Electronic Payment

Systems
Introduction
• Any online business needs a fast, secure and reliable system in place to
receive payment from their customers.
• This is the foundation of all e-commerce (electronic commerce).
• Thankfully, e-commerce online payment systems are designed to
facilitate transactions with minimal fuss and maximum efficiency.
• The growing use of internet-based banking and shopping has seen the
growth of various e-commerce payment systems and technology has
been developed to increase, improve and provide secure e-payment
transactions.
• So what are online payment systems?
What are online payment systems?
• An online payment works by using a payment gateway to connect your
digital storefront to the payment processing network of your choice.
• That processor then works with your bank to clear and distribute funds.
• This is the basic system that underpins all paperless monetary
transactions and it has revolutionized the business of processing
payments.
• It not only allows payments to be made discreetly from anywhere on
the planet at any time but has led to significant reductions in
transaction and labor costs.
 Types of payment Systems for E-
commerce: 1) 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.
• Customers can input their card information, including card number, expiration
date, and CVV code, to make payments. Payment gateways securely process
these transactions.
• It is usually credit card monthly payment cycle.
Cont.
• 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 Mastercard.
Credit Card Payment Process
Step Description
Step 1 Bank issues and activates a credit card to the customer on his/her request.

Step 2 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.

Step 3 Merchant validates the customer's identity by asking for approval from the card brand
company.
Step 4 Card brand company authenticates the credit card and pays the transaction by credit.
Merchant keeps the sales slip.
Step 5 Merchant submits the sales slip to acquirer banks and gets the service charges paid to
him/her.
Step 6 Acquirer bank requests the card brand company to clear the credit amount and gets the
payment.
Step 6 Now the card brand company asks to clear the amount from the issuer bank and the
amount gets transferred to the card brand company.
 2. 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.
• Customers can input their card information, including card number, expiration date, and
CVV code, to make payments. Payment gateways securely process these transactions.
• 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.
• 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.
 3) 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’s work-related and/or personal
information.
• 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 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.
 4) 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 saves a lot of time.
• 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.
 5) 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.
• 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.
Cont.
• 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.
• Mobile banking apps belong to this category of EFT
 6) E-Wallet
• E-wallet is a type of electronic card which is used for transactions made
online through a computer or a smartphone. 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.
• E-Wallet is a prepaid account that allows the customer to store multiple
credit cards, debit card and bank account numbers in a secure environment.
• This eliminates the need to key in account information every time while
making payments. Once the customer has registered and created E-Wallet
profile, he/she can make payments faster.
 8) Cryptocurrency
• Cryptocurrency is a digital or virtual currency that is secured by
cryptography, which essentially makes it impossible to counterfeit or
double-spend.
• Cryptocurrencies are decentralized, meaning that they are not issued
or regulated by any central authority.
• Cryptocurrencies use blockchain technology which is a decentralized
ledger. Learn more here:
https://www.youtube.com/watch?v=5hWfCQnQ5xg
• In recent years, there has been a growing interest in using
cryptocurrency as a payment method for e-commerce transactions.
 Ways that businesses can accept cryptocurrency payments

• Direct integration: Businesses can integrate a cryptocurrency

payment processor directly into their e-commerce platform. This
allows customers to pay with cryptocurrency during the checkout
process.
• Payment gateway: Businesses can use a payment gateway that
supports cryptocurrency payments. This allows customers to pay with
cryptocurrency through a third-party website or app.
• Over-the-counter: Businesses can accept cryptocurrency payments
over the counter. This means that customers can pay with
cryptocurrency in person, such as at a retail store or a restaurant.
Common Cryptocurrencies
• Bitcoin (BTC): Bitcoin is a decentralized currency, meaning that it is not
subject to government or financial institution control. Bitcoin is secured
by cryptography, which makes it difficult to counterfeit or double-spend.
• Bitcoin transactions are typically processed much faster than traditional
payment methods, such as credit cards or PayPal.
• The fees associated with Bitcoin transactions are typically much lower
than the fees associated with traditional payment methods.
• Bitcoin is a global currency, which means that businesses can accept
payments from customers all over the world. Bitcoin transactions can be
anonymous, which can be appealing to some consumers.
Common Cryptocurrencies
• Ethereum (ETH): Ethereum is a blockchain platform that was created in 2015 by
Vitalik Buterin. Ethereum is not just a cryptocurrency, but also a platform for
decentralized applications (dApps).
• dApps are applications that run on the Ethereum blockchain and are not subject to the
same censorship or control as traditional applications.
• Ethereum is more scalable and energy-efficient than Bitcoin. Ethereum is also
more versatile than Bitcoin, as it can be used to create a wider variety of
applications.
• Tether (USDT): Tether is a stablecoin, which means that its value is pegged to
another asset, such as the US dollar. Stablecoins are often used to avoid the
volatility of other cryptocurrencies.
• Tether is one of the most popular stablecoins in the world. It is backed by a
reserve of US dollars, which is held by Tether Limited.
Common Cryptocurrencies
• Binance Coin (BNB): Binance Coin is the native cryptocurrency of the Binance
exchange.
• It can be used to pay for fees on the Binance exchange and to participate in
Binance Launchpad, a platform for launching new cryptocurrencies.
• Binance Coin is one of the most popular cryptocurrencies in the world. It is used by
millions of people to trade cryptocurrencies on the Binance exchange.
• Cardano (ADA): Cardano is a newer cryptocurrency that was created in 2017 by
Charles Hoskinson. Cardano is designed to be more scalable and energy-efficient
than Bitcoin and Ethereum.
• Cardano uses a proof-of-stake consensus mechanism, which is more energy-
efficient than the proof-of-work consensus mechanism used by Bitcoin and
Ethereum.
• Cardano is also designed to be more scalable than Bitcoin and Ethereum. It can process
more transactions per second than Bitcoin and Ethereum.
 8) Peer-to-peer payment apps
• Peer-to-peer (P2P) payment apps are digital platforms that allow individuals
to send and receive money directly from one another using their
smartphones or other electronic devices.
• These apps have gained significant popularity due to their convenience,
speed, and simplicity.
• They are particularly useful for splitting bills, sharing expenses, repaying
friends or family, and even making small e-commerce transactions.
• These apps are also referred to as payment gateways
• Apps like Venmo and Cash App allow users to send money to each other,
which can also be used for small-scale e-commerce transactions between
individuals.
 How peer-to-peer payment apps generally
work
• Account Creation: Users need to download the app from their device's app store
and create an account. During the setup process, they often link their bank
accounts, credit/debit cards, or digital wallets to fund their P2P transactions.
• Contact Synchronization: Many P2P apps allow users to sync their phone
contacts to the app, making it easier to find and send money to friends, family,
or acquaintances. Users can also search for other users using their app
usernames or email addresses.
• Sending Money: To send money, users typically select a recipient from their
contact list, input the amount they want to send, and choose a funding source
(such as a linked bank account or credit card). Some apps might also allow users
to leave a note or memo to specify the purpose of the transaction.
Cont.
• Authorization: Depending on the app, the sender might need to input a PIN, password,
fingerprint, or facial recognition to authorize the transaction and ensure security.
• Notification: Once the transaction is initiated, the recipient usually receives a notification
via the app, email, or text message, informing them of the incoming payment.
• Acceptance and Transfer: The recipient can then accept the payment within the app and
choose to transfer the received funds to their linked bank account or keep it within the
P2P app for future transactions.
• Withdrawal: If the recipient chooses to withdraw the funds to their bank account, it
might take some time, depending on the app's processing time and the recipient's bank.
• Social Sharing: Many P2P apps also offer social features, allowing users to share
transaction details, split bills, and even leave comments or emojis on transactions.
E-Commerce Payment
Gateways
Introduction
• An e-commerce payment gateway is a service that allows merchants
to accept payments online.
• It acts as a middleman between the merchant's website and the
customer's bank, processing the payment and transferring the funds
to the merchant's account.
• There are many different e-commerce payment gateways available,
each with its own features and pricing plans.
• Some of the most popular gateways include:
Cont.
1) PayPal: PayPal is a global online payment system that allows users to send and
receive money electronically.
• It is one of the most popular payment gateways in the world, with over 300 million
active users.
• PayPal supports a variety of payment methods, including credit cards, debit cards, and PayPal
balances. It also offers fraud protection and buyer protection.
2) Stripe: Stripe is a payment gateway that offers a variety of features and pricing
plans.
• It supports a variety of payment methods, including credit cards, debit cards, and
ACH transfers.
• Stripe also offers fraud protection and chargeback protection.
• Stripe is a good option for businesses of all sizes, and it is particularly popular with startups
and e-commerce businesses.
Cont.
3) Authorize.net: Authorize.net is a well-established payment gateway that
offers a variety of features and pricing plans.
• It supports a variety of payment methods, including credit cards, debit cards,
and ACH transfers. Authorize.net also offers fraud protection and chargeback
protection.
• Authorize.net is a good option for businesses of all sizes, and it is particularly popular
with businesses that process a high volume of payments.
4) Square: Square is a popular payment gateway for small businesses. It offers a
variety of features, including credit card processing, mobile payments, and in-
person payments.
• Square also offers fraud protection and chargeback protection.
• Square is a good option for small businesses that are looking for a simple and affordable
payment gateway.
Cont.
5) WePay: WePay is a payment gateway that is designed for businesses that
sell to other businesses (B2B).
• It offers a variety of features, including credit card processing, ACH
transfers, and wire transfers.
• WePay also offers fraud protection and chargeback protection. WePay is a good
option for businesses that are looking for a payment gateway that is specifically
designed for B2B transactions.
6) Amazon Pay: Amazon Pay is a payment gateway that allows customers to
pay for goods and services using their Amazon account balance.
• It is a convenient option for customers who are already familiar with
Amazon, and it can help to boost sales for businesses that sell on Amazon.
Cont.
7) Apple Pay: Apple Pay is a mobile payment service that allows customers to pay for goods
and services using their Apple devices.
• It is a secure and convenient option for customers, and it can help to boost sales for businesses that
accept Apple Pay.
8) Google Pay: Google Pay is a mobile payment service that allows customers to pay for
goods and services using their Android devices.
• It is a secure and convenient option for customers, and it can help to boost sales for businesses that
accept Google Pay.
9) Adyen: Adyen is a payment gateway that offers a variety of features and pricing plans. It
supports a variety of payment methods, including credit cards, debit cards, and ACH
transfers.
• Adyen also offers fraud protection and chargeback protection. Adyen is a good option for businesses
of all sizes, and it is particularly popular with businesses that process a high volume of payments
internationally.
Cont.
• When choosing a payment gateway, it is important to consider the following
factors:
• The types of payment methods you want to accept: Some gateways only support
certain types of payment methods, such as credit cards or PayPal.
• The features you need: Some gateways offer more features than others, such as fraud
protection or chargeback protection.
• The pricing plan: Gateways offer a variety of pricing plans, so it is important to choose
one that fits your budget.
• It is also important to make sure that the gateway you choose is compatible
with your e-commerce platform.
• Most gateways are compatible with the most popular platforms, such as
Shopify, WooCommerce, and Magento.
 Task
• The government of Kenya through a cabinet resolution terminated
the collection of eyeballs by cryptocurrency company known as
WorldCoin. Discuss if the government was justified to do so (10
Marks)
• Discuss the impacts of cryptocurrency in E-commerce (10 marks)
• Discuss the Security concerns of using Cryptocurrency in E-commerce
(10 marks)