through a
purchase in mere seconds with a simple tap or scan of
their mobile device. The experience of purchasing
items becomes quicker and easier - leading to a
greater sense of satisfaction. Furthermore, with faster
transactions, checkout lines within stores become
much shorter.

27. Disadvantages of E-Wallet:
Investment: The initial monetary investment for building a
functional digital wallet application is quite large. It requires
the initial development of the software as well as the
continual maintenance, updates and fixes associated with it.
Upon acquiring software, the business would also need to
install the corresponding hardware in their stores, which leads
to a further increase in costs.
Support Technology: There are few supporting technologies
to choose from at the moment, with NFC terminals and phone
readers being the most prevalent. In the case of digital
wallets, they can only function with a corresponding hardware
device for each application. NFC terminals and specialize
scanners are the only devices created at the moment that will
support the processing of digital wallet payments; thus, it is
very limited because the technology is still new.

28. System Outages: Information for digital wallets are
stored on the cloud of business servers; therefore, the risk
of a system malfunction or shut down is always present.
As a result, businesses will not be able to process
payments or they will become increasingly slow due to
high traffic in the servers.
Security: Companies must ensure that their customers'
information is encrypted and well protected. One of the
biggest concerns of adopting a digital wallet application is
"will my information be safe"? This is the hurdle that
companies must face and as a result, must develop
security systems that are as safe and full proof as possible
to avoid potential security issues.

29. 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 same bank or different bank. Fund transfer
can be done using ATM (Automated Teller Machine) or using
computer.
Now a day, internet based EFT is getting popularity. In
this case, customer uses website provided by the bank.
Customer logins 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 amount to
other account if it is in same bank otherwise transfer request is
forwarded to ACH (Automated Clearing House) to transfer
amount to other account and amount is deducted from
customer's account. Once amount is transferred to other
account, customer is notified of the fund transfer by the bank.

30. Step 1: User Initiates Online Payment
The user goes online to pay telephone bill. After
selecting to pay by credit or debit card, the user passes
on information such as name, credit or debit card
details, and billing address, and then submits
payment.
Step 2: Telephone Service Provider to Payment
Processor
Telephone Service Provider sends the transaction
details to our payment processor using a dedicated
link that’s monitored 24 x 7 x 365 to ensure that
processing is not interrupted.

31. Step 3: Payment Processor to Card Networks to
Card Issuing Bank
Payment details are validated by the payment processor
by sending them through the credit or debit card networks
(Visa, MasterCard, American Express, Discover), which
forward them to the card-issuing bank to be authorized.
Step 4: Card Issuing Bank
The card-issuing bank approves/denies the transaction
based on card status and whether the transaction is within the
cardholder’s credit limit or not.

32. Step 5: Payment Processor to Card Networks to
Telephone Service Provider
If payment gets approved, the card issuer charges the
user and forwards the funds to the card networks less any
fees to cover costs such as credit risk and rewards. The
card networks then relay the transaction-approved status
back to the payment processor, who notifies Yap Stone
and sends on the funds less applicable fees.
Step 6: Telephone Service Provider to User
Telephone Service Provider’s lets the user know if
the transaction is approved or denied through the online
payment interface. If payment is denied, Telephone
Service Provider’s payment gateway notifies the site or
app and because the card-issuing bank did not authorize
the transaction, the process comes to a halt.

33. Step 7: Telephone Service Provider to
Merchant
At this point, Telephone Service Provider transfers
funds from its bank account to the merchant’s account.
Funds are usually received within 1-2 business days. A
receipt is then emailed to the user and payment receipt
notifications go to the merchant. Additionally, detailed
Telephone Service Provider reports are updated in real-
time, including the Transaction Activity Report, Batch
Reconciliation Report and Transaction Summary Report.

34. Payment Gateway
A payment gateway is a merchant service provided
by an e-commerce application service provider that
authorizes credit card or direct payments processing for
e-businesses, online retailers, bricks and clicks, or
traditional brick and mortar.
Types of Payment Gateway:
There are two major categories of payment gateways:
Hosted and
Shared Gateways.

35. Hosted Payment Gateways
Hosted Payment Gateways are those that direct your user
away from your ecommerce website. While making
payments, the customer is redirected to the real gateway
page by clicking the gateway link. This leaves your
website for some time before returning back. The benefit
of these gateways is that you do not need a Merchant ID
since no confidential details are needed from your
website. Examples here include PayPal, World Pay and
Nochex.

36. Shared Payment Gateway
While making the payments, a customer is directed to the
payment page and not out of your website. Here, a Post form is
used once one clicks on a payment link/button. The payment
page is maintained securely by the payment gateway. After all
details about credit card and other required fields are complete,
the user fully gets back to the main website. The main benefit
is that one does not get away from your website thus fast and
easy to use. Example of a gateway is e Way.

37. Advantages of Payment Gateway
Security – Cardholder details are securely captured by
your payment service provider (PSP).
Simple – Your PSP takes care of all the set-up, so just
concentrate on running your business successfully.
Customisable – Your logo can be can be added to the
payment page for custom reassurance.
Easy to Customize - Control your checkout from start to
finish, and make customer experience as of your website.
Customer Experience – Shoppers never leave your
website, giving them more confidence when completing a
purchase.

38.  Flexibility – You have full control over what your payment
page UI looks like.
 Customer Experience – Shoppers never leave your website,
giving them more confidence when completing a purchase.
 Versatility – By using an API you can integrate your internet
payment solution with any device connected to the internet
(mobile phones, tablets, etc.).
 Simple - Good option for small business, who need one time
payment options.
 No redirection to payment gateway.
 Improve buyer conversion: Improve conversion by displaying
the pricing in the local currency of each shopper.
 Guaranteed rate: Merchants don’t need to worry about
fluctuations in exchange rates, it will be handles by payment
solutions.

39. Disadvantages of Payment Gateway:
Customer Experience - Cannot control the end-to-end
experience.
Security - Merchant has to take security measures to
protect cardholder data.
Service - Merchant may need to purchase SSL
certification for better security.
Advanced - It does not have some basic required features
like refund and recurring payment.
Generally does not provide the service ( for which you are
paying) instantly.
Require more technical efforts as multiple checking is
required
Customizable: Cannot control user experience as it’s a
separate platform.