Other Payment Systems
Although credit and debit card payments are the most popular methods of online payments, they face the following challenges:
- High charges on card payments
- Issuer restrictions for use
- Security concerns
- Non-acceptance of businesses
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This has led to the discovery of new alternatives to payment, which allow customers and merchants to carry out online transactions. Some of these methods.
Types of Payment Systems
Let us now study these payment systems in detail in the subsequent sections.
- Cash on Delivery (COD)
- Payment Over Phone Using Payment Code
- Payment Service Providers
- Electronic Cheques
- Working on an E-cheque
Cash on Delivery (COD)
In countries like India, credit-based systems are not very popular and, therefore, the Cash on Delivery (COD) method is gaining prominence. In the COD payment system, the payment is made at the time of delivery of goods or services. As the name suggests, cash is handed over upon the delivery of the item. Depending on the terms of purchase, the payment can be made through cash, cheque, or money order. The shipping organization is usually the third party in the transaction, which usually charges a shipping charge to the customer through the retailer’s website.
The benefit of the COD method is that it protects both the customer and the retailer against fraud. The customer makes the payment to the shipping organization, which later transfers the funds to the retailer. Online retailers now offer free shipping to customers to increase sales.
The main steps in the COD transaction process are as follows:
- A customer selects an item and opts for payment by COD.
- The retailer sends a message to the customer requesting confirmation of the order.
- Once the order is confirmed, the retailer hands over the product to the assigned shipping organization.
- The shipping organization’s system generates an Airway Bill Number (AWB), which is used to track the shipment and communicate it to the customer.
- The shipping organization delivers the item to the customer.
- The customer receives the item and pays the transaction amount to the shipping agent.
- The shipping agent transfers the transaction amount to the retailer. This completes the purchase.
Payment Over Phone Using Payment Code
A recent trend among banks is to use mobile payment systems using Immediate Payment Service (IMPS), which is an interbank electronic instant mobile money transfer service through mobile phones. This service helps customers to connect to their accounts using their mobiles and transfer funds instantly. The recipient’s account is credited immediately when a transaction request is made by the sender using his mobile phone.
To avail of IMPS, customers need to acquire a 7-digit mobile code, called Money Identifier (MMID) code, from a participating bank. For different accounts, customers need different MMID codes, which can be linked together to a single mobile number.
Another payment method via mobile phones that is quickly getting popular is the ‘scan and pay’ technology, which makes use of the Quick Response (QR) code. A QR code is a two-dimensional bar code that is used to provide easy access to information through a smartphone.
Using a barcode reader application that works in conjunction with a camera, a smartphone owner points the phone at a QR code. This leads the individual to the payment gateway where he can make the payment using his mobile phone.
Payment Service Providers
A Payment Service Provider (PSP) offers website owners the services for accepting electronic payments through a variety of payment options, such as debit cards, credit cards, and net banking. PSP uses software that creates a single payment gateway for website owners to receive payments through multiple payment options.
PSP can link card and payment networks with multiple acquiring banks. It can manage technical connections and relationships with the external network and bank accounts. This reduces the dependency of retailers on financial institutions and helps them establish connections directly. Moreover, they are charged fewer fees for making bulk payments.
An example of a PSP is PayPal. In India, there are several PSPs, such as MoneyBookers, 2CheckOut, AlertPay, and Xoom.
Another rapidly growing technology for making electronic payments is electronic cheques. An electronic cheque (e-cheque) is an electronic document that replaces a paper cheque for online transactions.
It is a scanned image of a traditional paper cheque that is exchanged using the Internet. Digital signatures replace handwritten signatures on e-cheques.
To prevent fraud against the customers and bank, an e-cheque includes the following security features:
- Confidentiality: To keep the information, such as e-mail messages and payment orders confidential.
- Authentication: To verify the sender and receiver of the cheque for authentication of the transaction.
- Integrity: Not to allow any tampering of data on the cheque or mail.
- Non-repudiation: Not to allow individuals involved in the transaction from denying the authenticity of their signatures or disclosed information.
Working on an E-cheque
The e-cheque appears similar to a paper cheque, but the details are filled in using an electronic device.
E-cheques work in the same way as paper cheques. E-cheques can be sent directly from the payer to the payee, ensuring that the timing and purpose of the payment are clear to the payee.
The steps involved in the working of an e-cheque are as follows:
- The payer writes the e-cheque using an electronic document containing all the information required in a cheque and signs it digitally.
- The payee receives the e-cheque over e-mail or the web, verifies the payer’s digital signature, writes a deposit, and signs it digitally.
- The payee’s bank verifies the payer’s and payee’s digital signatures and passes the cheque for payment and clearance.
- The payer’s bank authenticates the payer’s digital signature and debits the payer’s account with the written amount. Like paper cheques, e-cheques can also be declined for stop-payment instructions, insufficient funds, or accounts being closed.