ITC 311: E-Commerce

For:
Bachelor of Business Management(BBM)
7th Semester

By: Shayak Raj Giri

shayakraj@ioe.edu.np
 Unit 5
Electronic Payment System

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 Outline
• Introduction (Requirement, Risk)
• Credit Card (working, benefits and limitations)
• Digital Wallet (eSewa)
• Online Banking facilities in Banks of Nepal

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 Introduction
• Electronic payment refers to paperless monetary
transactions.
• Electronic payment system is the means of
making payment and/or transaction for goods and/or
services on an e-commerce website
or electronic environment without any use of paperbase
monetary transaction.
• E-payment system is also known as online payment
system.
• An electronic payment can be simply defined as paying for
goods or services on the Internet.

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 Participants in the E-Payment 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.
• Payment Gateway: For payment authorization, the payment gateway acts
as an interface between electronic transactions and existing card payment
networks.
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 Modes of E-Payment
E-payments can be done in the following ways:
• Internet banking – Payment is done by digitally transferring the
funds (Electronic Fund Transfer EFT) over the Internet from one
bank account to another.
• Card payments – Card payments are done via cards e.g. credit
cards, debit cards, smart cards etc.
• Direct debit – Direct debit transfers funds from a customer’s
account with the help of third party.
• E-cash or digital cash
• E-check – This is a digital version of a paper check.
• Digital wallet or E-wallet
• Mobile wallet – An evolved form of e-wallet, mobile wallet is
extensively used by lots of customers. It is a virtual wallet, in the
form of an app that sits on a mobile device.
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 Modes Cont..
• QR payments – QR code-enabled payments have become
immensely popular. QR code stands for ‘Quick Response’ code, a
code that contains a pixel pattern of barcodes or squares arranged in
a square grid.
• Each part of the code contains information. This information can be
merchant’s details, transaction details, etc. To make payments, one
has to scan the QR code with a mobile device.
• Biometric payments – Biometric payments are done via
using/scanning various parts of the body like fingerprint, eye, facial
recognition etc.
• AI-based payments – As machine learning and Artificial Intelligence
is creating a revolution all around the world, AI-based solutions are
becoming more popular.
• Payments based on AI such as speakers, chatbots, ML tools, deep
learning tools, etc are making it easier for businesses to maintain
transparency.
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 E-cash
• Electronic cash is a digital currency having monetary value that can
be used via various online platforms, devices and apps to conduct
paperless transactions.
• An alternative payment system developed for e-commerce in which
unique, authenticated tokens representing cash value are
transmitted from consumer to merchants.
• People involved in electronic cash transaction may never acquire any
paper currency.
• They may receive their funds electronically and they may use them
electronically. This does not mean, however, that it is impossible to
get paper currency from electronic cash.
• In many instances, electronic money can be converted into paper
currency quite easily.
• This is possible because e-cash is commonly held in an account that
can be accessed in several ways.
• Transactions can often be conducted without a live middle man. 8
E-check

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 E-check
• E-check is an electronic version of the conventional paper check.
It is a form of online payment where money is withdrawn from
one account and deposited into another account using
the Automated Clearing House (ACH) network to process the
payments.
• Magnetic ink character recognition(MICR) code consists of bank
routing number, account number and check number.
• Imager scans MICR code, amount and other information from
check.
• Followed by verification and authentication, the captured data is
used in the electronic transfer of money through the ACH system.
• E-checks are considered more secure than paper checks as they
use components such as authentication and encryption.

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 Requirement/Benefits of e-Payment Systems:
• 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.
• Requirement of Electronic payment system is also important due
to following benefits:
• Increased 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.

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 Requirement/Benefits of e-Payment Systems:
• Convenience: Electronic payment methods make it easy for
customers to make purchases online anytime from anywhere.
• Reduction in transaction costs and time - when electronic
payments are used, funds are transferred digitally between
the buyer and seller, eliminating transaction and time costs.
• Speed - The payment is done immediately.
• Transparency of transaction.
• Contactless payments has increased: No need of physical
meeting.
• Low risk of theft : No need to carry physical money for
transaction.

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 Risks/Drawbacks of e-Payment Systems
• Security/Fraud: 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.
• Anonymity and Privacy Concerns: All the transaction and user
details are recorded by the payment systems you are using, and
stored in their database. This leads to lack of anonymity. Cases of
identity theft have raised privacy concerns in electronic payments.
• 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.
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 Risks/Drawbacks cont..
• False Identity: There are no means to verify if the person
entering information online is the same person he claims to be.
Mostly, electronic cash transactions are based on cryptographic
systems.
• Though electronic payments carry less risk of forgery, the keys
are vulnerable to attack.
• Loss of Smart Cards: In case a lost smart card falls in the wrong
hands or if it is stolen, your identity is at the risk of theft and the
money in the account that the card is linked to, may be spent by
fraudulent users.
• There are measures to inform the bank about the loss of your
card and get it blocked. But the time between losing the card
and blocking it, is critical. Unauthorized users may carry out
transactions in your name during that period.
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 Digital Wallet
• A digital wallet refers to a software, electronic device, or
online service that allows individuals or businesses to make
electronic transactions.
• A digital wallet stores all the payment information of users in a
secure and compact form, reducing the need for physical
wallets.
• A digital wallet requires users to download the digital wallet
app on their smartphones or other physical devices.

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 Digital Wallet
• A digital wallet has two major components:
1) Application software
2) Information/data
• The software part is responsible for security,
interface/communication with other systems, encryption and the
actual transaction.
• The software part resides on the client side and is compatible
with most e-commerce websites.
• These pieces of software may be included in a bank's mobile app
also.
• The other component, which stores the information, is actually a
database containing user input information.
• The user information includes customer profile, account
information, credentials, transaction history etc.
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Digital Wallet (eSewa)

Ref: https://esewa.com.np
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 Digital Wallet (eSewa)
• eSewa is a digital wallet, which ensures real time, secure and instant
payment to various merchants.
• With eSewa, you can make various payments such as utility bill
payment (Telephone, NEA, Khanepani, etc.), recharge mobile, pay
internet bill, airlines and bus ticketing, movie ticketing, make bank
transfer (eSewa to bank), scan and pay to the merchants, and many
more.
• Established in 2009, eSewa is a household name today.
• South Asia’s first digital wallet, licensed Payment Service Provider from
Nepal Rastra Bank (Central Bank of Nepal), and an ISO 27001:2013
certified, eSewa is a subsidiary company of F1Soft International, a
leading FinTech company of Nepal.
• The company has onboarded more than 150k merchants, 50+ Banks
and Financial Institutions (BFIs) and established a wider network of
agents nationwide.
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 Smart Card
• A smart card is a device that includes an embedded integrated circuit
chip (ICC) that can be either a secure microcontroller or equivalent
intelligence with internal memory or a memory chip alone.
• The card connects to a reader with direct physical contact or with a
remote contactless radio frequency interface.
• With an embedded microcontroller, smart cards have the unique
ability to store large amounts of data, carry out their own on-card
functions.
• Smart cards are used in many applications worldwide, including:
 Secure identity applications - employee ID badges, citizen ID,
passports, driver’s licenses etc.
 Healthcare applications - citizen health ID cards, physician ID
cards, portable medical records cards.
 Payment applications - contact and contactless credit/debit cards,
transit payment cards.
 Telecommunications applications - GSM SIM card.
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 Credit Card
• A credit card is a thin rectangular piece of plastic or metal
card issued by a bank or financial institution, that allows
cardholders to borrow funds with which to pay for goods and
services with merchants that accept cards for payment.
• Credit cards impose the condition that cardholders pay back
the borrowed money, plus any applicable interest, as well as
any additional agreed-upon charges within stipulated period.

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Working Mechanism

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Difference between Debit card and Credit card

For detail explanation:- https://www.bajajfinserv.in/difference-between-credit-card-and-debit-card

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 Benefits of Credit Cards
• Convenience
• Record keeping: Builds credit history
• Low cost loan
• Useful on emergency
• No accrued interest if bill is paid on time and in full each
month.
• Incentives and offers : cash back to rewards point
• No foreign transaction fees
• Instant cash
• Saving time and cost
• Widely accepted
• Other…??
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 Limitations of Credit Cards
• Credit card fraud.
• Overspending: Encouraging impulsive and unnecessary
purchases.
• High-interest rates, if not paid in full by the due date.
• Annual fees may be applicable.
• Risk of identity theft.
• Others..??

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 Online/Internet Banking facilities in Banks of Nepal
• With the establishment of Nepal Bank Limited in 1937, the banking
sector had to wait for 65 years before adopting Internet banking
service in Nepal.
• Kumari Bank was the initiator of Internet banking in Nepal. It started
its e-banking services in 2002.
• Since then, Internet banking in Nepal has grown by leaps and bounds.
Also, Nepali banks have become hugely proactive to promote Internet
banking and electronic payments.
• Internet banking/e-banking is an electronic payment system that
enables customers of a bank or financial institution to conduct a
range of financial transactions through the financial institution’s apps
or website by using Internet.
• In a country like Nepal having difficult topographical terrain, Internet
banking acts as an easy medium to reach out to the customers in the
hinterlands.
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 Online Banking…..
• This service allows customers subscribing to Internet banking
services to do banking transactions by using the Internet from
their PC, laptop, mobile phone etc.
• Depending on he service offered by the bank, customers may be
able to view their account information, transfer fund from one
account to another and pay utility bills.
• At present, most of the commercial banks in Nepal offer Internet
banking service.
• As per the statistics from Nepal Rastra Bank, there are 1,160,321
Internet banking subscribers as of mid-August 2021.

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Ref: https://blog.esewa.com.np/digital-banking-and-payment-trend-in-nepal-past-present-and-future/ 28
 Online Banking…..
• Conduct transactional and non-transactional facilities like:
 View account information and balances
 View/Download/Print statements
 Top- up
 Load wallet
 Utility payment/Schedule Payment
 Credit card bill payment.
 Online tax payment
 Online trading of shares
 Online remittance
 Fund transfer (within same bank or any other bank)
 Order cheque books/ATM cards
 Purchase of goods through Debit/Credit card on Point of Sales
(POS).
 Different banking administrative tasks
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Online Banking…..

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 References
• https://www.lyra.com/in/e-payments
• https://ictframe.com/internet-banking-online-banking-in-nepal-the-
evolution-and-future-prospect/
• https://www.nrb.org.np/contents/uploads/2021/09/Monthly-Statistics-_-
2078_04-Aug-2021-1.pdf
• http://www.sasecrtn.edu.np/index.php/en/resources/usefulinfo/money-
transfers/e-banking

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 Assignment 2
1. What is online payment? Differentiate between
credit card and digital wallet. Which one credit card
or digital wallet is a good option for you for e-
payments and why?
2. Explain about growing trends of electronic payment
system? Prepare case study on : “Online Banking
facilities in Banks of Nepal.” Present your findings
on security issues associated with online banking
activities.

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 Thank you

Next Class → Internet (online) MarkeOng Basics

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