UNIT – 3 : Digital Payment

Meaning of digital payment

Digital payment is a way of payment which is made through digital modes. In digital payments, payer
and payee both use digital modes to send and receive money. It is also called electronic payment. It is
any kind of non-cash payment that doesn't involve a paper check. Methods of electronic payments
include credit cards, debit cards and the ACH (Automated Clearing House) network. The ACH system
comprises direct deposit, direct debit and electronic checks (e-checks).

Common electronic payment methods 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 methods of electronic payments are as follows :

 Credit Card

 Debit Card

 Smart Card

 E-Money

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. It is usually credit card monthly payment cycle.

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. 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

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

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 or Digital Wallet

Meaning

A digital wallet, sometimes called an e-wallet, is a service that allows you to pay for things, usually
through a mobile phone app. It also stores a number of other items a traditional wallet would hold, such
as a driver's license, gift cards, tickets for entertainment events, and transportation passes. Digital
wallets are not only easier to use in some cases but are also generally considered to be more secure
than a traditional wallet

Advantages of a Digital Wallet

 Convenience

 Time saving

 Security

 Track the expenditure

 Additional bonuses and rewards.

Disadvantages of a Digital Wallet

 International restrictions

 Dependent on the devices

 Threat of losing one’s money.

Digital signature

Meaning

The use of Digital signatures has continued to grow as a means of meeting the need for faster and more
secure authentication that cannot be easily forged or compromised. Consider how important and time-
sensitive documents have been signed in the past. The user would first need to obtain the documents to
be signed by means of receiving a paper document by mail or printing the document from a designated
online source. The document would need to be physically signed and then returned to its originator.
This caused the user to complete the process offline, which would involve other physical processes that
could be considered time-consuming and costly in returning the signed document and then the
additional steps that were needed to verify the signature. However, with the use of digital signatures
experience, the user can now securely access, view and sign documents online, thus eliminating the
need for most offline steps. It allows us to verify the author, date and time of signatures, authenticate
the message contents. It also includes authentication function for additional capabilities

Advantages of a Digital Signature

 Authentication

 Security

 Imposter prevention

 Non-repudiation

 Time-stamp

Disadvantages of a Digital Signature

 Expiry life

 Existing laws

 Software requirements

Payment gateway

Payment Gateway is a tunnel that connects your bank account to the platform where you need to
transfer your money. It is a software that authorises you to conduct an online transaction through
different payment modes like net banking, credit card, debit card, UPI or the many online wallets that
are available these days.A Payment Gateway plays the role of a third party that securely transfers your
money from the bank account to the merchant’s payment portal.

Core Banking Solution

Meaning

Core Banking Solution (CBS) is the networking of bank branches, which allows customers to manage
their accounts, and use various banking facilities from any part of the world.You can enjoy banking
services from any branch of the bank which is on CBS network regardless of the branch you have opened
your account.

Advantages of core banking

 Substantial discount of operation charges

 Easier advent of recent merchandise

 Faster customer support

 Integration of all services and products, leading to advanced chance control

 Real-time transaction processing

 Scaling up of operations

 Availability of e-exchange options to financial institution customers

 Efficient and smooth transactions which can be conducted 24/7.

Disadvantages of core banking

 Excessive reliance on era

 Any failure in pc structures can cause whole community to head down

 If records isn’t included nicely and if right care isn’t always taken , hackers can advantage get
admission to the data.

Mobile Payments

Meaning

Mobile payments are defined as making digital monetary transactions using a mobile device. You can
pay for goods and services digitally by linking your credit or debit card to a mobile app. You’re able to
pay for anything without using physical cards or money.

Advantages of Mobile Payments

 Customer Convenience

 Reduces Expenses

 Improves Cash Flow

 Integrates Loyalty Programs

 Access to Actionable Data

 Watch Security

Disadvantages of Mobile Payments

 Device Failure

 Risk of phone theft

 Difficult to Read Terms and Conditions

 Device Failure

 Payment errors

Unified Payments Interface (UPI)

Meaning

It is an instant real-time payment system developed by National Payments Corporation of India

facilitating inter-bank transactions. The interface is regulated by the Reserve Bank of India and works by
instantly transferring funds between two bank accounts on a mobile platform.

Advantages of UPI
  Minimal Charges and Instant
  No Need to Fill Details
  No need for Registration and always Available
  Real-time payment
  Easy to use

Disadvantages of UPI

 Transaction Limit

 Requirement of Internet and Smartphone

 Difficult to Convince the Customers

National Payments Corporation of India (NPCI)

Meaning

NPCI is an umbrella organization for all retail payments in India. It was set up with the guidance and
support of the Reserve Bank of India (RBI) and Indian Banks Association (IBA). RuPay Card, a product of
National Payments Corporation of India (NPCI), is an Indian version of credit and debit cards and has
been designed to address the needs of Indian consumers, merchants and banks. As per NPCI, the
benefits of RuPay card are the flexibility of the product platform, high levels of acceptance and the
strength of the RuPay brand.

Advantages of RuPay Card

 Lower cost and affordability

 Customized product offering
 Protection of information related to consumers
 Electronic product options to untapped/unexplored consumer segment
 Inter-operability between payment channels and products

International Payments Meaning When money is transferred from one party to another due to any
economic transaction it is called the process of payment. Payments are of two types. One is local, the
other is international. When payment is made in the same country it is called local payment. On the
other hand, when the payer and receiver are of two different countries, it is called international
payment.

Advantages of International Payments

 Instant payment
 Credit card payments
 Quick and easy setup
 Influences buyers
 Recurring payments
Disadvantages of International Payments

 Different Currencies

 Exchange Rate

 Exchange Control

 Banking System

 Risk Factor

 Difficulties in Payment of Scarce Currencies

International Payments

Meaning

When money is transferred from one party to another due to any economic transaction it is called the
process of payment. Payments are of two types. One is local, the other is international. When payment
is made in the same country it is called local payment. On the other hand, when the payer and receiver
are of two different countries, it is called international payment.

Advantages of International Payments

 Instant payment

 Credit card payments

 Quick and easy setup

 Influences buyers

 Recurring payments

Disadvantages of International Payments

 Different Currencies

 Exchange Rate

 Exchange Control

 Banking System

 Risk Factor

 Difficulties in Payment of Scarce Currencies

Online banking

Meaning
It refers to banking services where depositors can manage more aspects of their accounts over the
Internet, rather than visiting a branch or using the telephone. Online banking typically is comprised of a
secure connection to banking information through the depositor’s home computer or another
device.The automated delivery of new and traditional banking products and services directly to
customers through electronic, interactive communication channels

Advantages of Online Banking

 Convenience
 Fast and efficient
 Service available: 24x7
 Online purchases
 Pay bills online by saving postal services
 Anytime and anywhere banking.

Electronic Funds Transfer (EFT)

An Electronic Funds Transfer (EFT) is a transaction that takes place over a computerized network, either
among accounts at the same bank or to different accounts at separate financial institutions.

Automated Clearing House (ACH)

An Automated Clearing House (ACH), or automated clearinghouse, is an electronic network for financial
transactions, generally domestic low value payments. An ACH is a computer-based clearing house and
settlement facility established to process the exchange of electronic transactions between participating
financial institutions. It is a form of clearing house that is specifically for payments and may support both
credit transfers and direct debits. ACHs are designed for high-volume, low-value payments, and charge
fees low enough to encourage the transfer of low-value payments. The system is designed to accept
payment batches, so that large numbers of payments can be made at once.

Automated Ledger Posting

The repetitive and cumbersome task of ledger maintenance has been simplified with the emergence of
Automated Ledger Posting.A server at every branch contained the entire database and it was soon
realized that it would be more fruitful to have the total database at a central location and create a wide
area network. This type of system required a lot of redundancy to ensure 24x7 availability to the
customers.

Risks involved in E-Payments

 Fraud
 Impulse Buying

 Tax Evasion

 Payment Conflict