BY: MANOJ SAPKOTA, NEPAL POLYTECHNIC INSTITUTE

Unit - 6: Electronic Payment System (EPS)

Electronic Payment System: An electronic payment system is a way of

making financial transactions or paying for goods and services through
electronic medium without the use of cheque or cash. It is also known as an
online payment system / E-payment system.

Electronic payment systems in e-commerce refer to the methods by which

financial transactions are conducted online between buyers and sellers. These
systems facilitate the exchange of money for goods or services in a secure and
convenient manner over the internet.

Types of Electronic Payment System:

1. Digital token-based E-payment system
2. Smart Cards based E-payment systems
3. Credit card-based payment systems

1. Digital Token-Based E-Payment System: This system involves the use of

tokens, which are digital representations of sensitive payment information such
as credit card numbers, bank account details, or other personal identifiers.

Working: When a customer initiates an online transaction, instead of

transmitting their actual payment information, a unique token is generated.
This token is typically issued by a payment card network (e.g., Visa,
Mastercard) or other payment services. The token is then used to process the
transaction, with the actual payment details securely stored by the service
providers that issues the token. The token cannot be used for any other
purpose.

Security Features:
• Enhanced Security: Digital tokens reduces the risk of exposing sensitive
payment data during online transactions.
• Single-Use or Limited-Time Tokens: Tokens are typically valid for a single
use or a limited time period, reducing the risk of unauthorized access or
fraud transactions.
• Encryption: This method often uses advanced encryption techniques to
secure payment information and token generation processes.

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 BY: MANOJ SAPKOTA, NEPAL POLYTECHNIC INSTITUTE

2. Smart Cards Based E-Payment System: This system utilizes smart cards,
also known as chip cards or integrated circuit cards, for conducting electronic
transactions.

Working: Smart cards contain embedded microprocessors and memory chips

that store and process data. Customers load funds onto their smart cards
either manually or through automated processes. During a transaction, the
smart card communicates with a card reader to authorize the payment and
deduct the appropriate amount from the card's balance.

Security Features:
• Chip Technology: The embedded microprocessors in smart cards provide
enhanced security features compared to traditional magnetic stripe
cards.
• PIN Protection: Many smart card transactions require users to enter a
Personal Identification Number (PIN) to authenticate the transaction,
adding an extra layer of security.
• Encryption: Smart card transactions often utilize encryption techniques
to protect sensitive data transmitted between the card and the card
reader.

3. Credit Card-Based Payment System: This system involves the use of credit
cards issued by financial institutions to make purchases or payments.

Working: After request, credit cards are offered from banks or financial
institutions to make purchases. When making a purchase, customers present
their credit card details into the merchant's payment gateway. The payment
gateway securely processes the transaction and communicates with the credit
card network (e.g., Visa, Mastercard) and the issuing bank to authorize the
payment. The amount of the transaction is added to the customer's credit card
balance, and they are required to repay the borrowed amount to the issuing
bank within a specified time period.

Security Features:
• Fraud Protection: Credit card networks and issuing banks employ
various security measures to detect and prevent fraudulent activities.
• Zero Liability Protection: Many credit card issuers offer zero liability
protection to cardholders, shielding them from financial responsibility.

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 BY: MANOJ SAPKOTA, NEPAL POLYTECHNIC INSTITUTE

Digital Wallet: It is also known as e-wallet. It is a software-based system that

securely stores user’s payment information and can be used to make online
transactions quickly and securely. Users link their bank accounts, credit/debit
cards, etc. to their digital wallets for seamless transactions.

Digital wallets can be used in conjunction with mobile payment systems, which
allow customers to pay for purchases with their smartphones. A digital wallet
can also be used to store loyalty card information and digital coupons.

Examples: esewa, Khalti etc.

Esewa: It is a leading digital payment service provider in Nepal, offering a wide

range of financial services through its digital wallet platform.

Key Features:
• Digital Wallet: eSewa provides users with a digital wallet that can be
topped up with funds from various sources, including bank accounts,
debit/credit cards, and cash deposits at authorized agents.
• Bill Payments: Users can pay utility bills (electricity, water, internet),
recharge mobile phones, and settle other bills directly from their eSewa
wallet.
• Online Shopping: It provides online shopping transactions by allowing
users to make payments on e-commerce websites and mobile apps that
accept eSewa as a payment option.
• Money Transfer: Users can transfer money to other eSewa users or bank
accounts within Nepal.
• QR Code Payments: eSewa offers QR code-based payment solutions,
allowing users to make payments by scanning QR codes at merchant
outlets.

Khalti: Khalti is another popular digital wallet and online payment platform in
Nepal, offering a range of financial services to users.

Key Features:
• Digital Wallet: Khalti provides users with a digital wallet that enables
them to store funds and make electronic transactions.
• Bill Payments: Khalti allows users to pay utility bills, recharge mobile
phones, and settle other bills directly from their digital wallet.

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 BY: MANOJ SAPKOTA, NEPAL POLYTECHNIC INSTITUTE

• Online Shopping: Khalti provides online shopping transactions by

enabling users to make payments on partner e-commerce platforms and
mobile apps.
• Money Transfer: Users can transfer money to other Khalti users or bank
accounts within Nepal.
• QR Code Payments: Khalti supports QR code-based payments, allowing
users to scan QR codes at merchant outlets to make payments.

Online banking facilities of Banks (Nepali Banks): Online banking facilities

in Nepali banks have evolved significantly in recent years, with many banks
adopting modern technologies to provide convenient and efficient services to
their customers.

Some of the key online banking facilities offered by Nepali banks:

1. Internet Banking: This service allows customers to conduct a variety of
financial transactions and activities via the bank's website. Common
services include account balance checks, detailed statements, internal
and external fund transfers, utility bill payments, mobile recharge, and
online shopping payments.
2. Mobile Banking Apps: Many banks in Nepal have developed their own
mobile apps, facilitating easy access to banking services from
smartphones. These apps typically offer features similar to internet
banking but are optimized for mobile devices.
3. Digital Wallets: Some banks have integrated or developed their own
digital wallets to facilitate easier and quicker payments. These wallets
can be used to pay at various purchases, and for sending money to other
individuals.
4. QR Code Payments: A growing number of banks now support QR code-
based payments, which allow customers to make purchases by scanning
QR codes at retailers and firms, using their banking app.
5. Online Loan Applications: Customers can apply for loans online through
their bank’s platforms. This can include personal loans, home loans, and
auto loans, with the ability to upload necessary documents, check loan
status, and even receive loan approvals online.
6. Investment Services: Some banks provide online platforms where
customers can invest in various financial products such as fixed
deposits, mutual funds, and government securities.

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 BY: MANOJ SAPKOTA, NEPAL POLYTECHNIC INSTITUTE

Risk factor in electronic payment system: Some of the primary risks

associated with electronic payment systems are as follows:

1. Fraud and Security Breaches: The most common risk in electronic

payment systems is the potential for fraud. This can include identity
theft, where fraudsters obtain personal information and make
unauthorized transactions, or card fraud, where stolen card details are
used to make fraudulent purchases.
2. Phishing and Scams: Phishing attacks involve tricking users into giving
away sensitive information such as passwords and credit card numbers
through emails or websites. Scammers may also use social sites to cheat
customers into making payments or providing access to their financial
accounts.
3. Data Breaches: Data breaches occur when unauthorized parties gain
access to the payment system’s data sources and extract sensitive
customer information.
4. Operational Risks: These include risks from internal system failures,
human errors, or technical malfunctions that can disrupt payment
processing.
5. Malware and Virus: Malicious software can be used to penetrate payment
systems, steal data, and even lock out users and operators from
accessing their systems.
6. Interception and Unauthorized Access: As information is transmitted
over networks, there is a risk of interception by unauthorized entities.
Cyber attackers might find ways to intercept or alter data.
7. Compliance and Regulatory Risks: Failing to comply with legal and
regulatory requirements can lead to significant penalties and legal
issues.
8. Third-party Risks: Many electronic payment systems depend on third-
party service providers for various components of their operations.
Failures or security breaches at these third parties can have direct
impacts on the primary operators of payment systems.
9. Outdated Technology: With rapid technological advancements, there is a
constant need for updates and upgrades to payment systems. Failing to
keep up with technology can make systems vulnerable to new types of
attacks.