It includes contents related to risk and requirements associated to Electronic Payment Systems. Tt also contains descriptions on various types of electronic payment systems.

1. Electronic Payment Systems
Mr. Roshan Bhattarai
Kathmandu, Nepal

2. Introduction to
Electronic Payment System
• Electronic Payment System is a
– financial exchange
– that takes place online between buyers and sellers
– avoiding use of paper documents like notes or checks
• The content of this exchange is
– usually some form of digital financial instrument (debit cards,
credit cards, smart card etc)
– that is backed by a bank or any intermediary

3. The factors to stimulate for e-payments are:
• Reduced operational and processing cost
• Increasing online commercial transactions
• Decreased technology cost
Advantages of EPS
• Reduces the time requirement to get your funds transfer
• Eliminates storage, handling and processing of paper
documents
• Reduces visibility of transactions and information
• Reduces cost of transaction
(operational and processing cost)

4. Disadvantages
• All financial institutions may not be able to offer the level
of sophisticated services of e-payment
• Digital information can be hacked or electronically
trespassed
• There is an issue of system’s reliability as there are
chances of system failure if not handled properly,
requirement of fault tolerance systems
• Requirement of technical knowledge to perform financial
transactions appropriately
• Requirement of secured and sophisticated EPS that must
be able to integrate all other systems required for
financial transaction

5. Some common e-commerce payment
systems
1. Credit Card
• Most dominant form of online payment
• A credit card is a payment card issued to users
– to enable the user to pay a merchant for goods and services
– based on the user's promise to the card issuer
– to pay them for the amounts plus the other agreed charges
• The card issuer (usually a bank) creates an account and
– grants a line of credit to the cardholder,
– from which the cardholder can borrow money for payment to
a merchant

6. 2. Debit Card
• A debit card is a payment card that deducts money directly
from a consumer’s checking account to pay for a purchase
• Debit cards eliminate the need to carry cash or physical
checks to make purchases directly from your savings
• Debit cards do not allow the user to go into debt,
– except perhaps for small negative balances that might be
incurred if the user has signed up for overdraft protection
• Debit cards usually have daily purchase limits,
– meaning it may not be possible to make an especially large
purchase
• Also called asset card (in the US), or payment card (in the UK)

7. 3. Digital Cash
• Money kept in electronic form (on a smart card) which
allows a buyer to pay for goods and services on the internet
• An e-Cash user will download the electronic money from
their bank account and store this on their device
• When he/she wants to use their e-cash to pay an Internet
merchant
– amount is taken from their e-Cash wallet and add it to
the merchant’s wallet
• The e-cash goes through an e-cash bank so that the
transaction can be verified

8. 4. Digital Cheque
• An e-cheque, is a form of payment
• made through the network designed to perform the same
function as a conventional paper cheque
• The account holder writes an e-cheque using an electronic
device and transmits to the payee electronically
• Like paper cheques, e-cheques are signed by the payer
using digital signature
• The payee deposits the e-cheque and the payee's bank
clears to the paying bank
• The paying bank validates the e-cheque and then charges
the cheque writer's account for the cheque

9. 5. Digital Wallet
• Digital wallet is a software application, usually for a
Smartphone that serves as an electronic version of a
physical wallet
• It refers to a program used for making payments for
purchases digitally
• Also, digital wallets are a potential benefit to companies
that collect consumer data
• The more companies know about their customers'
purchasing habits, the more effectively they can market to
them
• The downside for consumers is a loss of privacy.
• Eg: Apple Pay, Google wallet, Samsung Pay, Paypal, etc.

10. Risk and E-payment
• Managing information privacy
– EPS must ensure and maintain privacy
– Information of every transaction goes into the
database
– The database can be accessed to know what
transaction has been made, where and when
– This violates the unspoken law of doing business,
• that the privacy of customers should be protected as much
as possible

11. • Managing credit risk
– Credit risk is major concern in net settlement system
• because a bank’s failure to settle its net position could lead
to a chain reaction of bank’s failures
– A central bank should guarantee on settlement which
removes insolvency (unable to pay debts)
• because banks will more readily assume credit risks from
other banks

12. • Operational risk
– Operational risk arises from the potential loss
• due to significant deficiencies in system reliability or
integrity
– Security considerations are essential
• as banks may be subject to external or internal attacks on
their systems
– Operational risk can also arise from
• customers misuse and
• from inadequately designed or implemented electronic
banking systems

13. • Legal risk
– Legal risk arises from
• violations of, or non-conformance with laws, rules,
regulations or prescribed practices
– It may also arises when
• the legal rights and obligations of parties to a transaction are
not well established

14. Requirements of EPS
• Payment security
• Privacy of transaction and information
• Authentication of customer and merchant
• Indivisible transaction (transaction should not be
interrupted in middle, if any malfunction occurs during
the transaction, whole transaction should be aborted)
• Mutual agreement (parties involved in transaction should
agree on terms and conditions)

15. • Standardized (universally accepted standard should be
used to ensure inter operability)
• Economical (transaction cost should be minimized)
• Reliability (should avoid single point of failure)
• Usability (payments should be usable in the real world
business)