Electronic Fund Transfer
Content
e-payment system ELECTRONIC FUND TRANSFER
By Prof T.R. Vaidyanathan
e-payment system
As payment is an integra integrall part of mercant mercantile ile process process,, electronic payment system is an integral part of ecommerce. The emergence of e-commerce has created new financial needs that in many cases
systems. E-payment systems are becoming central to ecommerce as companies look for ways to server customers fasters and at lower cost, thereby paving way for new business business opportunities
E-payment system These payment systems have number of requirements
Security Control Traceability ntegr ty Good transaction efficiency Acceptability Convenience Cost
Anonymity Low financial risks Privacy tan ar s or interoperability)
e-payment system Conven Conv enti tion onal al Vs El Elec ectr tron onic ic Pa Paym ymen entt Sy Syst stem em To get into the depth of electronic payment process, it is better to understand the processing of convention conventional al or
tradit trad itio iona nall pa paym ymen entt sy syst stem em.. A co conv nven enti tion onal al pr proc oces esss of payment and settlement involves a buyer-to-s -seeller transfer of cash or payment information (i.e. cheque and credit cards). The actual settlement of a ment takes place in the financial processing network. A cash paym pa ymen entt re requ quir ires es a bu buye yer’ r’ss with withdr draw awal al from from hi his/ s/ he herr bank account, a transfer of cash to the seller, and the sell seller’s er’s de deposi positt of payment payme to his/her his/ accoun account. t. NonNon-cash cash payment mechanism are nt settled byher adjusting i.e. crediting and an d debi debiti ting ng th thee appr approp opri riat atee ac acco coun unts ts be betw twee een n ba bank nkss based on payment information conveyed via cheque or credit cards.
e-payment system Process of Electronic Payment System
El Elec ectr tron onic ic paym pa ymen entt sy syst stem ems s have have be been en in op oper atio ions ns since 1960s and have been expanding rapidly aserat well as growing in complexity. After the development of conv co nven enti tion onal al pa paym ymen entt syst systeem, EF EFT T (E (Ele lect ctro roni nicc Fund Fund Tran Tr ansf sfer er as ased ed a me ment nt s st stem em ca came me in into to ex exis iste tenc nce. e. A real revolution in the meaning of electronic payment system came with the development of EFT technology. EFT is a technology (one of e-commerce technologies) that allows the transfer of fund from the bank account of the one person or organization to another. It is an important addition in organization that implements EDI in their organization.
Electronic Funds Transfer (EFT) E LE C TR O NI C F U ND S T R AN S FE R ( EF T) I S D E FI NE D A S “ AN Y T RA NS FE R O F F UN DS I NI TI AT ED T HR OU GH A N E LE C TR O NI C T E RM I NA L, T EL EP HO N IC I N ST RU ME N T, OR COMPUTER OR MAGNETIC TAPE SO AS TO ORDER, INSTRUCT, OR AUTHORIZE A FINANCIAL INSTITUTION T O D E B I T O R C R E D I T A N A C CO U N T . EFT UTILIZES TO TRANSFER MONEY OR FINANCIAL ASSETS.
E-payment system
EFT was first electronic based system, which does not
depend on a central processing intermediary. An electronic fund transfer is a financial application of EDI (Electronic Data Interchange), which sends credit
networks between banks and major corporations. To use EFT to clear payments and settle accounts, an online payment service will need to add capabilities to proc pr ocess ess ord orders ers,, accou account ntss and receip receipts. ts. But a land landma mark rk came in this direction with the development of digital currency.
Electronic Funds Transfer (EFT)
Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands. One of the most widely-used EFT programs is Direct Deposit, in which payroll is deposited straight into an ' , transfer of funds initiated through an electronic terminal, termina l, including credit card, ATM, and point-of-sale point-of-sale (POS) transactions. It is used for both credit transfers, such as payroll payments, and for debit transfers, such as mortgage payments
Electronic Funds Transfer (EFT) EFT can be segmented into three broad categories 1)Banking and financial payments Large-scale or wholesale payments (e.g. bank-to-bank transfer)
machines and cash dispensers) Home banking (e.g. bill payment) 2)Retailing payment Credit card (e.g. VISA or MasterCard) Private label credit / debit cards Charge cards (e.g. American Express)
Electronic Funds Transfer (EFT) 3)On-line electronic commerce payments Token-based payment systems Electronic cash (i.e. DigiCash) Electronic Checks(e.g. NetCheque)
Credit card-based payment syst systems ems Encrypted credit cards Third-party authorization nu numbers mbers
Electronic Funds Transfer (EFT)
The growing popularity of EFT for online bill payment is paving the way for a paperless universe where checks, stamps, envelopes, and paper bills are obsolete. The benefits of EFT include reduced , , simp si mpli lifi fied ed bo book ok-k -kee eepi ping ng an and d grea greate terr se secu curi rity ty.. Th Thee online payments are categorized as follows based on
the limit under each category 1)Micro payment 2) Consumer payment ent 3) Business payment
Electronic Funds Transfer (EFT) The term is used for a number of different concepts: Cardholder-initiated transactions, where a cardholder makes use of a payment card
D irect depo sit payvia rolla payroll paymenservice ts for company a business to its employees, possibly Direct Direct debit payments payments from customer to business, business, where the transacti ction is initiated by the bus business with customer omer perm ss on Electronic bill payment in online banking, which may be delivered by EFT or paper check Tran Tr ansa sact ctio ions ns invo involv lvin ing g stor stored ed valu valuee of elec electr tron onic ic mone money, y, possibly in a private currency Wire transfer via an international (generally carries a higher fee) Electronic Benefit Transfer
banking
network
Electronic Funds Transfer (EFT)
Electronic
Benefit
Transfer (E (EBT)
is
an
electronic system, more prevel ela ant in the United States tha thatt allows state gov oveernments to provid idee financial and material benefits to authorized recipients via a plastic debit plastic debit card card.. Common benefits provided via EBT are typically sorted into two general categories: Food Stamp and Cash benefits. Food stamp benefits are federally authorized benefits that used only nonalco coh hcan ol oliic be bev eve erages es. . Catoshpurchase benefit itss food incluand de S tate General Assistance
Electronic Funds Transfer (EFT)
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 ma or er, te ep one or er an nternet purchases. Card-based EFT transactions are often covered by the ISO 8583 standard.
Electronic Transaction typesFunds Transfer (EFT) A number of tra transa sacctio ion n typ types may be perf rfo ormed ed,, including the following: Sale: Sale: where the cardholder pays for goods or service Refund : where a merchant refunds an earlier payment made by a cardholder Withdrawal : th thee card ardho hollder with thd dra raw ws funds fro rom m their account, e.g. from an ATM. The term Cash Advance may 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: back: where a cardholder withdraws funds from their own account at the same time as making a purchase
Electronic Funds Transfer (EFT)
Int Inter er-a -acco ccount unt tr trans ansfe ferr: tr tra ansf sfer errring funds nds betw twee een n linked accounts belonging to the same cardholder Payment : transferring funds to a third party account Enquiry: Enquiry: a transaction without financial impact, for inst in stan ance ce bala balanc ncee en enqu quir iry, y, av avai aila lab ble fu fund ndss en enqu quir iry, y, linked accounts enquiry, or request for a statement of recent transactions on the account - POS or ATM) to add funds (top-up) their pre(typically pay mobile phone Mini-statement : where a cardholder uses a device (transactions typically anon A TM)account to obtain details of recent their Administrative:: this covers a variety of non-financial Administrative transactions including PIN change
Electronic Funds Transfer (EFT
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 acqu rer, en roug a num eerr o ne wor s o the issuer where the cardholder's account is held. held.
Electronic Funds Transfer (EFT) A transaction may be authorized offline authorized offline by 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, known as floor limits.
authorizing a transaction offline, and thus vary between merchants and card types. ty pes. Offline transactions may be subject to other security checks such as checking the card number against a 'hot card ca rd'' (s (sto tole len n card card)) li list st,, ve velo loci city ty chec checks ks (l (lim imit itin ing g the the number of offline transactions allowed by a cardholder) and random online authorization.
Electronic Funds Transfer (EFT) (EFT)
Before online authorization was standard practice and credit cards were processed usin ing g manu nual al vouchers, each merchant would agree a limit ("floor limit) with his bank above which he must telephone for an authorization code. If this was not refused by the issuer ("bounced"), the merchant would not be entitled to a refund. refund.
Electronic Funds Transfer (EFT) (EFT)
EFT transacti transactions ons may be accompanied by methods to authenticate the card and the card holder. The merchant may manually verify the card holder's signature, or the card holder's Personal Identification Number (PIN) may be sent online in an encr ted fo form forr m val valida tion the e ecard ca issu issuer Othen ercr inte fodrm arm tionfo ayidatio be n b incth lud d rdin ter. he. transaction, some of which is not visible to the card hollde ho derr (for (for in inst stan ance ce ma magn gnet etic ic st strrip ipee da data ta), ), an and d some of which may be requested from the card holder (for instance the card holder's address or the CVV value printed on the card).
Electronic Funds Transfer (EFT)
Electron Electronic ic cheque cheque vs Electron Electronic ic fund fund transfe transfer r Electronic cheque also known as e-cheque and I-cheque are use sed d to make make paym paymeent bet between ween two part partie iess throu hroug gh an intermediary and not very much different from the traditional or current cheque processing processing system. Electronic cheques are generated and exchanged online. The nterme ary w e t t e customer account an cre t t e merchant account. Elec Electr tron onic ic cheq cheque uess is diff differ eren entt from from the the elec electr tron onic ic fund fund transfer tran sfer in several several way ways. s. For electron electronic ic cheques, cheques, electro electronic nic versions of cheques are issued, received and processed. So, the consumer issues an electronic cheque for each payment. For EFT, automatic withdrawals are made for monthly bills or other fixed payments at no extra cost.
Electronic Funds Transfer (EFT) Instant Cheque read adiing ATMs (Source ce:: - ET 5th October 2009)) 2009 New technology is emerging in India that new ATM machines will be launched. You can insert a bundle of notes of any denomination. The AT ATM Ms will read the notes, and credit the amount in yo your ur account instantly.
P rad ee ing Senit D NCTMs R In Ind diaban sakss in thaInd t tth hia, e whe comrean has CT beMen showcas sho wcasing itss M CTM-A CTM-ATMs to banks India, where by the CTM ATM scans the cheque inserted in and produces a digital image of the same. same. It sends the digi digital tal image elec electron tronically ically to the IT netwo network rk of the iss issui uing ng bank for clea cleara ranc nce. e. Wit Within hin sec secon onds ds,, th thee am amou ount nt is credited to your account which one can withdraw immediately via a debit card. Ac Acco corrding to RBI, the banks are al alrready all llo owe wed d to use CTM (che (c hequ quee tr trun unca cati ting ng ma mach chin ine) e) sc scan anne ners rs fo forr in inte terr an and d in intr tra a ba bank nk purposes.
