Electronic Fund Peter)
Content
ELECTRONIC FUND TRANSFER
Sudeep Peter
S1 MBA IB, Roll No. 25, School of Management Studies, CUSAT, Kochi- 22. E-mail: [email protected] Abstract: "Electronic fund transfer" is becoming more popular in these days. With
the introduction of Electronic fund transfer it is possible to do all the financial transactions without the physical flow of cheques and currency. The following description deals with scientific study of various types of EFT systems, the essential components of a EFT systems the advantages and disadvantages of using EFT system etc.
Keywords: EFT, Cheque, ATM, POS, CVV2, EMV.
1.0 INTRODUCTION
Throughout history, people have looked for convenient methods of paying for goods and services. In earlier days, we used to pay for goods and services by goods or services itself. Later commodities were replaced by coins and paper money, a more portable form of exchange. Now even more convenient than currency are cheques and credit cards. We have now developed banking and payment systems involving currency, cheques, and credit cards. We can also transfer funds by computer from one account to another without the use of written cheques. This process is called ELECTRONIC FUNDS TRANSFER ( EFT ). Here we are going o discuss about the terminals through which EFT take place and various aspects of EFT, including how it works and what are the benefits of dealing with money in this way.
1.1 ELECTRONIC TRANSFER OF FUNDS
Although we have not eliminated money altogether, millions of rupees are moved daily from one account to another using computers and telecommunications without any currency Electronic funds transfer or EFT refers to the computer-based systems used to perform financial transactions electronically. The term is used for a number of different concepts: • cardholder-initiated transactions, where a cardholder makes use of a payment card • electronic payments by businesses, including salary payments • electronic cheque clearing
1
1.2 CARD-BASED EFT
Credit cards EFT may be initiated by a cardholder when a payment card such as a credit card or debit card is used. This may take place at an automated teller machine (ATM) or point of sale (POS), or when the card is not present, which covers cards used for mail order, telephone order and internet purchases. Card-based EFT transactions are often covered by ISO the standard.
1.3 EFT can be segmented into 3
1. Banking and financial payment Large scale or whole sale payment Small scale or retail payment Home banking
2.
Retailing payment Credit cards Private label credit/ Debit
3.
Online electronic commerce payment(Token Based) Electronic cash Electronic cheque Smart card or debit card
1.4 ELECTRONIC TOKENS
Electronic tokens are design as electronic analogues of various forms of payments backed by a bank or financial institution. Simply stated electronic tokens are equivalent to cash that is backed by a bank.
1.5 ELECTRONIC TOKENS ARE OF 3 TYPES
1. Cash or real time Transactions are settled with the exchange of electronic currency. An example of online currency exchange is electronic cash (e-cash) 2. Credit or Post paid
The transactions are settled within a specific period.
3. Debit or Prepaid information. Example of prepaid payment mechanism
Users pay in advance for the privilege of getting i is stored in smart cards and electronic purses that store electronic money.
1.6 TRANSACTION TYPES
A number of transaction types may be performed, including the following: • Sale: there the cardholder pays or return or service. • Refund: where a merchant refunds an earlier payment made by a cardholder. • Withdrawal: the cardholder withdraws funds from their account, e.g. from an ATM. The term Cash Advance may also be used, typically when the funds are advanced by a merchant rather than at an ATM. • Deposit: where a cardholder deposits funds to their own account (typically at an ATM). • Cash back: where a cardholder withdraws funds from their own account at the same time as making a purchase. • Inter-account transfer: transferring funds between linked accounts belonging to the same cardholder • Payment: transferring funds to a third party account
2
•
Inquiry: a transaction without financial impact, for instance balance inquiry, available funds inquiry, linked accounts inquiry, or request for a statement of recent transactions on the account. • Administrative: this covers a variety of non-financial transactions including PIN change. The transaction types offered depend on the terminal. An ATM would offer different transactions from a POS terminal, for instance.
1.7 Authorization
EFT transactions require communication between a number of parties. When a card is used at a merchant or ATM, the transaction is first routed to an acquirer, then through a number of networks to the issuer where the cardholder's account is held. A transaction may be authorized offline by any of these entities through a stand-in agreement. Stand-in authorization may be used when a communication link is not available, or simply to save communication cost or time. Stand-in is subject to the transaction amount being below agreed limits. These limits are calculated based on the risk of authorizing a transaction offline, and thus vary between merchants and card types. Offline transactions may be subject to other security checks such as checking the card number against a 'hotcard' (stolen card) list, velocity checks (limiting the number of offline transactions allowed by a cardholder) and random online authorization. A transaction may be authorized via a pre-authorization step, where the merchant requests the issuer to reserve an amount on the cardholder's account for a specific time, followed by completion, where the merchant requests an amount blocked earlier with a pre-authorization. This transaction flow in two steps is often used in businesses such as hotels and car rental where the final amount is not known, and the pre-authorization is made based on an estimated amount. Completion may form part of a settlement process, typically performed at the end of the day when the day's completed transactions are submitted.
1.7 Authentication
EFT transactions may be accompanied by methods to authenticate the card and the cardholder. The merchant may manually verify the cardholder's signature, or the cardholder's Personal identification number (PIN) may be sent online in an encrypted form for validation by the card issuer. Other information may be included in the transaction some of which is not visible to the cardholder (for instance magnetic stripe data), and some of which may be requested from the cardholder (for instance the cardholder's address or the CVV2 value printed on the card). EMV cards are smartcard-based payment cards, where the smartcard technology allows for a number of enhanced authentication measures
,
.
1.8 BENEFITS OF EFT
EFTs allow a company to pay or collect corporate obligations, and exchange payables and receivables information electronically. Settlement of funds takes place among all parties on an agreed upon date. EFTs are becoming a significant factor in day to day commercial transactions. Both public and private sectors have recognized that the electronic payment and receipt of funds offers significant advantages over conventional processing techniques. Consequently, government and business have increasingly implemented EFTs as a means to reduce costs and paperwork — improving operating efficiency — and to better control their receivables and payables.
1.9 DISADVANTAGES OF EFT:
Though EFT created a new era in fund transfer, it has some disadvantages also. There are chances of fraud transactions if the EFT is not well protected. EFT fund transfer may not be effective all the time because of the failure in technology. It is possible to track the individuals who uses EFT ,this in turn affect the privacy of the individuals .Since EFT is fully controlled by a computer based system there is no scope for human reasoning and in turn reasoning.
3
REFERENCE 1. Computers: Technology, applications, and social implications:Khateeb. M. Hussain & Donna. S. Hussain 2. http://www.semper.org/sirene/outsideworld/ecommerce.html 3. http://en.wikipedia.org/wiki/Electronic_money 4. www.PayPal.com 5. www.moneybookers.com/send-payments 6. www.amazon.com/Electronic-Payment-Systems-E-Commerce-OMahony/dp 7. www.irs.gov/efile/article 8. www.eftps.gov/ 9. www.KnowledgeStorm.com 10. www.worldpay.com 11. www.valista.com 12. www.daopay.com 13. www.moneybookers.com 14. www.meps.com.my 15. www.assist.ru
4
Sudeep Peter
S1 MBA IB, Roll No. 25, School of Management Studies, CUSAT, Kochi- 22. E-mail: [email protected] Abstract: "Electronic fund transfer" is becoming more popular in these days. With
the introduction of Electronic fund transfer it is possible to do all the financial transactions without the physical flow of cheques and currency. The following description deals with scientific study of various types of EFT systems, the essential components of a EFT systems the advantages and disadvantages of using EFT system etc.
Keywords: EFT, Cheque, ATM, POS, CVV2, EMV.
1.0 INTRODUCTION
Throughout history, people have looked for convenient methods of paying for goods and services. In earlier days, we used to pay for goods and services by goods or services itself. Later commodities were replaced by coins and paper money, a more portable form of exchange. Now even more convenient than currency are cheques and credit cards. We have now developed banking and payment systems involving currency, cheques, and credit cards. We can also transfer funds by computer from one account to another without the use of written cheques. This process is called ELECTRONIC FUNDS TRANSFER ( EFT ). Here we are going o discuss about the terminals through which EFT take place and various aspects of EFT, including how it works and what are the benefits of dealing with money in this way.
1.1 ELECTRONIC TRANSFER OF FUNDS
Although we have not eliminated money altogether, millions of rupees are moved daily from one account to another using computers and telecommunications without any currency Electronic funds transfer or EFT refers to the computer-based systems used to perform financial transactions electronically. The term is used for a number of different concepts: • cardholder-initiated transactions, where a cardholder makes use of a payment card • electronic payments by businesses, including salary payments • electronic cheque clearing
1
1.2 CARD-BASED EFT
Credit cards EFT may be initiated by a cardholder when a payment card such as a credit card or debit card is used. This may take place at an automated teller machine (ATM) or point of sale (POS), or when the card is not present, which covers cards used for mail order, telephone order and internet purchases. Card-based EFT transactions are often covered by ISO the standard.
1.3 EFT can be segmented into 3
1. Banking and financial payment Large scale or whole sale payment Small scale or retail payment Home banking
2.
Retailing payment Credit cards Private label credit/ Debit
3.
Online electronic commerce payment(Token Based) Electronic cash Electronic cheque Smart card or debit card
1.4 ELECTRONIC TOKENS
Electronic tokens are design as electronic analogues of various forms of payments backed by a bank or financial institution. Simply stated electronic tokens are equivalent to cash that is backed by a bank.
1.5 ELECTRONIC TOKENS ARE OF 3 TYPES
1. Cash or real time Transactions are settled with the exchange of electronic currency. An example of online currency exchange is electronic cash (e-cash) 2. Credit or Post paid
The transactions are settled within a specific period.
3. Debit or Prepaid information. Example of prepaid payment mechanism
Users pay in advance for the privilege of getting i is stored in smart cards and electronic purses that store electronic money.
1.6 TRANSACTION TYPES
A number of transaction types may be performed, including the following: • Sale: there the cardholder pays or return or service. • Refund: where a merchant refunds an earlier payment made by a cardholder. • Withdrawal: the cardholder withdraws funds from their account, e.g. from an ATM. The term Cash Advance may also be used, typically when the funds are advanced by a merchant rather than at an ATM. • Deposit: where a cardholder deposits funds to their own account (typically at an ATM). • Cash back: where a cardholder withdraws funds from their own account at the same time as making a purchase. • Inter-account transfer: transferring funds between linked accounts belonging to the same cardholder • Payment: transferring funds to a third party account
2
•
Inquiry: a transaction without financial impact, for instance balance inquiry, available funds inquiry, linked accounts inquiry, or request for a statement of recent transactions on the account. • Administrative: this covers a variety of non-financial transactions including PIN change. The transaction types offered depend on the terminal. An ATM would offer different transactions from a POS terminal, for instance.
1.7 Authorization
EFT transactions require communication between a number of parties. When a card is used at a merchant or ATM, the transaction is first routed to an acquirer, then through a number of networks to the issuer where the cardholder's account is held. A transaction may be authorized offline by any of these entities through a stand-in agreement. Stand-in authorization may be used when a communication link is not available, or simply to save communication cost or time. Stand-in is subject to the transaction amount being below agreed limits. These limits are calculated based on the risk of authorizing a transaction offline, and thus vary between merchants and card types. Offline transactions may be subject to other security checks such as checking the card number against a 'hotcard' (stolen card) list, velocity checks (limiting the number of offline transactions allowed by a cardholder) and random online authorization. A transaction may be authorized via a pre-authorization step, where the merchant requests the issuer to reserve an amount on the cardholder's account for a specific time, followed by completion, where the merchant requests an amount blocked earlier with a pre-authorization. This transaction flow in two steps is often used in businesses such as hotels and car rental where the final amount is not known, and the pre-authorization is made based on an estimated amount. Completion may form part of a settlement process, typically performed at the end of the day when the day's completed transactions are submitted.
1.7 Authentication
EFT transactions may be accompanied by methods to authenticate the card and the cardholder. The merchant may manually verify the cardholder's signature, or the cardholder's Personal identification number (PIN) may be sent online in an encrypted form for validation by the card issuer. Other information may be included in the transaction some of which is not visible to the cardholder (for instance magnetic stripe data), and some of which may be requested from the cardholder (for instance the cardholder's address or the CVV2 value printed on the card). EMV cards are smartcard-based payment cards, where the smartcard technology allows for a number of enhanced authentication measures
,
.
1.8 BENEFITS OF EFT
EFTs allow a company to pay or collect corporate obligations, and exchange payables and receivables information electronically. Settlement of funds takes place among all parties on an agreed upon date. EFTs are becoming a significant factor in day to day commercial transactions. Both public and private sectors have recognized that the electronic payment and receipt of funds offers significant advantages over conventional processing techniques. Consequently, government and business have increasingly implemented EFTs as a means to reduce costs and paperwork — improving operating efficiency — and to better control their receivables and payables.
1.9 DISADVANTAGES OF EFT:
Though EFT created a new era in fund transfer, it has some disadvantages also. There are chances of fraud transactions if the EFT is not well protected. EFT fund transfer may not be effective all the time because of the failure in technology. It is possible to track the individuals who uses EFT ,this in turn affect the privacy of the individuals .Since EFT is fully controlled by a computer based system there is no scope for human reasoning and in turn reasoning.
3
REFERENCE 1. Computers: Technology, applications, and social implications:Khateeb. M. Hussain & Donna. S. Hussain 2. http://www.semper.org/sirene/outsideworld/ecommerce.html 3. http://en.wikipedia.org/wiki/Electronic_money 4. www.PayPal.com 5. www.moneybookers.com/send-payments 6. www.amazon.com/Electronic-Payment-Systems-E-Commerce-OMahony/dp 7. www.irs.gov/efile/article 8. www.eftps.gov/ 9. www.KnowledgeStorm.com 10. www.worldpay.com 11. www.valista.com 12. www.daopay.com 13. www.moneybookers.com 14. www.meps.com.my 15. www.assist.ru
4
