What Is an Electronic Payment System?
With the rise of online shopping and e-commerce businesses, electronic payment systems have been growing in popularity. Essentially, an electronic payment system is a way for a consumer to buy goods and services via an electronic medium instead of using cash or paper checks.
E-Payment and Online Payment Systems
Electronic payment systems are also known as e-payment systems and online payment systems. Common forms of electronic payments include debit cards, credit cards, and the Automated Clearing House (ACH). The ACH system refers to electronic checks, direct debit, and direct deposit transactions.
Other alternative electronic payment methods that are steadily growing in popularity include:
- Bitcoin and other cryptocurrencies
- Bank transfers
- Electronic wallets
As more businesses develop an online presence and open their products and services up for purchase on online platforms, we'll continue seeing an increase in electronic payment systems, along with new types of payment processing portals and devices.
The casualties of this rise to power will be transactions made via cash and paper checks.
Types of Electronic Payment Systems
There are two different electronic payment system types, including cash payment systems and credit payment systems. The systems vary depending on what type of electronic payment method you choose for any given transaction. Let's take a look at each of the different types of electronic payment systems.
Cash Payment System
Although the frequency of transactions made via paper money is decreasing, cash payment systems will be around for a while. These include transactions made via direct debit or with an e-check.
- Direct Debit:During this type of transaction, an account holder sends a message to their bank to debit, or collect, a certain amount of money from their account to pay for services or goods electronically.
- E-Check:This type of transaction involves a digital version of a paper check. The transaction functions much like an electronic funds transfer from an account holder's checking or savings account without the need for a physical paper check.
Credit Payment System
Of the two payment systems, the credit payment system is the most widely used among consumers of all ages. It includes transactions made via credit cards and e-wallets.
- Credit Cards:Financial institutions issue credit cards to cardholders. The cards allow cardholders to buy goods and services online or through electronic payment portals without the use of cash. They're very convenient and allow cardholders to build credit histories, which play a big role in credit scores. One of the most convenient features of credit cards is they allow merchants to receive funds for their goods or services at once instead of having to wait an untold amount of time for an invoice to process.
- E-Wallet:E-wallet refers to an electronic wallet. Simply put, an e-wallet is a type of prepaid account that securely stores a user's credit or debit card information. Having this information securely stored online makes it more convenient for users to make online purchases.
Electronic Payment Systems: Benefits
There are many benefits associated with electronic payment systems. Not only do they simplify the buying process for customers trying to make online and electronic purchases, but they're often more secure and make it easier for merchants to conduct business from virtually anywhere if they have an online presence or equipment on hand to process transactions.
Take a look at some of the other benefits below:
- More Merchant Sales:Electronic payment systems make it easy for merchants to reach more clients across the globe, resulting in more revenue and overall business growth.
- Efficiency:These systems are more efficient than other payment methods because of their ability to process transactions quickly from virtually anywhere that has an internet connection.
- Convenience:Electronic payment methods make it easy for customers to make purchases online anytime from anywhere.
- Lower Transactions Costs Compared to Other Payment Systems
- Security:Electronic payment systems are more secure than other payment systems thanks to security and anti-fraud tools embedded within electronic payment gateways.
Electronic Payment Systems: Drawbacks
As with any type of payment system, electronic payment systems have their share of drawbacks. Some of these drawbacks include the following:
- Security:Even with anti-fraud and other security tools embedded within electronic payment gateways, there is no denying the fact that e-commerce fraud is on the rise. When a payment system isn't totally secure, there will always be a risk of a security breach occurring, which may result in identity theft.
- Lack of Anonymity: It's pretty much common knowledge now that once you input some of your personal data online into a payment system database, some of those details will be out on the web forever.
- Electronic Payment Systems Require Internet Access:If you don't have access to the internet, you will not be able to complete a transaction via an electronic payment system, plain and simple.
No matter how you feel about electronic payment systems and making purchases online or through other electronic portals, there is no denying the simple truth that the technology is here to stay. Before long, cash and paper checks will likely be a thing of the past as more businesses go the e-commerce route.
Even if you don't currently use an e-payment system very often, chances are that will change because more businesses are installing electronic payment systems. And why not? They're fast, convenient, and easy to use. Additionally, they're secure and make it easier for merchants to reach more customers.
What do you think? Do you buy goods and services online or with credit and debit cards, or do you prefer good old-fashioned cash?