E – Payment

An e-payment system is a way of making transactions or paying for goods and services through an electronic medium, without the use of checks or cash. It’s also called an electronic payment system or online payment system.

The electronic payment system has grown increasingly over the last decades due to the growing spread of internet-based banking and shopping. As the world advances more with technology development, we can see the rise of electronic payment systems and payment processing devices. As these increase, improve, and provide ever more secure online payment transactions the percentage of check and cash transactions will decrease.

Electronic Payment Methods

One of the most popular payment forms online are credit and debit cards. Besides them, there are also alternative payment methods, such as bank transfers, electronic wallets, smart cards or bitcoin wallet (bitcoin is the most popular cryptocurrency).

E-payment methods could be classified into two areas, credit payment systems and cash payment systems.

1. Credit Payment System

Credit Card — A form of the e-payment system which requires the use of the card issued by a financial institute to the cardholder for making payments online or through an electronic device, without the use of cash.

E-wallet — A form of prepaid account that stores user’s financial data, like debit and credit card information to make an online transaction easier.Smart card — A plastic card with a microprocessor that can be loaded with funds to make transactions; also known as a chip card.

2. Cash Payment System

Direct debit — A financial transaction in which the account holder instructs the bank to collect a specific amount of money from his account electronically to pay for goods or services.

E-check — A digital version of an old paper check. It’s an electronic transfer of money from a bank account, usually checking account, without the use of the paper check.

E-cash is a form of an electronic payment system, where a certain amount of money is stored on a client’s device and made accessible for online transactions.

Stored-value card — A card with a certain amount of money that can be used to perform the transaction in the issuer store. A typical example of stored-value cards are gift cards.

Want to know more about online payment processing?

E-commerce fraud is growing at 30% per year. If you follow the security rules, there shouldn’t be such problems, but when a merchant chooses a payment system which is not highly secure, there is a risk of sensitive data breach which may cause identity theft.

The lack of anonymity — For most, it’s not a problem at all, but you need to remember that some of your personal data is stored in the database of the payment system.

The need for internet access — As you may guess, if the internet connection fails, it’s impossible to complete a transaction, get to your online account, etc.

E-commerce, as well as m-commerce, is getting bigger year after year, so having an e-payment system in your online store is a must. It’s simple, fast and convenient, so why not have one?

Still, one of the most popular payment methods are credit and debit card payments, but people also choose some alternatives or local payment methods. If you run an online business, find out what your target audience needs and provide the most convenient and relevant e-payment system.

With the explosive growth of online businesses and eCommerce stores, there are more than 300 payment schemes in the world. The global eCommerce market is also expected to hit 2.4 trillion dollars by 2019. This does not make it easy to choose the right payments for your website, especially when you are a beginner. It can be tricky and without any knowledge, you could choose a solution that’s not as affordable as you first thought. Read on to learn more about online payments.

Today, the entire retail industry is digitized and customers have greater expectations. You need to know details about the payment system you offer.

But First, Why Do You Need Online Payments?

The simplest answer is because online payments help you sell items or services online faster and more conveniently for both you and your customers. To start accepting payments on a website, you need a merchant account and a payment gateway. If you already have an eCommerce website, there are other issues to focus on (check our solution for eCommerce platforms).

Traditional payment methods include credit cards, debit cards, and bank transfers. In 2014, the number of cards with a payment function increased to 766 million in the EU. The amount of card transactions was 47.5 billion, with a total value of 2.4 trillion dollars.

Yet, people prefer alternatives or local payment solutions. The landscape of alternative payments has evolved and is set to claim 55% of eCommerce turnover by 2019 (more here). Before you add payments to your website, ensure which payment methods your target market prefers.

Online payments are convenient for customers. They pay for goods and services in seconds without even realizing the entire process. In fact, after making a purchase the payment process begins and it’s about encryption, authentication, authorization, settlement…

What is a Merchant Account?

When you sell online, you need an eCommerce merchant account. It’s a special bank account where the funds captured from card sales are held before transferring to a regular bank account. When a customer finishes their purchase, the payment is not immediately transferred to your bank account, but they’re captured by a special bank account first. This special bank account is called a merchant account.

With a merchant account, you can accept payments through different channels such as an eCommerce website or mobile devices (even in a brick and mortar store). There are many types of merchant accounts and it depends on your business model. To set one up, you need to sign a legal agreement between you and the issuing bank. You also need to prepare for the underwriting and approval process.

Only few providers offer a merchant account with payment gateway. This means you don’t have to go through the complicated process on your own (the cost of getting a merchant account yourself is often higher and the process could take much longer).

Major Differences Between Online and Offline Payments

The most important difference between the two types of payments is the user experience. Everyone knows that when you want to pay in a brick and mortar store, you need to give the seller cash, a debit or credit card, or e.g. use your smartphone. When you buy something online, you don’t need actual money, but have to enter the payment information into the payment form. This could be the credit or debit card number, CVV, expiration date and any other information needed to authenticate the purchase.

When you pay in a physical store by card, the backend process looks similar to an online payment process. The data is transferred through a payment gateway. Then the payment processor or acquirer processes the data and communicates with the issuing bank to make sure the transaction can be completed. When the payment is authorized, the transaction can be completed successfully.

Still, many people don’t shop online because they fear losing their money by fraudulent activity. You need to do everything to offer the most secure online payments and lower the risk of fraudulent activity. This will encourage people to buy at your eCommerce store.

Here is what you need to start processing payments on your website:

Open a dedicated merchant account yourself

Choose a payment gateway with a merchant account attached to it

Find alternative payments

Now it’s the time to find the right payment solution for both you and your customers. Make paying smooth and easy to reduce the number of abandoned shopping carts and increase conversion rates. Have a choice between different payment methods and a customer-friendly checkout. The entire payment industry is changing dramatically. If you want to stay competitive, payments on your site should be quick, simple, well-designed and available on any device.

Advantages & Disadvantages of E-Payment

Electronic payment allows your customers to make cashless payments for goods and services through cards, mobile phones or the internet. It presents a number of advantages, including cost and time savings, increased sales and reduced transaction costs. But it is vulnerable to internet fraud and could potentially increase business expenses.

Advantage: Increased Speed and Convenience

E-payment is very convenient compared to traditional payment methods such as cash or check. Since you can pay for goods or services online at any time of day or night, from any part of the world, your customers don’t have to spend time in a line, waiting for their turn to transact. Nor do they have to wait for a check to clear the bank so they can access the funds they need to shop. E-payment also eliminates the security risks that come with handling cash money.

Advantage: Increased Sales

As internet banking and shopping become widespread, the number of people making cash payments is decreasing. According to Bankrate, more than two-thirds of consumers carry less than $50 a day, meaning electronic alternatives are increasingly becoming the preferred payment option. As such, e-payment enables businesses to make sales to the customers who choose to pay electronically and gain a competitive advantage over those that only accept traditional methods.

Advantage: Reduced Transaction Costs

While there are no additional charges for making a cash payment, trips to the store typically cost money, and checks also need postage. On the other hand, there are usually no fees  or very small ones  to swipe your card or pay online. In the long run, e-payment could save both individuals and businesses hundreds to thousands of dollars in transaction fees.

Disadvantage: Security Concerns

Although stringent measures such as symmetric encryption are in place to make e-payment safe and secure, it is still vulnerable to hacking. Fraudsters, for instance, use phishing attacks to trick unsuspecting users into providing the log-in details of their e-wallets, which they capture and use to access the victims’ personal and financial information. Inadequate authentication also ails e-payment systems. Without superior identity verification measures like biometrics and facial recognition, anyone can use another person’s cards and e-wallets and get away without being caught. These security concerns may make some people reluctant to use e-payment systems.

Disadvantage: Disputed Transactions

If someone uses your company’s electronic money without your authorization, you would identify the unfamiliar charge and file a claim with your bank, online payment processor or credit card company. Without sufficient information about the person who performed the transaction, though, it can be difficult to win the claim and receive a refund.

Disadvantage: Increased Business Costs

E-payment systems come with an increased need to protect sensitive financial information stored in a business’s computer systems from unauthorized access. Enterprises with in-house e-payment systems must incur additional costs in procuring, installing and maintaining sophisticated payment-security technologies.

The Advantages of E-Money

E-money, or electronic money, is money that you exchange electronically, as opposed to actual currency notes or coins. Generally, you conduct e-money or e-currency transactions over the Internet, or with smart cards that are linked to a bank account. More and more people are also using mobile phones to make such transactions.


With e-money, there is anonymity. It is not the same case with liquid cash or credit and debit cards. E-money transactions mostly happen on the Internet through an online gateway where the identity of the payer is secured and behind the screens. The person on the other side receives the payment from the payer but does not necessarily know the identity of the person behind the money paid.

Anytime, Anywhere

E-money can be used anytime and anywhere. It is probably the best form of money to use for international transactions, as there are no hassles of currency exchange. It is reliable, faster than paper checks and drafts, and has low costs of transaction. Today, with e-money becoming more popular, banks are competing to reduce transfer costs and provide accountholders with good deals. If you send someone a check, it will take a few days to clear. But with an online money transaction, the money reaches the other person’s account almost instantly. These transactions can be made after the bank has closed, and even on holidays.


When you carry a large amount of money, there is always a chance of it being lost or stolen. E-money is safer than currency in this regard. Every transaction requires you to provide a personal identification number (PIN) for the payment to be completed. Electronic funds transfers can be more secure than cash or check transactions. All you have to do is take some simple precautions to make sure that your card or online account is not misused.

Record of Transactions

Each and every transaction made with electronic money is recorded in the bank’s and the user’s online records. These records have all the essential information about the transaction: the name of the payer, the name of the receiver, the date, place and time it took place. This makes it more dependable, and users can access their record of transactions at any time of the day.

How to Accept Debit Card Payments

Debit cards, also called “check cards,” enable purchasers to make electronic purchases debited directly against their bank accounts. Point-of-sale debit transactions — also known as POS debit transactions — come in two main varieties: online debit and offline debit. Online debit, or ATM-debit, transactions requiring a PIN number are routed directly to the customer’s bank, which locks in the funds in real time. Offline debit transactions are routed through the interchange system, similar to a credit card purchase. Merchant service providers charge merchants a percentage fee to process offline debit transactions, while online debit transactions typically cost a flat rate per transaction.

Open a business checking account. You must have a business checking account for the merchant services company to route credit and debit payments to you.

Contact a merchant services provider. Banks often contract with merchant services providers to provide this service for the merchant banking customers, or you can contract with one independently.

Purchase or lease a credit card terminal or POS (point-of-sale) software program. You need a phone line to process transactions as well, though low-volume merchants frequently have one phone line for their telephone and merchant services transactions.

Purchase or lease a PIN pad, a device that allows customers to enter their PIN transactions. You don’t need a PIN pad to run a debit card such as a credit card, but you must use a PIN pad to run the transaction as an online transaction, which may save you a good deal of money. For example, a merchant paying 2 percent on a $50 average ticket size would pay $1 per transaction. By obtaining a PIN pad, the same merchant may run a $50 transaction as an online debit for 40 cents or less.

The Use of Computers in Banking Industries

It’s hard to imagine banks without technology. In fact, computers have been in use in banking since the 1950s, when Bank of America introduced a computer designed specifically for processing checks. Each new decade has brought innovations that change the way banks manage daily operations and serve customers. Today, you may not even leave your house to do your banking. As much as technology has changed the use of the computer in the banking sector, banks continue to adjust the way they do things.

Account Management

You may no longer get a free toaster when you open a new checking or savings account, but the process is easier than ever. You can even open a new account online. On the banking side of things, this eliminates the need to have someone on-site at each branch, manually processing and approving applications. Once an account is open, the bank manages everything electronically. Still, many banks maintain local branches with full-time account representatives to help nearby customers who want that personal touch.

Electronic Transactions

Those who hadn’t yet reached adulthood by the end of the last century may not remember the days of check writing. Businesses often had to wait for a check to “clear,” which meant approval by the payer’s financial institution, to access the funds they deposited. The use of computers have sped up that entire process, with instant check authorizations. Checks have mostly become an afterthought, thanks to debit cards that take funds automatically from a person’s account. Mobile payments will take that even further, letting customers pay with a mobile device or wearable, eventually taking plastic out of the equation.


As much as experts claim we’re heading toward a cashless society, it remains the most used payment method in the U.S., according to PYMNTS.com. Getting cash from your bank account still requires a trip to an automatic teller machine, known as an ATM. Since the first ATM was installed in 1969, the technology has evolved, making it easier for customers to deposit money, as well as withdraw. Although human tellers are still necessary, banks are aiming to have them focus on higher-level activities as ATM technology handles most basic transactions.

Online Banking

Furthering the do-it-yourself banking model is online banking, which allows customers to pay bills, view account balances, transfer funds from one account to another, pay friends and much more. Financial institutions have also given consumers control over their own security by adding features like the ability to freeze a missing credit card to avoid further charges. Over time, these controls will only increase as technologies like biometrics and facial recognition keep accounts safe.

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