E-Commerce - Payment Systems
E-Commerce or Electronics Commerce sites use electronic payment where electronic payment refers to paperless monetary transactions. Electronic payment has revolutionized the business processing by reducing paper work, transaction costs, labour cost. Being user friendly and less time consuming than manual processing, helps business organization to expand its market reach / expansion. Some of the modes of electronic payments are following.
- Credit Card
- Debit Card
- Smart Card
- Electronic Fund Transfer (EFT)
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. It is usually credit card monthly payment cycle. 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 1||Bank issues and activates a credit card to customer on his/her request.|
|Step 2||Customer presents credit card information to merchant site or to merchant from whom he/she want to purchase a product/service.|
|Step 3||Merchant validates customer's identity by asking for approval from card brand company.|
|Step 4||Card brand company authenticates the credit card and paid the transaction by credit. Merchant keeps the sales slip.|
|Step 5||Merchant submits the sales slip to acquirer banks and gets the service chargers 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 card brand company asks to clear amount from the issuer bank and amount gets transferred to card brand company.|
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 debit card and credit card is that in case of payment through debit card, amount gets deducted from card's bank account immidiately and there should be sufficient balance in bank account for the transaction to get completed. Whereas in case of credit card there is no such compulsion.
Debit cards free customer to carry cash, cheques and even merchants accepts debit card more readily. Having restriction on amount being in bank account also helps customer to keep a check on his/her spendings.
Smart card is again similar to credit card and debit card in apperance but it has a small microprocessor chip embedded in it. It has the capacity to store customer work related/personal information. Smart card is also used to store money which is reduced as per usage.
Smart card can be accessed only using a PIN of customer. Smart cards are secure as they stores information in encrypted format and are less expensive/provides faster processing.Mondex and Visa Cash cards are examples of smart cards.
E-Money transactions refers to situation where payment is done over the network and 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 card, debit card or smart card are examples of e-money transactions. Another popular example is e-cash. In case of e-cash, both customer and merchant both have to sign up with the bank or company issuing e-cash.
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 same bank or different bank. Fund transfer can be done using ATM (Automated Teller Machine) or using computer.
Now a day, internet based EFT is getting popularity. In this case, customer uses website provided by the bank. Customer logins 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 amount to other account if it is in same bank otherwise transfer request is forwarded to ACH (Automated Clearing House) to transfer amount to other account and amount is deducted from customer's account. Once amount is transferred to other account, customer is notified of the fund transfer by the bank.