Lecture Notes on online Payment System

e-payment System
E payment is a subset of an e-commerce transaction to include electronic payment for
buying and selling goods or services offered through the Internet. Generally we think of
electronic payments as referring to online transactions on the internet, there are actually
many forms of electronic payments. As technology developing, the range of devices and
processes to transact electronically continues to increase while the percentage of cash
and check transactions continues to decrease.
The Internet has the potential to become the most active trade intermediary within a
decade. Also, Internet shopping may revolutionize retailing by allowing consumers to sit in
their homes and buy an enormous variety of products and services from all over the
worlds. Many businesses and consumers are still wary of conducting extensive business
electronically. However, almost everyone will use the form of E Commerce in near future.
Phases in E-Payment
An electronic payment typically involves the following phases:
1. Registration: This phase involves the registration of the payer and the payee with
the issuer and acquirer respectively. Most electronic payments designed require
registration of payers and payees with their corresponding banks so there is a link
between their identities and their accounts held at the bank.
2. Invoicing: In this phase, the payee obtains an invoice for payment. This is
accomplished by either browsing and selecting products for purchase from the
merchant’s (payee’s) website in case of purchases made through the internet or
obtaining an electronic invoice using other electronic communication medium like e-
mail. This phase typically is performed in an unsecured environment and normally
excluded while designing payment protocols. The importance of this phase is that, it
sets the mandatory and optional data variables that should be included in a
payment protocol.
3. Payment selection and processing: In this phase the payer selects type of
payment, (card based, e-cash, e-cheque, etc.,) based on the type of payment the
payee accepts. Based on the selection, the payer then sends the relevant payment
details like account number, unique identifiers of the payer to the payee along with
accepted amount based on the invoice. Certain protocols might also require the
payer to obtain preauthorised token (like bank drafts) from the issuer before the
payer sending the payment information to the payee.
 4. Payment authorisation and confirmation: In this phase, the acquirer on receiving
payment details from the payee authorises the payment and issues a receipt
containing the success or failure of the payment to the payee. The payee based on
the message may also issue a receipt of payment to the payer.
Benefits of E-payment System
Paper-based payment processes present significant challenges to large organizations,
stalling efficient workflows in AP and AR departments due to a heavy reliance on labour-
intensive processes and data entry. Businesses that go paperless by implementing an
electronic payment system realize enormous process efficiencies and cost-savings
benefits as
 Paper work is minimized by adopting soft version of data recording.
 24*7 facility of transaction.
 Pervasiveness is achieved by allowing transaction at any time and place.
 Day Sales Outstanding (DSO) Improvements: For suppliers, an electronic payment
system can immediately improve DSO numbers by allowing them to electronically
receive and process payments from commercial customers
 Processing Cost Reduction: A feature-rich electronic payment system lowers
associate process time by automatically initiating and processing payments.
 Minimize Overdue Payments: A best-in-class electronic payment system accelerates
credit and collections by giving customers, collections groups and internal
customer service department’s greater visibility into payment status.
 Simplify Dispute Management: With an electronic payment system, companies enjoy
improved data accuracy and automated disbursement, receipt and payment
processing to streamline vendor dispute management.
 Increased Compliance: An electronic payment system makes it easier to track and
monitor data to ensure adherence to complex compliance regulations and all
business rules.
 Enhanced Security: An electronic payment system is highly secure, safeguarding
cardholder data and preventing payment fraud better than paper-based payments
can achieve.
 Improved Workflow Efficiencies: Increased automation is a key feature of a robust
electronic payment system, enabling less reliance on time-consuming and costly
manual business processes.
 Greater Visibility into Financial Supply Chain: With access to reports and
comprehensive corporate financial history, an electronic payment system gives
management and other authorized users easy access to snapshots and detailed
reports to improve decision-making and process efficiency.
 Human entry errors are minimized due to automation through EDI applications.
Digital currency

Digital currency (digital money, electronic money or electronic currency) is a type of

currency available in digital form (in contrast to physical, such as banknotes and coins). It
exhibits properties similar to physical currencies, but can allow for instantaneous
transactions and borderless transfer-of-ownership. Examples include virtual currencies,
cryptocurrencies, and central bank digital currency. The characteristic of various types of
money can be seen in taxonomy of money as given below:

Virtual currencies

Virtual currency is a digital representation of money, not issued by a central bank, credit
institution or e-money institution, and defined as a type of unregulated, digital money,
which is issued and usually controlled by its developers, and used and accepted among
the members of a specific virtual community.

It is also defined as "a medium of exchange that operates like a currency in some
environments, but does not have all the attributes of real currency". In particular, virtual
currency does not have legal tender status in any jurisdiction. For example, Internet &
mobile coupons, Microsoft Points, Nintendo Points, Facebook Credits and Amazon Coin.

Central bank digital currency

A digital currency that is issued by a central bank is defined as "central bank digital
currency"
Crypto currency

A cryptocurrency is a digital asset designed to work as a medium of exchange that uses

strong cryptography to secure financial transactions, control the creation of additional
units, and verify the transfer of assets. Cryptocurrencies use decentralized control as
opposed to centralized digital currency and central banking systems.

The decentralized control of each cryptocurrency works through distributed ledger

technology, typically a blockchain that serves as a public financial transaction database.

Bitcoin, first released as open-source software in 2009, is generally considered the first
decentralized cryptocurrency. Others are as altcoin, Litecoin, Ripple (XRP), Bitcoin Cash
(BCH), Libra, Binance Coin (BNB), EOS (EOS), EOS (EOS).

According to Jan Lansky, a cryptocurrency is a system that meets six conditions

1. The system does not require a central authority; its state is maintained through
distributed consensus.
2. The system keeps an overview of cryptocurrency units and their ownership.
3. The system defines whether new cryptocurrency units can be created. If new
cryptocurrency units can be created, the system defines the circumstances of their
origin and how to determine the ownership of these new units.
4. Ownership of cryptocurrency units can be proved exclusively cryptographically.
5. The system allows transactions to be performed in which ownership of the
cryptographic units is changed. A transaction statement can only be issued by an
entity proving the current ownership of these units.
6. If two different instructions for changing the ownership of the same cryptographic
units are simultaneously entered, the system performs at most one of them.

Various online payment methods

Various online payments methods are discussed with overview, features, etc. as follows:

1. E-BANKING

Electronic banking, also known as electronic funds transfer (EFT), is simply the use of
electronic means to transfer funds directly from one account to another, rather than by
cheque or cash. You can use electronic funds transfer to:
 Withdraw money from your checking account from an ATM machine with a personal
identification number (PIN), at your convenience, day or night.
 Instruct your bank or credit union to automatically pay certain monthly bills from your
account, such as your auto loan or your mortgage payment.
 Have the bank or credit union transfer funds each month from your checking
 account to your mutual fund account.
 Have your government social security benefits check or your tax refund deposited
directly into your checking account.
 Buy groceries, gasoline and other purchases at the point-of- sale, using a check card
rather than cash, credit or a personal check\
 Use a smart card with a prepaid amount of money embedded in it for use instead of
cash at a pay phone, expressway road toll, or on college campuses at the library's
photocopy machine or bookstores.
 Use your computer and personal finance software to coordinate your total personal
financial management process, integrating data and activities related to your
income, spending, saving, investing, recordkeeping, bill-paying and taxes, along
with basic financial analysis and decision making.

INTERNET BANKING:

Internet Banking lets you handle many banking transactions via your personal computer.
For instance, you may use your computer to view your account balance, request transfers
between accounts, and pay bills electronically.
In Internet banking system, the system is integrated with the host computer system of the
bank so that the remote banking customer can access other automated services of the
bank. The method of the invention includes the steps of inputting a customer banking
request from among a menu of banking requests at a remote personnel computer;
transmitting the banking requests to a host computer over a network; receiving the
request at the host computer; identifying the type of customer banking request received;
automatic logging of the service request, comparing the received request to a stored table
of request types, each of the request types having an attribute to indicate whether the
request type is capable of being fulfilled by a customer service representative or by an
automated system; and, depending upon the attribute, directing the request either to a
queue for handling by a customer service representative or to a queue for processing by
an automated system. Various forms of internet bankig are listed as follows:
 National Electronic Funds Transfer (NEFT)
It is a nation-wide payment system facilitating one-to-one funds transfer. Under this
Scheme, individuals, firms and corporates can electronically transfer funds from any
bank branch to any individual, firm or corporate having an account with any other
bank branch in India participating in the Scheme.
Even such individuals who do not have a bank account (walk-in customers) can also
deposit cash at the NEFT-enabled branches with instructions to transfer funds using
NEFT. However, such cash remittances will be restricted to a maximum of
Rs.50,000/- per transaction. Presently, NEFT operates in hourly batches - there are
twelve settlements from 8 am to 7 pm on week days (Monday through Friday) and
six settlements from 8 am to 1 pm on Saturdays.
 Real Time Gross Settlement (RTGS)
RTGS is defined as the real-time settlement of funds transfers individually on an
order by order basis (without netting). 'Real Time' means the processing of
instructions at the time they are received rather than at some later time; 'Gross
Settlement' means the settlement of funds transfer instructions occurs individually
(on an instruction by instruction basis). Considering that the funds settlement takes
place in the books of the Reserve Bank of India, the payments are final and
irrevocable. The RTGS system is primarily meant for large value transactions. The
minimum amount to be remitted through RTGS is 2 lakh. There is no upper ceiling
for RTGS transactions. The RTGS service for customer's transactions is available to
banks from 9.00 hours to 16.30 hours on week days and from 9.00 hours to 14:00
hours on Saturdays for settlement at the RBI end. However, the timings that the
banks follow may vary depending on the customer timings of the bank branches.
 Immediate Payment Service (IMPS)
IMPS offer an instant, 24X7, interbank electronic fund transfer service through
mobile phones. IMPS is an emphatic tool to transfer money instantly within banks
across India through mobile, internet and ATM which is not only safe but also
economical both in financial and non-financial perspectives.
 AUTOMATED TELLER MACHINES (ATM)
An automated teller machine or automatic teller machine (ATM) is an electronic
computerized telecommunications device that allows a financial institution's
 customers to directly use a secure method of communication to access their bank
accounts, order or make cash withdrawals (or cash advances using a credit card)
and check their account balances without the need for a human bank teller (or
cashier in the UK). Many ATMs also allow people to deposit cash or cheques,
transfer money between their bank accounts, top up their mobile phones' pre-paid
accounts or even buy postage stamps. On most modern ATMs, the customer
identifies him or herself by inserting a plastic card with a magnetic stripe or a plastic
smartcard with a chip that contains his or her account number. The customer
then verifies their identity by entering a passcode, often referred to as a PIN
(Personal Identification Number) of four or more digits. Upon successful entry of the
PIN, the customer may perform a transaction.
If the number is entered incorrectly several times in a row (usually three attempts
per card insertion), some ATMs will attempt retain the card as a security precaution
to prevent an unauthorized user from discovering the PIN by guesswork. Captured
cards are often destroyed if the ATM owner is not the card issuing bank, as non-
customer's identities cannot be reliably confirmed. The Indian market today has
approximately more than 17,000 ATM’s.
 E-CHEQUE
An e-Cheque is the electronic version or representation of paper cheque. The
Information and Legal Framework on the E-Cheque is the same as that of the paper
cheque’s. It can now be used in place of paper cheques to do any and all remote
transactions. An E-cheque work the same way a cheque does, the cheque writer
"writes" the e-Cheque using one of many types of electronic devices and "gives" the
e-Cheque to the payee electronically. The payee "deposits" the Electronic Cheque
receives credit, and the payee's bank "clears" the e-Cheque to the paying bank.
The paying bank validates the e-Cheque and then "charges" the check writer's
account for the check.

BENEFITS OF E-BANKING

For Banks:

 Price- In the long run a bank can save on money by not paying for tellers or for
managing branches. Plus, it's cheaper to make transactions over the Internet.
 Customer Base- The Internet allows banks to reach a whole new market- and a well
off one too, because there are no geographic boundaries with the Internet. The
Internet also provides a level playing field for small banks who want to add to their
customer base.
 Efficiency- Banks can become more efficient than they already are by providing
Internet access for their customers. The Internet provides the bank with an almost
paper less system.
  Customer Service and Satisfaction- Banking on the Internet not only allow the
customer to have a full range of services available to them but it also allows them
some services not offered at any of the branches. The person does not have to go to
a branch where that service may or may not be offer. A person can print of
information, forms, and applications via the Internet and be able tosearch for
information efficiently instead of waiting in line and asking a teller. With more better
and faster options a bank will surly be able to create better customer relations and
satisfaction.
 Image- A bank seems more state of the art to a customer if they offer Internet
access. A person may not want to use Internet banking but having the service
available gives a person the feeling that their bank is on the cutting image.

For Customers:

 Bill Pay: Bill Pay is a service offered through Internet banking that allows the
customer to set up bill payments to just about anyone. Customer can select the
person or company whom he wants to make a payment and Bill Pay will withdraw
the money from his account and send the payee a paper check or an electronic
payment
 Other Important Facilities: E- banking gives customer the control over nearly every
aspect of managing his bank accounts. Besides the Customers can, Buy and Sell
Securities, Check Stock Market Information, Check Currency Rates, Check
Balances, See which checks are cleared, Transfer Money, View Transaction History
and avoid going to an actual bank. The best benefit is that Internet banking is free. At
many banks the customer doesn't have to maintain a required minimum balance.
The second big benefit is better interest rates for the customer.

ISSUES WITH E-BANKING

As with any new technology new problems are faced.

 Customer support - banks will have to create a whole new customer relations
department to help customers. Banks have to make sure that the customers receive
assistance quickly if they need help. Any major problems or disastrous can destroy
the banks reputation quickly an easily. By showing the customer that the Internet is
reliable you are able to get the customer to trust online banking more and more.
 Laws - While Internet banking does not have national or state boundaries, the law
does. Companies will have to make sure that they have software in place software
market, creating a monopoly.
 Security: customer always worries about their protection and security or accuracy.
There are always questions whether or not something took place.
 Other challenges: lack of knowledge from customers end, sit changes by the banks,
etc
2. Card based Payment methods
Banking cards offer consumers more security, convenience, and control than any other
payment method. The wide variety of cards available – including credit, debit and prepaid
– offers enormous flexibility, as well. These cards provide 2 factor authentications for
secure payments e.g secure PIN and OTP , explained as follows:

 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 known as grace period after which
he/she can pay the credit card bill. It is usually credit card monthly payment cycle.
Following are the actors parties involved in the credit card system.

 Cardholder: The holder of the card used to make a purchase; the consumer.
 Card-issuing bank: The financial institution or other organization that issued the
credit card to the cardholder. This bank bills the consumer for repayment and bears
the risk that the card is used fraudulently. American Express and Discover were
previously the only card-issuing banks for their respective brands. Cards issued by
banks to cardholders in a different country are known as offshore credit cards.
 Merchant: The individual or business accepting credit card payments for products or
services sold to the cardholder.
 Acquiring bank: The financial institution accepting payment for the products or
services on behalf of the merchant.
 Independent sales organization: Resellers (to merchants) of the services of the
acquiring bank.
 Merchant account: This could refer to the acquiring bank or the independent sales
organization, but in general is the organization that the merchant deals with.
 Credit Card association: An association of card-issuing banks such
as Discover, Visa, MasterCard, American Express, etc. that set transaction terms for
merchants, card-issuing banks, and acquiring banks.
 Transaction network: The system that implements the mechanics of the electronic
transactions. May be operated by an independent company, and one company may
operate multiple networks.

How to get it:

 Provide KYC (Know Your Customer) information to open a new account
 Apply for Card with option of Debit / Credit Card
 Get a PIN
What is required for Transaction?

 PoS terminal or online payment gateway

 Present Card physically or card details for online transaction
 Provide PIN
 Provide OTP (One Time Password) received on registered mobile to complete online
transaction for merchant website.
 Self-service and/or Assisted mode
 Debit Card

A debit card is a plastic payment card that provides the cardholder electronic access to
their bank account(s) at a financial institution. Some cards may bear a stored value with
which a payment is made, while most relay a message to the cardholder's bank to withdraw
funds from a payer's designated bank account. It is required to have a bank account before
getting a debit card from the bank. In some cases, the primary account number is assigned
exclusively for use on the Internet and there is no physical card.

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 immediately 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.

Some examples are as RuPay debit card in India, Germany (Geldkarte), Austria (Quick
Wertkarte), the Netherlands (Chipknip), Belgium (Proton), Switzerland (CASH) and France
(Moneo), Visa, Maestro debit cards issued by banks.

 Smart Card

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 cards can be either contact or contactless smart card. Smart cards can
provide personal identification, authentication, data storage, and application
processing.[3] Smart cards may provide strong security authentication for single sign-
on (SSO) within large organizations. Some Example of smart card in india are as Go India
from railway, Metro card, driving license, adhar card.

Automatic Ticket Vending Machines (ATVM) was introduced by Indian Railways to reduce
passengers queuing up at the ticket counters at Railway stations. ATVMs are touch screen
based ticketing kiosks operated using Smart Cards. The passengers can purchase and
recharge Smart Cards from ticket counters. The Smart Card has to be placed on a slot in
the ATVM and user has to select the route and destination using the touchscreen. After
confirming the details, the ticket is printed and delivered.

Mondex and Visa Cash cards, smart card at milk dairiesand for other utilities are examples
of smart cards. Smart cards serve as credit or ATM cards, fuel cards, mobile phone SIMs,
authorization cards for pay television, household utility pre-payment cards, high-security
identification and access-control cards, and public transport and public phone payment
cards listed as follows:

 Financial: Smart cards may also be used as electronic wallets. The smart card chip
can be "loaded" with funds to pay parking meters, vending machines or
merchants. The German Geldkarte is also used to validate customer age at vending
machines for cigarettes.
 Transport: Turkey implemented the first smart card driver's license system in 1987.
The professional driver's licenses in Turkey have been issued as smart cards. A
professional driver is required to insert his driver's license into a digital tachograph
before starting to drive.
In 1999 Gujarat was the first Indian state to introduce a smart card license system.As
of 2005, it has issued 5 million smart card driving licenses to its people.
 Schools: Smart cards are being provided to students at some schools and colleges
for tracking student attendance, as an electronic purse to pay for items at canteens,
vending machines, laundry facilities, tracking books issued from the school library
etc.,
 Healthcare: Smart health cards can improve the security and privacy of patient
information, provide a secure carrier for portable medical records, reduce health care
fraud, support new processes for portable medical records, provide secure access to
emergency medical information, enable compliance with government initiatives
(e.g. organ donation) and mandates.
 Security: Smart cards can be used as a security token. The Mozilla Firefox web
browser can use smart cards to store certificates for use in secure web browsing.

3. ADHAR ENABLED PAYMENT SYSTEM

AEPS is a bank led model which allows online interoperable financial transaction at PoS
(Point of Sale / Micro ATM) through the Business Correspondent (BC)/Bank Mitra of any
bank using the Aadhaar authentication and Aadhaar to Aadhaar funds transfer.

How to get it:

 Provide KYC (Know Your Customer) information to open a new account

 Aadhaar Number should be linked with bank a/c
What is required for Transaction?

 MicroATM
 Remember Aadhaar
 Give Bank name
 Present self (Aadhaar holder) with Bio-metrics (Finger and/or IRIS)
 Assisted mode

4. Unified Payments Interface (UPI)

It is a system that powers multiple bank accounts into a single mobile application (of any
participating bank), merging several banking features, seamless fund routing & merchant
payments into one hood. It also caters to the “Peer to Peer” collect request which can be
scheduled and paid as per requirement and convenience. Each Bank provides its own UPI
App for Android, Windows and iOS mobile platform(s).

How to get it:

 Bank a/c
 Mobile number should be linked with bank a/c
 Smart Phone with internet facility
 Debit Card for re-setting MPIN.

What is required for Transaction?

 Smartphone with internet facility

 Registered device only
 Use registered MPIN
 Self Service Mode

Funds Transfer limit: 1 lakh / transaction

5. MOBILE WALLET

A mobile wallet is a way to carry cash in digital format. You can link your credit card or debit
card information in mobile device to mobile wallet application or you can transfer money
online to mobile wallet. Instead of using your physical plastic card to make purchases, you
can pay with your smartphone, tablet, or smart watch. An individual's account is required to
be linked to the digital wallet to load money in it. Most banks have their e-wallets and some
private companies. e.g. Paytm, GooglePay, Freecharge, Mobikwik, Oxigen, mRuppee, Airtel
Money, Jio Money, SBI Buddy, itz Cash, Citrus Pay, Vodafone M-Pesa, Axis Bank Lime,
ICICI Pockets, SpeedPay etc.

How to get it:

 Option to open Zero KYC or Full KYC wallet

 Option of Consumer vs. Merchant wallet
 Mobile Number
 An App to be downloaded in smart phone

What is required for Transaction?

 Smartphone or internet
 Use MPIN
 Self-service and/or Assisted mode

Funds Transfer limit:

 For Users
 No KYC - Rs 20,000/ month (revised from Rs 10,000 to current till 30th Dec. 2016)
 Full KYC – Rs 1,00,000/- month

Reference

1. file:///C:/Users/Dr%20M%20Shahid/Desktop/definition-of-e-banking.pdf
2. http://cashlessindia.gov.in/digital_payment_methods.html
3. https://www.mentorway.in/various-phases-of-e-payment/
4. https://en.wikipedia.org/wiki/Digital_currency
5. https://www.coursehero.com/file/12176018/What-is-E-Payment/
6. https://en.wikipedia.org/wiki/Smart_card
7. https://en.wikipedia.org/wiki/Debit_card