In simple words, an electronic payment (E-Payment) system is the process of making payments via an electronic or digital system. Customers use this system when they perform online transactions to pay for products or services without physical payment modes such as cash, cheques or demand drafts. It is also referred to as an e-payment system or digital payment system.

The boom of technology, digitalisation and mobile as well as internet penetration has led to an immense growth of digital payments. Moreover, the exponential growth of the online shopping and e-commerce industry has also contributed to the emergence of e-payment systems.

The Ministry of Electronics and IT (MeitY) stated in its report that ‘the volume of digital payments in India increased by 33% year-on-year (YoY) during the financial year (FY) 2021-2022¹. A total of ₹7,422 crore digital payment transactions were recorded during this period, up from ₹5,554 crore transactions seen in FY 2020-21.’

So, let’s understand what is an e-payment system, its advantages and its types.

What is an Electronic Payment System and its Types?

An electronic payment system allows you to make payments online without using cash through UPI, debit/credit cards, e-wallets, and net banking. It facilitates the electronic transfer of money between two parties, for example, a business merchant and a customer.

Customers can pay not only for online shopping but also for offline in-store purchases via e-payment systems. They can do peer-to-peer (P2P) transfers, recharge mobiles, DTH, wifi, etc. and pay loan EMIs, credit cards and other utility bills, insurance premiums, SIPs, etc. Likewise, businesses can use digital payment systems for paying employees, vendors, customer refunds/cashback, bills, invoices and other business-related payments.

The Reserve Bank of India (RBI) regulates the functioning of electronic payment systems in the country. 

There are several types of E-payment systems:

1. Banking websites and mobile applications facilitating net banking via IMPS, RTGS and NEFT
2. UPI apps for instance GPay, PhonePe and Paytm
3. Other mobile apps that enable bank transfers, debit/credit card payments as well as postpaid and BNPL (Buy Now Pay Later) services
4. E-wallet apps like Mobikwik, Paytm, Freecharge, etc.
5. Payment Gateway and processors that enable payments through the above options at the merchant’s store

What are the Advantages of an Electronic Payment System?

Electronic payments offer numerous benefits. The advantages of e-payment systems include reduced transaction costs, low payment processing errors, and lower processing time. Let’s understand in detail:

1. Quick and Time-Saving Payments

E-payment systems are a speedy alternative to paper-based payment systems. Electronic or digital payments are much faster than traditional payment methods such as cheques or drafts. They provide quick settlement of fund transfers into the recipient’s bank account or digital wallet.

Customers no longer have to waste time waiting in long queues at banks or wait hours for the settlement of transactions. They can easily pay using an e-payment mode.

By implementing electronic payment methods, businesses can also save time for their teams, customers, and leadership. Like, for example, the traditional method of processing supplier payments or refunds takes a long time.

Let’s consider an example. Tata CLiQ took between 5 to 20 days to process the customer refunds. If the order is COD, the TAT (turnaround time) can extend even further because it involves additional steps of manual collection and processing of the customer’s account details. By switching to an electronic payment solution, they could process instant refunds. They integrated Cashgram by Cashfree Payments to provide instant refunds for COD orders.

Thus, modern solutions by e-payment systems automate many of the manual and repetitive tasks that plague the accounts payable departments. These solutions allow your team more time to focus on other important areas of operations.

2. Convenience

Electronic payment systems eliminate the need to go to the bank for financial transactions. When it comes to online payments there are no time or location constraints. You can easily make or receive payments at any time from any part of the world. You need not rely on banking hours for conducting a transaction or a payment.

E-payment systems have made online transactions more simple and more accessible to all. Easier and faster electronic payments enable businesses to improve visibility and efficiency. Just like Ritu Kumar, your business can also expand its reach by offering a frictionless and global checkout experience for your customers. 

3. Multiple Options

As discussed above, there are various digital payment systems providing multiple payment options to customers like e-wallets, UPI, postpaid, card payments, net banking and so on. This provides customers with numerous choices and ease of payment. They can prefer a particular payment mode which they are comfortable using.

Moreover, businesses enabling multiple payment methods can benefit tremendously. Different payment methods suit different customers and they may drop out if they do not find their preferred method.

Therefore, businesses need to incorporate them for hassle-free checkouts and lower cart abandonments. Among multiple factors that define the success of an online store, one notable factor is the seamlessness of transactions.

4. Lower Transaction Costs

Paper-based methods are not only slow but also expensive. E-payment systems can eliminate the costs associated with paper cheques, cash, demand drafts, and postage.

On the other hand, accepting a paperless process with electronic payments is relatively cost-effective.  Payments via electronic payment systems that bear charges like card transaction charges or processing fees are lower than that of the traditional payment system.

Businesses can save money on every invoice. They just need to incorporate electronic payment methods into your company’s account payable process.

5. Secure and Safe Online Payment Transactions

Electronic payments are often more secure than their cash-based and paper-based counterparts. This is because it saves you from theft or misplacing.

Although digital solutions are not immune to hackers and security breaches, EPSs deploy various security measures like card tokenization, SSL (secure socket layers) and secure protocols, data encryption, two-factor authentication and other security features.

For instance, Cashfree Payments employs a team of data experts and engineers for its online business clients. It ensures the high security of all payment information of customers.

Also, other than the security steps of e-payment systems, below are some precautionary steps for customers and businesses to follow. Businesses should share them with their customers while enabling and making online payments:

• Do not click on any suspicious links: By clicking on email links or advertisements from unknown sources, hackers can gain access to confidential data
• Don’t save or share account information: No one should ever give out their OTPs, personal information, or passwords to anyone. Customers should avoid saving bank information on their phone
• Avoid using public networks: Using open wifi connections to transact can expose customers’ accounts to theft and fraud

6. Complete Visibility and Transparency

Electronic payment systems provide complete transparency and visibility throughout the payment process. They record all payments and provide a unique reference number with other transaction details like the bank details and phone numbers of the senders and recipients. Similarly, they also track the time, date and location of the payments. Customers can report if they face any issues like payment failures or fraudulent activity.

Automated electronic payment processing also gives business merchants a better insight into understanding customers’ preferences. They can analyze what are the most preferred modes of payment or which time duration they receive more orders. When compared to tedious, error-prone manual processes, automated processes provide greater control over cash flows. This combination of process transparency, increased payment control, and reduced manual tasks makes it easier for you to detect suspicious or fraudulent activity.

Difference between E-Payment Systems and Traditional Payments Systems 

Here’s a table comparing the differences between E-Payment Systems and Traditional Payments Systems.

E-Payments System	Traditional Payments System
Direct transactions over the Internet	Involves physical exchange on cash, cheques or demand drafts
Eg: UPI, Netbanking, Wallets, etc.	Eg: Cash, Cheque, Demand Draft, Letter of Credit etc
Lower transaction costs	Comparatively higher transaction costs
Multiple payment options	Limited payment options
Greater visibility and easy-to-track transaction history	Less transparency on status and tracking