Advantages and Disadvantages of Electronic Payment System

You must all be extremely familiar with and utilise the electronic payment system. The usage of electronic payment methods has significantly risen. The average person can now utilise it. An essential component of internet-based e-commerce is the electronic payment system.

B2B e-commerce, or electronic transactions involving business organisations, is connected to EDI. To be active in the financial sector, such as banks, finance companies, credit card companies, etc., a unique system called the Electronic Payment System is needed for B2B translation between these financial sectors.

Financial exchanges via EDI, online cash transfers between banks, and credit card exchanges are all involved in the electronic payment system. Although B2B electronic payment systems make up a sizable portion of the market, many credit/debit card transactions fall under the B2C category. In this sense, electronic funds transfer, or EDI, is a beneficial tool for business-to-business and business-to-consumer transactions.

The primary component of today's online business process is the electronic payment system. This is due to the desire of contemporary businesses to offer their clients services quickly and affordably. The term "electronic payment system" really refers to a virtual payment mechanism. Consumers can pay for products and services thanks to the delicate relationship between the electronic payment system and electronic commerce. The following prerequisites must be fulfilled to integrate the electronic payment system with the present payment system.

To integrate the electronic payment system with the current payment system, the following specific requirements must be met.

1. Acceptability - An electronic payment system should possess this trait.
2. Convertibility - The electronic payment system's digital currency must be able to be combined with other forms of money.
3. Flexibility - Electronic payment systems should be capable of accepting various payment methods.
4. Reliability - In addition to being more dependable, the electronic payment system should be error-free.
5. Scalability - An e-payment system should be scalable enough to allow for connections from new clients and vendors.
6. Usability - The use of an electronic payment system should be as simple as making a cash payment.
7. Security - It is crucial to offer security to the system's operations and the ability for financial transactions on an open network for electronic payments, such as the Internet.

Electronic Payment System Types

The three types of electronic payment systems are as follows:

• Cash or Instant Payment

Electronic money is exchanged during a transaction. E-cash is an illustration of online currency trading.

• Prepaid or Debit Cards

In this, customers must first pay before they can purchase a good or service. Smart cards are a type of prepaid payment method. Smart cards are sometimes known as virtual wallets or electronic purses.

• Postpaid or Credit

Users are permitted to purchase goods or services using this payment method before paying for them. The use of electronic checks and credit cards are two examples of post-paid payment systems.

The electronic payment system can be broken up into several different components:

In e-commerce, there are three different types of payment systems.

• Digital token-based electronic payment system
• Smart cards and an electronic payment system
• Credit-card-based electronic payment system

1. Digital token-based electronic payment system

The term "electronics tokens" refers to a newly created payment method. This electronic token resembles money or currency. It was separated into three categories.

• Real-time or In Cash
• Prepaid or Debit
• Postpaid or Credit

1. E-cash

A new idea in online payment called "e-cash" offers greater security or service and less paperwork. The following are some of the characteristics: cash's security, retrievability, and interoperability with other currencies. E-cash is a prime illustration of a digital token.

2. Monetary

E-cash needs to be redeemable for money. Money may be transferred from one account to another using this feature, and the consumer can obtain this monetary value from any bank or organisation.

3. Portability

All information and electronic money are managed between two accounts thanks to this property.

4. Recoverability

You may access the specific information from any account using this attribute. This process can only be carried out by an authenticated individual.

5. Security

Important messages, including money transfers that occur through internet banking, are kept secure. Using encryption as an example of a method.

2. Smart cards and an electronic payment system

You may use this payment method anywhere in the world. A smart card is a flat card with a small magnetic strip with all the authorised person's information. Example- Acct. No. Balance, Branch Information, Name, I.D., etc the consumer may utilise it to make an ATM cash withdrawal.

3. Credit-card-based electronic payment system

Like a smart card, a credit card can be used anywhere in the entire world. It is a different kind of smart card. A flat card with a magnetic strip and information is a credit card. The key distinction between a credit card and a smart card is that although we may use a credit card to pay after completing a purchase at a store, we cannot use a smart card to do so.

Advantages of Electronic Payment System

1. Electronic payment systems are ways to conduct financial transactions electronically, such as paying for products or services in person or online. Comparing these systems to more conventional payment options like cash and cheques, they provide various benefits.
2. Convenience is one benefit of electronic payment methods. You may conduct transactions quickly and simply without carrying cash or writing cheques by using electronic payments. With just a few clicks, you may quickly and easily make payments for goods made online.
3. The quickness of electronic payment methods is another benefit. When time is important in a corporate context, electronic payments can be extremely helpful because they are often completed more quickly than traditional ones. Electronic payments, for instance, it might be a lot quicker than waiting for a cheque to clear if you're a supplier and you need to get paid for products or services right away.
4. Another significant benefit of electronic payment methods is security. Users may feel more secure while conducting transactions using these systems since they frequently have sophisticated security mechanisms in place to guard against fraud and identity theft.
5. Another advantage of electronic payment methods is accuracy. Errors like inaccurate payment amounts or recipient information are always possible with traditional payment systems. Electronic payment methods can lessen the likelihood of these mistakes, which can help you save time and unneeded hassles.
6. Electronic payment systems can save retailers money in addition to these advantages. Customers may benefit from cheaper rates because these systems are often less expensive to process than conventional payment methods.
7. Finally, accurate transaction records may be provided via electronic payment systems, which can be useful for tracking costs and account reconciliation. Businesses, who may utilize the data to understand their financial performance better and make more educated decisions, may find this to be very helpful.
8. The convenience, speed, security, accuracy, cost-effectiveness, and record-keeping that electronic payment systems offer over conventional payment methods are summarised above. Electronic payment systems are a desirable alternative for both consumers and companies because of these advantages.

Disadvantages of the Electronic Payment System

While there are numerous benefits to electronic payment methods, there are also several possible drawbacks to consider:

1. Electronic payment methods can be subject to cyberattacks and other types of fraud, which is a drawback. Hackers could, for instance, attempt to steal payment information or interfere with the payment process. Users may have serious concerns about this, especially if their accounts contain critical financial information.
2. Electronic payment methods can occasionally be faulty, which is another drawback. Technical problems might bring down payment systems, which would delay transactions and be inconvenient for users. It can irritate consumers when these problems are difficult or impossible to fix.
3. The possibility that not everyone can use electronic payment methods is a third drawback. It may be challenging for certain people to use electronic payment systems because they lack a bank account or credit card, don't have access to a computer or smartphone, or for other reasons.
4. The possibility that electronic payment methods won't be accepted everywhere is a fourth drawback. Even while many shops and companies now accept electronic payments, others still do not. Users who want to pay electronically and do not want to carry cash may have an issue with this.
5. Finally, some consumers may find it challenging and confusing to use electronic payment methods. For elderly users or people who are unfamiliar with technology, this may be especially true. In these circumstances, it could be easier and more practical to use conventional payment methods.

Conclusion

In conclusion, even if electronic payment systems provide numerous advantages, there are still several possible drawbacks to consider. These include the possibility of cyberattacks and other fraud schemes, dependability problems, a lack of availability, regional unacceptance, and complexity. When determining whether to utilize electronic payment systems, one should consider these concerns versus the advantages. For certain users, these issues could be of concern.