An Electronic Payment System (E-Payment System) refers to a system that facilitates the electronic transfer of money between two parties. It processes online transactions digitally, that is, the transfer of funds or monetary value electronically. It eliminates the need for the transfer of cash, cheques and any physical currency or traditional paper-based methods.
An electronic payment system is also known as a digital payment system. It is the system, infrastructure and processes that enable electronic or digital transactions.
Individuals, organisations or businesses can use EPSs to make payments for a variety of products and services. It includes online shopping, in-store purchases, bill payments, and money transfers. EPS can also do transactions for investments or returns, insurance premiums or claims, loan credit or EMIs, etc.
In short, it allows banks and non-banking financial institutions (NBFCs) to debit or credit money.
There are several different types of EPSs, including credit and debit card payments, online banking payments, mobile payments and peer-to-peer payments.
Here are some key aspects and components of Electronic Payment Systems that readers must know:
Infrastructure: An E-Payment System works in association with payment networks, payment gateways or aggregators, payment processors, merchant services, and financial institutions. All of them form a robust infrastructure to facilitate the seamless process of transactions.
Types of Payment Methods: E-Payment System encompasses many payment methods. This includes debit or credit cards, e-wallets, mobile payment apps (like UPI, postpaid, BNPL, etc.), bank transfers, and online payment gateways.
Transaction Process: E-Payment System enable the money transfer from the sender/payer to the receiver/payee. The payer initiates the payment and authorises it. Banks, NBFCs, card networks, payment gateways (PGs), payment processors, and whichever institution is a part of that EPS, verify and authenticate the payment. Only after that, the transaction is settled in the payee’s account, cards or e-wallet.
Security Measures: EPS take several security measures to safeguard the privacy and confidentiality of online transactions. Be it secure protocols and hyperlinks, anti-virus software/malware, data encryption, card tokenisation, etc. to protect the integrity and authenticity of digital transfers. Moreover, they use secure socket layers (SSL), add two-factor authentication (2FA) for customers and employ fraud detection systems.
Benefits of Electronic Payments Systems:
Some major benefits that Electronic Payment Systems/EPS offer are –
- EPS have improved the speed and convenience of doing transactions. One is that the money transfers happen instantly. Secondly, neither the payer nor the payee needs to go to a bank or meet personally. Likewise, customers nor merchants can also do transactions quickly and easily. It gives a hassle-free experience
- Electronic Payment Systems can function at both online and offline stores where merchants can have quick access to payments while customers can have immediate access to goods or services
- Electronic Payment Systems often integrate with other systems, such as e-commerce platforms, point-of-sale (POS) systems, and accounting software. This provides a seamless payment experience for both buyers and sellers
- EPS may integrate with payment service providers (PSPs) or payment gateways (PGs) that enable cross-border transactions. Therefore, it enables businesses and even individuals to make/receive international payments in multiple currencies
- All transactions through EPS are recorded and thus, one can always track down the details. Businesses can analyse financial trends, customer behaviour and spending patterns. These valuable insights can help them optimise their operations
Some of the widely used Electronic Payment Systems are UPI apps like Gpay, PhonePe, etc., credit card networks like Visa and Mastercard, and digital wallets like Paytm, and Mobikwik.
Several factors drive the growth of EPSs like the growing use of mobile devices and the increasing demand for convenience in payment processing. There is also more demand for the security of payments as well as the increasing popularity of online shopping that has led to the rise of Electronic Payment Systems (EPSs).
