Payment Technology Fundamentals

Course Introduction
Course Instructor

About Esteban...

Esteban Santana is the Director of Financial Services

Industry for a company that provides AI-powered
regulatory intelligence platforms for organizations
across the globe.

Formerly, Esteban spent over 20 years in federal

government as a Team Leader with the U.S. Postal
Inspection Service and as a Senior Special Agent with
the Federal Deposit Insurance Corporation Office of
Inspector General, protecting the U.S. financial system.

Esteban worked with numerous state and federal

financial regulators and a multitude of domestic and
Esteban Santana foreign law enforcement agencies. Esteban holds a
Director of Financial Services Master of Science, designated as a Certified Fraud
Industry, Regology Examiner, and is a graduate of the Southeastern School
of Banking I & II.

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Learning Objectives

Define payment technology and Identify the various payment Explain payment security and
examine how it has evolved methods and technologies privacy associated with payment
technology

Identify the regulatory framework of Explore the future of payment

payment technology and cross- technology
border payments

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Introduction to Payment Technology
Definition and Scope of Payment Technology
Payment technology refers to the tools and systems used to facilitate electronic transactions between buyers and sellers.

Mobile payments Digital payment processors Contactless payments

• Through mobile • Systems and tools • No physical contact
devices that enable electronic between payment
• E.g., smartphone or transactions device and payment
terminal
tablet • E.g., PayPal, Stripe,
Square

Online banking Point-of-sale (POS) Electronic funds transfer

• Loans • Hardware terminals • Electronically transfer
• Open new accounts • Software applications money from one bank
account to another
• Investments • Payment solutions

The scope of payment technology is vast and allows for the payment of goods and services.
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Evolution and History of Payment Technology
Payment technology started with basic forms of exchanges to the digital transactions we see today.

Trading Paper money Credit cards Mobile payment

Bartering Metal coins Checks Online banking Cryptocurrencies

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Payment Technology in the Financial Ecosystem
Payment technology has revolutionized the way we
conduct transactions.

Convenient
Customers can now make payments with just a tap of their
smartphones or a wave of their card.

Efficiency
Automated clearinghouses enable businesses to send and receive
payments electronically, eliminating paper-based transactions.

Financial inclusion
Unbanked and underbanked individuals can store, send, and receive
money.

Innovation and competition

Alternative payment solutions are challenging traditional financial
institutions and driving innovation in the industry.

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Payment Methods and Technologies
Cash and Traditional Payment Methods
Traditional payment methods refer to the ways of making payments before the widespread adoption of digital
payment systems.

Physical currency (i.e., coins and Checks instruct a bank to pay from Bank transfers electronically move
bank notes) are typically used for the issuer’s account to the money from one bank account to
small purchases. recipient's account. another.

• Electronic payment methods • They provide a paper trail • Generally faster than other
may not be available. traditional payment methods.
• It takes time to clear, and
• It can be lost or stolen. there may be errors. • Fees may be charged.

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Digital Payment Processors

Digital payment processors have revolutionized the way we

make payments and handle financial transactions.

• Uses a virtual storage system that allows users to store and

manage payment information.

• It eliminates the need for physical traditional payments.

Venmo PayPal
Users can make and receive Users can securely send and
payments, split bills, and send receive money online. It is
money. It is only available in the accepted in over 200 countries
United States. and supports multiple currencies.

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Mobile Payments

Mobile payments have become an essential tool for consumers, providing

seamless and efficient ways to handle our financial transactions.

• Pay for goods and services

• Transfer money to friends and family

• Manage budgets

• Many brands of smartphones support mobile payments:

Apple Samsung Vivo OnePlus

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Contactless Payments and Near Field Communication (NFC)
Contactless payments allow consumers to make transactions without the need to physically insert or swipe a card.

Near field communication (NFC) is a short-range

wireless technology. NFC can be used for various applications:

• Mobile payments
• Allows the exchange of data between two
electronic devices. • Contactless ticketing
• Access control
• Information sharing
• Data transfer between devices

• It operates using radio frequency

identification.

• It enables contactless
communication between devices.

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Quick Response (QR) Code Payments
Quick response (QR) codes allow consumers to pay contactless by scanning a code.

The payment is completed electronically through a linked bank

account, electronic wallet, or credit/debit card.

This process offers unparalleled efficiency and saves valuable

time for the consumer and the merchant.

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Peer-to-Peer (P2P) Payments
Peer-to-peer (P2P) payments allow individuals to transfer funds directly to each other.

Benefits:

• Convenient for splitting bills, reimbursing expenses, or making personal

transactions
• Eliminates the need for physical cash or checks
• Makes transactions faster and more efficient

PayPal Venmo Zelle

• Users link their bank account or credit/debit card to the payment app

• They enter the recipient’s email, phone number, or username to transfer

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Blockchain and Cryptocurrency Payments
A blockchain is a decentralized and distributed ledger that records all transactions across multiple computers or nodes.

Cryptocurrency
Advantages Disadvantages
payments

• Eliminates intermediaries • Enable peer-to-peer • Volatility of

such as banks or payment transactions cryptocurrency prices
processors
• Conduct transactions • Network congestion
• Recorded transactions directly with one another
cannot be altered
• Cross-border transactions,
lower fees, increased privacy

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Payment Security and Privacy
Authentication and Encryption in Payment Transactions
Authentication and encryption work together to protect sensitive information from unauthorized access.

Authentication is the process of verifying the identity Encryption works by:

of parties involved in a payment transaction.
• Converting information into a coded form

Methods of authentication: • Scrambling data to make it unreadable (unless

• Usernames someone has the encryption key)
• Passwords
• Two-factor authentication • Example: Secure Sockets Layer or Transport Layer
Security

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Fraud Prevention and Detection
The practices and measures placed to detect and prevent fraudulent activities during
online transactions.

1. Fraud Detection Systems

Uses machine learning algorithms to help identify patterns

and anomalies in real-time

Enables quick detection and prevention of fraudulent

activities

Flags suspicious transactions and prompts for additional

verification

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Fraud Prevention and Detection
The practices and measures placed to detect and prevent fraudulent activities during
online transactions.

2. Device Recognition

Helps determine if a payment is being made from a trusted

and recognized device.

Biometric authentication (e.g., fingerprint or facial

recognition) can verify the identity of the user.

If the captured biometric matches the stored data in the

device, the payment is authorized.

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Fraud Prevention and Detection
The practices and measures placed to detect and prevent fraudulent activities during
online transactions.

3. Tokenization

Replaces payment details with a unique token that has no

value outside the transaction.

Prevents theft of actual card or payment details.

Example: A user adds their credit or debit card information to

a digital payment processor (e.g., Apple Pay or Google Pay),
and it’s replaced with a unique token.

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Compliance and Data Protection Regulations
Compliance and data protection regulations in digital payments vary by country and region.

De-identification

• The process of removing or transforming personally

identifiable information to protect the privacy of
individuals

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Compliance and Data Protection Regulations
Compliance and data protection regulations in digital payments vary by country and region.

General Data Protection Regulation

• Applies to businesses in the European Union.

• Organizations must obtain consent for data processing.

• Toughest privacy and security law in the world.

• Failure to comply can result in a maximum fine of 20

million Euros or 4% of the business’s total annual
worldwide turnover.

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Compliance and Data Protection Regulations
Compliance and data protection regulations in digital payments vary by country and region.

Payment Card Industry Data Security Standards

• Protects cardholder data.

• It was created by American Express, Discover, JCB

International, MasterCard, and Visa.

• Applies to businesses that handle, process, or store

payment card information.

• Fines for noncompliance can be up to $500,000 per

incident for security breaches.

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Compliance and Data Protection Regulations
Compliance and data protection regulations in digital payments vary by country and region.

Personal Information Protection and Electronic

Documents Act

• Canadian federal law

• Regulates the collection, use, and disclosure of

personal information by private sector organizations

• Noncompliance can lead to administrative, civil, and

criminal penalties

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Regulatory Framework for Payment Technology
Why Do Countries Implement Regulations

Regulations are implemented for safety and protection, public

health, economic stability, and other interests to ensure the well-
being of societies.

They provide a framework for organizations to operate within,

setting standards that benefit the common good.

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Payment Card Industry Data Security Standard (PCI DSS) Continued

Major card companies follow PCI DSS to protect cardholder data and prevent credit card fraud.

• Applies to organizations that store, process, or transmit cardholder data.

• Strict security controls and monitoring systems.

Compliance with PCI DSS may include:

• A secure network

• Unique user identification for each employee

• Employee awareness and training

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Anti-Money Laundering Measures
Anti-money laundering can help deter illicit funds from narcotics, human trafficking, or terrorist financing.

Anti-money laundering includes the processes, regulations, and tools used to detect, prevent, and report activities related
to money laundering and other crimes.

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Anti-Money Laundering Regulations

Payment technology can implement stringent onboarding

processes for customers.

• Verify the identity of an individual or entity

Address verification
Document verification
(e.g., recent utility bill
(e.g., Passport or ID)
or bank statement)

• Conduct risk assessments

Potential risks and vulnerabilities

• Use of watchlists and sanctions lists

Provided by various Help identify any association

government entities with illegal activities

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Controlled Environments for Cross-Border Payments
The systems and processes put in place to ensure the secure and efficient transfer of funds across different countries using
payment technology.

China
• Controls limit the outflow of money for cross-border payments and investments.

• Cross-Border Interbank Payment System (CIPS) secures and controls cross-border

transactions.

Russia
• The Central Bank of Russia is the main regulatory body for foreign exchange
transactions and cross-border payments.

• Russia’s banks are connected to the Society for Worldwide Interbank Financial
Telecommunication (SWIFT) network.

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Controlled Environments for Cross-Border Payments
The systems and processes put in place to ensure the secure and efficient transfer of funds across different countries using
payment technology.

United States
• The Office of Foreign Assets Control (OFAC) administers and enforces economic
and trade sanctions.
• The Financial Crimes Enforcement Network (FinCEN) collaborates with financial
institutions to combat financial crimes with cross-border payments.

Europe
• The Single Euro Payments Area allows cross-border payments as easily and
efficiently as domestic payments.

• The European Central Bank enforces security and enables smooth, safe, and
efficient cross-border payments.

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Future of Payment Technology
Internet of Things (IoT) and Connected Devices
The Internet of Things (IoT) includes physical devices, vehicles, appliances, and other objects embedded with sensors,
software, and network connectivity.

IoT devices can act as payment facilitators.

Enables seamless transactions between

individuals and businesses

Near Field Communication technology

eliminates the need for physical payment
cards or cash

Connected devices enable consumers to

bypass checkout lines (“just walk out”
technology)

Robust security measures are needed to

protect financial data

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Biometric Authentication in Payment Transactions
Biometric authentication works by capturing the user’s biometric data and comparing it to the stored data on file.

• Prevents fraud and identity theft

• User doesn’t need to remember complex passwords or carry physical tokens for authentication

The scanning of a Using a person’s facial Analyzing the unique Capturing the unique patterns
person’s fingerprint and features, such as the vocal characteristics of in a person’s iris (i.e., colored
matching it against a shape of their face, a person, such as their part of the eye)
stored template eyes, nose, and mouth pitch, tone, and rhythm

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Decentralized Finance and Potential Disruption to Traditional Payment Systems
The decentralized finance (“DeFi”) payment system eliminates the need for intermediaries and reduces transaction costs.

DeFi operates on DeFi is typically DeFi uses Stablecoins can Access financial
decentralized built on blockchain decentralized be used for cross- services anywhere
networks. technology. protocols and smart border with the internet.
contracts. remittances.

E.g., Convert
U.S. dollars into
a stablecoin

DeFi still faces challenges such as smart contract vulnerabilities, regulatory challenges, and market volatility.

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Course Summary