What is an e-payment system | Powercash21
Today, the majority of consumers are actively using e payment for most of their daily purchases. What is it and how does it work?
What is e-payment?
Understanding what is e-payment is essential in a time when the majority of payments are conducted online and the amount of e-commerce enterprises is rapidly rising. An e-payment system or online payment system allows customers to pay for products or services via electronic means. These payment methods are essentially the function that allows you to purchase goods from your favourite online stores worldwide. This is why many merchants are interested in the services of those who are experts in handling this form of payment, namely payment providers like Powercash21.
In a research study by Big Commerce, statistics show that a 23% increase in e-commerce sales is forecasted for the year ahead. An interesting finding is the small percentage of Generation Z consumers (9.6%) who prefer to shop from a physical store, compared to 31.4% of millennial consumers who visit physical stores for their purchases. Some merchants might say that the role of e-commerce is to support in-store sales, but as the statistics show the percentage of consumers choosing online shopping over in-store shopping is rising over the years. With the increase in e-commerce sales, the importance of electronic payments has never been greater.
ePayments - How do they work?
Prior to joining with a payment provider like Powercash21, it is important to develop an understanding of what is e payment, and knowing how an electronic payment system works does not have to be complicated. While the technology involved is quite complex, the process is pretty easy to understand. First, you need to be aware of the participants involved in the e-payment system process.
Participants in the ePayment process
- The customer – the purchaser of the product or service offered online, who is also known as the cardholder.
- The merchant – this is the owner or entity that provides the website which sells the product or service to consumers. Merchants are not only selling their products or services but are also responsible for the monitoring of their online store’s inventory, storage, and delivery operations, control of the payment process as well as the financial management of the business and the promotion of the products or services they sell.
- The issuer – otherwise known as the issuing bank, this is the customer’s bank and the financial institution that provides the customer with their credit card.
- The acquirer – similar to the issuer, the acquirer is the financial institution who is aligned with the merchant and is responsible for the creation and maintenance of the merchant’s bank account. Acquirers are responsible for payment processing when credit and debit cards are used.
- The payment processor – this is the entity whose main operational function is to connect the merchant to their acquirer. The payment processor decides the route which the transaction should take, provides the technology needed to accept and process online payments which include connections to a payment gateway and risk management solutions.
An understanding of what an electronic payment system is and which parties are involved, is essential for optimizing the operations of e-commerce merchants. Online payment systems work in a more complicated way than the customer perceives, largely because the several steps involved in the online payment process are executed in seconds.
Let’s look at how a typical online order works with the use of an e payment system:
Customers initially browse a website, select the items they would like to purchase, and add those products in their shopping cart in order to proceed with the purchase.
Once they proceed to the check-out, online customers are asked to fill out the online payment form with their credit card details via an e payment system.
Once the cardholders submit their payment information and click the ‘purchase’ button, the e payment gateway will determine if the card is valid, in some cases using 3DS tools to authenticate the legitimacy of the cardholder, and determines which bank issued the card.
To ensure this information is submitted securely for the payment to be executed, the encryption of the card numbers is performed by the payment gateway and the payment processor will inform the acquiring bank whether to transfer the funds to the merchant or not.
ePayment system methods
Electronic payments are usually made via credit or debit cards, but a number of alternative payment methods can also be used to pay online, as e-commerce is increasingly becoming more cross-border than domestic. Merchants should aim to offer a variety of payment methods to their customers as that will help them reach a broader audience. This is precisely why merchants opt to utilize the services offered by Powercash21 and other payment providers. Doing so will provide their target markets with a payment method that the customer is more accustomed to using.
The most popular methods of e-payments are:
- Debit/ Credit cards: Visa, Mastercard and American Express are the most well-known brands for debit or credit cards. The three brands provide security features to protect their cardholders from fraud such as 3D Secure and much more. There are of course many more card networks worldwide, including Discover, Maestro, UnionPay in China, JCB in Japan and Carte Bleue in France.
- e-Wallets: an e-wallet is a mobile app which stores the user’s credit card details and personal information and can be used for online and in-store purchases. By using an electronic wallet, there is no need for customers to reach for a physical card in order to complete a purchase. Based on a research study, 6% of online shoppers prefer mobile wallets over other forms of payment. Generation Z consumers choose that payment option twice as much as the average global consumer for their online purchases.
- Bank-to-bank transfers: Bank-to-bank transfers are real-time bank transfers from the customer’s bank account to the merchant’s bank account. Contrary to wire transfers which take longer to clear, bank-to-bank transfers enable the merchant to receive payments online and instantly. This payment option is also very convenient for the end customer, as they do not need to register a new online account to complete their purchase. Rather, the option to pay with a particular bank-to-bank transfer system, like Sofort, will be available at the secure payment page of the online store. Here, the consumer will be able to login using their online banking details in order to confirm the transfer.
- Prepaid vouchers: a prepaid voucher is an ideal option for customers who wish to shop online and do not have a bank account. A customer effectively preloads funds into a voucher, most commonly by purchasing such a voucher with cash, which does not require the involvement of a bank. Prepaid vouchers usually come with a fixed amount and do not require any personal details of the shopper in order to be used at the point of sale. They are particularly popular in developing countries, where banking systems under-serve the population.
For those looking to apply with a payment provider, you want to ensure you align yourself with one that offers a comprehensive list of alternative payment solutions serving the different regions of the world, visit Powercash21’s list of alternative payment methods.
As the payment industry evolves and customers have less and less free time, it will be no surprise that more electronic payment methods will be developed in the near future, to serve increasing and more advanced demands of online consumers which, naturally makes Powercash21 a valuable ally for online merchants.
The two types of electronic payment system transactions
The most common types of electronic payment system transactions include:
One-time payments: the most common type of payments, as it relates to e-commerce transactions, are one-off payments. This is a typical type of transaction for e-tail stores and involves a cardholder manually entering his or her credit card and personal information in a one-off event on an e-commerce checkout page.
Recurring payments: this occurs when a customer pays for a product or service repeatedly and on a regular basis. Here, the customer opts in for recurring billing and will be charged on specific days at specific time intervals on an ongoing basis. Charges are performed automatically and without the customer having to enter the order or their card details to repeat the process. Examples of instances where this type of payment is common include media subscriptions, utility bill payments, online courses subscriptions, online dating, online gaming, adult entertainment and many more.
Depending on the nature of the business, merchants can also accept both modes of payment, with the help of their payment provider, one-time payments and recurring payments from their clientele. For example, a SaaS company might offer both types of online payment systems, as some clients prefer to pay once for a whole year of service, whereas other clients prefer to be charged monthly.
The advantages and disadvantages of e-payment services
E-payment services are a must-have for every online business. Merchants who accept online payments can enjoy various advantages and at the same time significantly improve their customers’ experience.
Some advantages of electronic payments include, but are not limited to:
- Convenience - Customers can buy and pay for products online 24 hours a day, 7 days a week no matter where they are located, as all it takes is a device with an internet connection. Both types of electronic payment system discussed, whether a one-time payment or a recurring payment, is more convenient compared to a shopping visit in a physical store.
- Speed - The payment is done immediately and there is no need to wait for approval. The process of paying online becomes even faster when using an e-wallet which has the user’s payment data already stored. It’s important that an e-commerce website is easy to navigate and has a quick loading time as consumers have limited time nowadays and they are seeking easier and efficient ways to buy goods.
- Increased sales and profits – Online payments can help merchants globalize their business and attract customers from around the world. Reaching more people likely results in an increase in sales, providing a business with more economies of scale. When operations are optimized, this is likely to increase profits for the business.
- Reduction in transaction costs and time - In electronic commerce, where online payments are being used, funds are transferred digitally between the buyer and seller, eliminating transaction and time costs that are typical to point of sale or cash transactions. For instance, cash payments require trips to financial institutions from the customer’s end whereas electronic payments are accessible with a simple click.
Apart from the many benefits that an electronic payment system provides, there are a few things to consider. The drawbacks of e-payment services include:
- Security concerns –The fraud risk in electronic payment system transactions are one of the main concerns of online merchants. Partnering with a regulated payment service provider who offers a secure payment gateway is the first and most important step for merchants who want to accept online payments. A payment gateway which is equipped with the latest security features will protect the business from fraudulent transactions.
- Increased costs required to protect sensitive data – merchants should reassure their customers that the credit card details used on their online store are secured. One of the features that indicate that sensitive data is protected from being stolen is the SSL protocol which can be recognized by the website address, as it will start with ‘https’, and is symbolized by a locker on the URL bar of the website.
Another way in which merchants protect sensitive information is by complying to PCI standards. These are guidelines from the Payment Card Industry on data security for the security of sensitive data during payment processing. This can be time-consuming and complex, therefore it is often much more advisable to utilize a payment provider. By working with a PCI Level 1 payment provider like Powercash21, this ensures that it is the provider who is responsible for meeting PCI security standards for their payment gateway. Payment tokenization can also be utilized by merchants who do not want to store the cardholder’s payment data but instead store a token ID for each purchase. All these require a financial investment from merchants.
Why electronic payments are more secure with Powercash21
Now that you have a thorough understanding of what is e payment it is necessary to acquire the services of a trusted payment provider. Powercash21 is a PCI compliant payment provider that offers high-quality payment gateway services to European merchants, with one simple integration. Our services include access to 100+ global payment methods, fraud prevention, and risk management solutions, along with live analysis and reporting.
To enhance security during payment processing, we invested in in-house and 3rd party risk and fraud management tools that we have integrated into our payment gateway. Some of those tools include 3D Secure, Geo-conflict, Velocity Check, BIN Lookup, and Pre-Authorization.
Benefit from our PCI DSS Level 1 online payment gateway and offer your clients a seamless and secure online payment experience.
ePayments have undoubtedly changed the way businesses function. They have provided an effective new way of interaction with the online consumer and they offer them the chance to use ePayments for more convenience.
Most of the younger generation of shoppers prefer online shopping, and electronic payment is becoming the norm. Not only are electronic payments known to the younger generation, but the older generation is embracing online shopping as well. More and more people use ePayments as the main method of paying for their shopping needs since people find whatever they need online via huge e-commerce sites. All those e-commerce sites use high tech e payment systems to carry out their transactions.
Having an e payment system to complete a purchase is something that has become an expectation in the minds of consumers and it makes people feel secure online. E payment system options are available for e-commerce sites and it is a feature that everyone involved in online commerce should embrace.
With that said, it is time-consuming to ensure that all procedures are being followed to protect both the merchant and the consumer. This is why engaging the services of Powercash21 can be extremely beneficial in helping you achieve maximum success.
Wallace, T. 2018.