Unit 6 Electronic payment system (EPS)

An electronic payment system (EPS) is a digital method of transferring

funds between individuals or businesses using electronic mediums like
mobile apps, online banking, POS (point of sales) terminals and a range
of payment methods. EPSs provide a secure, efficient, and convenient
alternative to traditional payment methods such as cash, cheques, or
digital currency.

Or

E-payment system is a way of making transactions or paying for goods

and services through an electronic medium without the use of check or
cash. It’s also called an electronic payment system or online payment
system..

Advantages of Electronic Payment Systems

1. Faster and More Accurate Payments

Electronic payments are lightning-fast compared to traditional methods
like cheques, which require manual processing and clearing. This speed
ensures that funds are transferred quickly and accurately, reducing the
risk of payment delays or errors.

2. Reduced Costs
By eliminating the need for physical cheques and cash handling,
electronic payment systems significantly reduce transaction costs for
both individuals and businesses.

3. Enhanced Security
Security is a top priority in electronic payment systems. Robust
encryption and authentication measures protect sensitive financial data,
reducing the risk of fraud and unauthorized transactions. Users can also
monitor their accounts in real-time, quickly spotting any suspicious
activity.

4. Convenience
The convenience of electronic payments cannot be overstated. Whether
you’re shopping online, paying bills, or splitting a restaurant bill with
friends, electronic payments offer unparalleled ease and accessibility.

5. Accessibility
Electronic payment systems are accessible 24/7, allowing users to make
transactions at any time, from anywhere with an internet connection.
This accessibility is especially valuable for international transactions, as it
eliminates geographical barriers.

6. Improved Record-Keeping and Tracking

Electronic payment systems automatically generate detailed transaction
records, making it easy for businesses and individuals to maintain
accurate financial documentation. This feature is especially beneficial
during audits or for financial planning.

7. Encryption and Authentication

EPSs use cutting-edge encryption technologies such as PCI DSS (Payment
Card Industry Data Security Standard) and multi-factor authentication
protocols to secure transactions and protect sensitive information. These
measures ensure that payments remain safe and reliable.
Disadvantages of Electronic Payment System
1. Security Concerns
Electronic Payment Systems can be vulnerable to security breaches such
as hacking, phishing, and identity theft.

2. Technical Issues
These systems depend on technology, and technical glitches or system
failures can interrupt transactions.
3. Fraud Risk
Despite security measures, Electronic Payment Systems are not
completely immune to fraud. Unauthorized transactions, stolen
credentials, or other fraudulent activities can result in financial losses for
both individuals and businesses.

4. Privacy Concerns
Users might worry about the collection and storage of their personal
information by electronic payment providers.

5. Transaction Fees
Some electronic payment systems charge transaction fees, which can
accumulate over time.

Types of Electronic Payment System

E-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
Listed below are some of the modes of electronic payments –

 Credit Card
 Debit card
 Smart Card
 E-Money
 Electronic Fund Transfer (EFT)

Credit Card

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.

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 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.

Smart Card

 Smart card 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 customer.
 Smart cards are also used to store money and the amount gets
deducted after every transaction.
 Smart cards can only be accessed using a PIN that every customer is
assigned with.
 Smart card 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.

E-Money

E-Money transactions 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 save a lot of time. Online
payments done via credit cards, debit cards, or smart cards are examples
of e-money transactions.

Electronic Fund Transfer

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 the same bank or different banks. Fund transfer can
be done using ATM (Automated Teller Machine) or using a computer.

Benefits:
 Reduces the need for physical cash.

 Streamlines business operations.

 Enhances financial inclusion.

 Provides transaction records for better tracking.

A digital token-based electronic payment system

A digital token-based electronic payment system is a financial

technology (FinTech) solution that facilitates secure and efficient
transactions using digital tokens rather than traditional currencies like
cash or credit cards. These systems leverage blockchain technology or
other cryptographic methods to create and manage digital tokens,
enabling a variety of payment scenarios.
 Here are key components and features of a digital token-based electronic
payment system:

 Token representation:
Digital tokens are essentially a digital representation of value, not
physical currency, which can be transferred electronically between users
to complete transactions.
 Blockchain integration:
Many digital token systems utilize blockchain technology, a
decentralized ledger system, to record and verify transactions,
enhancing security and transparency.
 Secure transactions:
Encryption and cryptographic algorithms protect the digital tokens,
ensuring secure transfer of funds.
 Variety of applications:
Can be used for various payment scenarios like online shopping, in-store
purchases, peer-to-peer transfers, and even micro-transactions.
There are three types of electronic tokens

Cash or Real-Time: Transactions are settled with the exchange of

electronic currency. An example of online currency exchange is electronic
cash (e-cash).

Debit or Prepaid: Users pay in advance for the privilege of getting

information. Examples of prepaid payment mechanisms are stored in
smart cards and electronic purses that store electronic money

Credit or Postpaid: The server authenticates the customers and verifies

with the bank that funds are adequate before purchase. Examples of
postpaid mechanisms are credit/debit cards and electronic checks

Smart Card Based Payment Systems:

 Smart Cards are credit card sized plastic cards with the memory
chips and in some cases, with microprocessors embedded in the
most to serve as storage devices for much greater information
than credit cards within built transaction processing capability.
 A single smart card can be used for many different purposes. It is
more durable and is less expensive than credit cards.
 The smart card technology is widely used in countries such as
Japan, Germany, Singapore and France to pay for public phone
calls, transportation and shopper loyalty programs.
 Consumers can load money into an account on the card by using
an automatic teller machine (ATM) or by placing the card in as lot
in a specially equipped computer.
 Digital wallet
A digital wallet (also known as an e-wallet) is a software-based system
that securely stores users' payment information, such as credit/debit
card details, bank account information, and even digital currencies, to
facilitate electronic transactions. It allows individuals to make
payments, transfer money, and store digital assets (like loyalty cards,
coupons, or tickets) using a smartphone, computer, or other electronic
devices.

Benefits:
 Convenience: No need to carry physical cards or cash.

 Security: Reduces the risk of theft or loss of physical cards.

 Speed: Faster checkout process for online and in-store purchases.

 Rewards and Tracking: Some wallets offer rewards, discounts,

and transaction history tracking.

Examples of Digital Wallets:

 eSewa
 Khalti
 Connect IPS

Esewa

eSewa is a digital wallet and payment service that allows users to make
online and in-person purchases. Users can use eSewa to pay bills, buy
tickets, and more.

 Users can make payments for a variety of services and goods,

including:
o Utility bills
o Mobile recharges
o Internet bills
o Airline and bus tickets
o Movie tickets
o Online shopping
o Education payments
o Insurance payments
Khalti
Khalti is a digital wallet and payment service that allows users to make
online payments. It can be used to pay for bills, book tickets, and more.
Features
 Payments: Make payments for mobile recharges, electricity, water,
landline bills, and more
 Banking: Transfer money to friends and family, make bank transfers,
and renew financial services
 Tickets: Book domestic flights, movie tickets, and event tickets
 Shopping: Buy products and services
 Fees: Offers cashback rewards

Connect IPS
Connect IPS is a payment platform in Nepal that allows users to link
their bank accounts to make payments, transfer funds, and more. It's
an extension of the Nepal Clearing House.
Or,
An extended product of Nepal Clearing House to support citizen-to-
government (C2G), customer-to-business (C2B) and peer-to-peer (P2P)
 payment transactions directly from/to the bank accounts. This is
available on both web channel and mobile app.
Features
 Link bank accounts: Link bank accounts through a bank branch or using
self-verification
 Transfer funds: Transfer funds between linked bank accounts
 Make payments: Make payments to businesses, the government, and
more
 Request payments: Request payments from customers who have the
connectIPS app
 Send money: Send money to anyone with a verified mobile number,
bank account, or wallet

Security
 Uses security questions and answers to confirm identity when resetting
a password
 Requires verifying a mobile number and email address

Online banking facilities

Online banking facilities allow customers to perform various banking
transactions through the internet or mobile apps without visiting a
physical branch. Here are the common online banking facilities :
1. Account Management
 View account balances and transaction history.

 Download or request e-statements.

 Open new accounts (savings, fixed deposits, etc.) online.

2. Fund Transfers
 Intra-bank Transfer: Transfer funds between accounts within the
same bank.

 Inter-bank Transfer: Send money to accounts in other banks

through systems like NEFT, RTGS, or IPS (Instant Payment
System).

 Mobile Banking: Transfer funds to mobile wallets (eSewa, Khalti,

etc.)

3. Bill Payments
 Pay utility bills (electricity, water, internet, TV subscriptions, etc.).

 Recharge mobile phones and purchase data packs.

 Pay government taxes, fees, and fines.

4. Loan Services
 Check loan balances and repayment schedules.

 Make loan repayments online.

 Apply for loans digitally (personal, home, education, etc.).

5. Card Management
 View debit/credit card details and transaction history.

 Block or unblock cards in case of loss or theft.

 Set or change card limits.

6. Online Shopping
 Make secure payments for e-commerce platforms using
debit/credit cards or internet banking.

 Use virtual cards for online transactions.

7. Investment Services
 Open fixed deposit (FD) or recurring deposit (RD) accounts.

 Invest in mutual funds or other financial products.

8. Cheque Services
 Request cheque books online.

 Stop cheque payments.

9. Security Features
 Two-Factor Authentication (2FA): Adds an extra layer of security.

 OTP (One-Time Password): Required for transactions.

 Real-time alerts for account activities.

10. Other Services

 Apply for demand drafts (DD) or pay orders.

 Manage standing instructions for recurring payments.

 Access customer support and chat services.

Major risks associated with e-payment systems.

1. Fraud: One of the major risks of e-payment systems is fraud.
Fraudsters can steal personal information, such as credit card
details, and use them to make unauthorized transactions.
 Phishing scams and malware attacks are also common methods
used by fraudsters to steal personal information.
2. Hacking: E-payment systems are vulnerable to hacking attacks,
where attackers gain unauthorized access to the system and
steal sensitive data. Hacking attacks can lead to financial losses
for both customers and businesses, as well as damage to the
reputation of the e-payment system.
3. Identity Theft: E-payment systems are also at risk of identity
theft. Hackers can steal personal information, such as social
security numbers and bank account details, and use them to
create fake identities. This can lead to unauthorised transactions
and other fraudulent activities.
4. Technical Issues: Technical issues, such as system downtime and
software glitches, can also pose a risk to e-payment systems.
These issues can lead to failed transactions, delays in payments,
and other problems.
5. Security Breaches: E-payment systems can also risk security
breaches, where attackers gain access to sensitive data, such as
credit card details and personal information. These breaches can
lead to financial losses for customer and businesses, as well as
damage to the reputation of the e-payment system.
6. Chargebacks: Charge-backs occur when a customer disputes a
transaction, leading to a reversal of the payment. E-payment
systems are at risk of charge-backs, which can lead to financial
losses for businesses.