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Topic6 Electronic Payment Systems.pptx
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- 3. E Commerce Payments âąE-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 â âą Credit Card âą Debit Card âą Smart Card âą E-Money âą Electronic Fund Transfer (EFT)
- 4. Credit Card âą Paymentusing 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. âą The card holder â Customer âą The merchant â seller of product who can accept credit card payments. âą The card issuer bank â card holder's bank âą The acquirer bank â the merchant's bank âą The card brand â for example , visa or Mastercard
- 5. Credit Card Process âąStep âą Description âą Step 1 âą Bank issues and activates a credit card to the customer on his/her request. âą Step 2 âą 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. âą Step 3 âą Merchant validates the customer's identity by asking for approval from the card brand company. âą Step 4 âą Card brand company authenticates the credit card and pays the transaction by credit. Merchant keeps the sales slip. âą Step 5 âą Merchant submits the sales slip to acquirer banks and gets the service charges paid to him/her. âą Step 6 âą Acquirer bank requests the card brand company to clear the credit amount and gets the payment. âą Step 6 âą Now the card brand company asks to clear the amount from the issuer bank and the amount gets transferred to the card brand company.
- 6. Debit Card âą Debitcard, 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. âą 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.
- 7. Smart Card âą Smartcard 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 customerâs work-related and/or personal information. Smart cards are also used to store money and the amount gets deducted after every transaction. âą 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.
- 8. E Money âą E-Moneytransactions 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. âą 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.
- 9. Electronic Fund Transfer âąIt 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. âą 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.
- 10. Automated Clearing House(ACH) What Is the Automated Clearing House (ACH)? The Automated Clearing House (ACH) Network is an electronic funds-transfer system run by NACHA, formerly the National Automated Clearing House Association, since 1974. This payment system deals with payroll, direct deposit, tax refunds, consumer bills, tax payments, and many more payment services in the United States. NACHA is a self-regulating institution, and it gives the ACH network its management, development, administration, and rules. The organization's operating rules are designed to facilitate growth in the size and scope of electronic payments within the network.
- 11. How the ACHNetwork Works The ACH Network is an electronic system serving financial institutions to facilitate financial transactions in the United States. It represents more than 10,000 financial institutions and moves more than $43 trillion each year by enabling more than 25 billion electronic financial transactions, according to NACHA. The ACH Network essentially acts as a financial hub and helps people and organizations move money from one bank account to another. ACH transactions consist of direct deposits and direct payments, including B2B transactions, government transactions, and consumer transactions.
- 12. Benefits of theACH Network Since the ACH Network batches financial transactions together and processes them at specific intervals throughout the day, it makes online transactions extremely fast and easy. NACHA rules state that average ACH debit transactions settle within one business day, and average ACH credit transactions settle within one to two business days. The use of the ACH network to facilitate electronic transfers of money has also increased the efficiency and timeliness of government and business transactions. More recently, ACH transfers have made it easier and cheaper for individuals to send money to each other directly from their bank accounts by direct deposit transfer or e-check. ACH for individual banking services had typically taken two or three business days for monies to clear, but starting in 2016, NACHA rolled out in three phases for same-day ACH settlement. Phase 3, which launched in March 2018, requires RDFIs to make same-day ACH credit and debit transactions available to the receiver for withdrawal no later than 5 p.m. in the RDFIâs local time on the settlement date of the transaction, subject to the right of return under NACHA rules.
- 13. NACH âą National PaymentsCorporation of India (NPCI) has implemented âNational Automated Clearing House (NACH)â for Banks, Financial Institutions, Corporates and Government a web based solution to facilitate interbank, high volume, electronic transactions which are repetitive and periodic in nature. NACH System can be used for making bulk transactions towards distribution of subsidies, dividends, interest, salary, pension etc. and also for bulk transactions towards collection of payments pertaining to telephone, electricity, water, loans, investments in mutual funds, insurance premium etc. âą National Automated Clearing House (NACH) is a centralised system, launched with an aim to consolidate multiple ECS systems running across the country and provides a framework for the harmonization of standard & practices and removes local barriers/inhibitors. NACH system will provide a national footprint and is expected to cover the entire core banking enabled bank branches spread across the geography of the country irrespective of the location of the bank branch.
- 14. Difference in ACHand Credit Cards âą The single most significant difference between ACH processing and credit card transactions is guarantee of payment. Credit cards utilize a network (such as Visa and Mastercard) to verify whether somebody is within their credit limit and then, after the network approves the trade, those funds are guaranteed to the merchant. This is known as a âguaranteed fundsâ transaction. âą ACH, by comparison, does not guarantee the funds. An ACH transaction is only a request for funds. The transactions are usually batched together and sent out for processing once a day. This can cause delays of several days to settle the transaction. ACH transactions can also be rejected for reasons such as Non- Sufficient Funds (NSF) or a closed account and the payment-acceptor will not know until several days later. âą So what is the number one benefit of using ACH over credit card processing? Lower fees. ACH transactions usually have the lowest fees of any payment system. A credit cardâs fee is typically around 2.5% of the value of the transaction plus a processing fee. ACH transactions usually cost about $0.30 total. The cost savings with ACH transactions can add up quickly.
- 15. CREDIT CARDS âąCredit cardsissued by credit companies(e.g. Master card, visa) and major banks (SBI, HDFC etc.). âąCredit cards issued by the departmental stores(e.g. Boygner) , oil companies(e.g. Shell).
- 17. Risk of usingcredit card: âą Operational risk âą Credit risk âą Legal risk
- 18. SMART CARDS It similarto credit card and debit card in appearance but it has a small microprocessor chip embedded in it.
- 20. ELECTRONIC CASH âą Incase of e-cash, both customer and merchant have to sign up with the bank or company issuing e-cash. âą Enables transactions between customers without the need of banks.
- 21. âą A systemthat allows a person to pay for goods or services by transmitting a number from one computer to another. âą Like the serial number on real currency notes ,the E-cash numbers are unique. âą This is issued by bank and represent specified sum of real money. âą It is anonymous and reusable. E-CASH
- 22. Electronic Cash Security âąComplex cryptographic algorithms prevents double spending o Anonymity is preserved unless double spending is attempted âą Serial numbers can allow tracing to prevent money laundering
- 24. E- Wallets âąE-wallet isa another payment scheme that operate like a carrier of e- cash and other information âąThe aim is to give shoppers a single, simple and secure way of carrying cash electronically. âąIt is convenient & safe way to carry less cash. âąExample Paytm , Airtel Wallet.
- 26. What is PaymentGateway âą A payment gateway is an e- commerce service provider service that authorizes payments for e-business and online shopping etc. âą Payment gateway protects credit cards details encrypting sensitive information such as credit card numbers, to ensure that information passes securely between the customer and the merchant and also between merchant and payment processor.
- 28. What is InternetBanking? âą Internet banking allows you to conduct bank transaction online, instead of finding bank and interact with teller. âą In broad sense it is use of electronic means to transfer fund directly one account to another rather than by cash or cheque.