Electronic payment Methods:
• Defined: It is alternative payment mechanism for electronic
transactions instead of traditional payment methods like
cheque,cash, credit card and debit card etc
1. Magnetic stripe cards defined:
• A magnetic stripe is a plastic card that has magnetically encoded
stripe on its exterior.
• Magnetic stripe card applications
• Bank debit cards and credit cards
• Telephone cards
• Employee identification cards
• Building and machine access privileges cards
• Types of magnetic stripe card
• Online stripe cards
• Off line stripe cards
• Smart card hybrid
• Online stripe card
• This card is used to read customer information from the stripe then
this information is used to access the information about the card
holder from the central computer.
• e.g. debit, credit cards, library cards etc.
• Offline magnetic stripe cards:
• These cards store information that can be interpreted by the card
reader and can be altered.
• Smart cards
• Def: A smart card is a plastic card similar to credit card but it
contains the microprocessor and storage unit.
• Features:
• More expensive to issue
• Stored info is not physically damaging
• Not damaged from magnetic field
• More data can be stored as compared to magnetic stripe.
• Types of smart cards
• Memory smart cards
• Intelligent smart cards
• Memory smart:
• These cards are used to record the monetary value or unit value
which a card holder can spend. It contains the less information and
processing capabilities than intelligent smart cards.
• Intelligent smart cards:
• Intelligent smart cards have more processing and information
storage capabilities than memory smart card.
• Electronic purse:
• The monetary value which is loaded into smart card’s
microprocessor that can be used by consumers for purchases.
Smart card reader is used to read the smart cards and smart card
reader is compatible with magnetic reader
• Smart cards in telephones:
• When smart cards are introduced in cellular and line phones they
cab be used for the following purpose
• Pay for items purchased over the phones
• Down load money from bank account
• Transfer balance between accounts
• Check bank account balance
• Uses of smart cards other than the
processing information:
• National identification codes
• Driving license
• Immigration detail
• Health details
• Electronic checks:
• Electronic checks are internet payment mechanism with
which the payor (business or individual) instructs its
financial institution to pay a specific amount to payee.
• Facilities provided by electronic check on web site:
• Present the bill to payor
• Allow the payor to initiate payment of invoice
• Provide remittance information
• Allow the payor to initiate automatic payment
authorization for pre specified amount or range of
amount
• Interface with the financial management software and
transaction processing software
• Allow payments to be made to new businesses with
which the payor has never transacted before
• FSTC: Financial service technology consortium is a group of service
providers, industrial partners, Govt. agencies, universities working
for the enhancement of financial service industry.
• FSTC’s electronics check service:
• This service uses the e-mail; the entire payment process is
shortened the payment cycle from one week for paper checks to two
days. Electronic check service use temper resistant signature smart
card and public key cryptography for digital signature.
• Electronic cash:
• It is term used to refer the prepaid stored value the can used for
electronic purchases in lieu of cash. Magnetic stripe cards, smart
cards and electronic checks can be classified as electronic cash.
• 1. Audit implication:
• Verification of cash, accounts receivables, sales
and cash disbursement accounts are important
component of a financial audit. When all
business activities and payment activities are
performed electronically then electronic audit is
required which is performed by accounting
professionals by the use of CAATs.
• 2. Electronic bill presentment and payment
systems:
• Accounting professional have great potential in
providing services for electronic bill presentment
and payment systems by the use of proprietary
software solutions for such systems.
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Electronic funds Transfer (EFT):
EFT is a system in which computer user transfers his funds for making
payments to supplier or for paying salaries to employee’s bank account or
transfer funds from one account to another account by issuing electronic
instruction to his bank.
EFT Systems:
SWIFT (The Society of World Wide Interbank Financial
Telecommunications) Ltd.
It a UK based EFT system operated for transfer of funds internationally
between the banks. E.g in UK all banks are members of SWIFT and all
banks of other countries also have their corresponding accounts with EFT
systems in their countries. These accounts are used to settle payments but
authorization to transfer is given by SWIFT.
CHAPS (Clearing Houses Automated Payments)
It is also EFT system used for interbank funds transfer by using BACS
(Bankers Automated Clearing Service).
Many companies pay the salaries by using BACS service by providing data
to their banks.
• Electronic point of sales (EPOS):
• Def: the system in which computers are
used for immediate recording of retail
sales transaction and stock information
after the completion of transaction in retail
shop.
• This method is commonly used in retailing
Advantages of EPOS:
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It automatically provides information relating to
sales transactions
activity level
utilization of floor space
reorder requirement
Cost of financing the business can be lowered
Automatically producing daily sales summary
Stock movement
Prices for charged and margins obtained
Change in demand for a products
Profit maximization for each product can be determined
Price comparison of all products in shop to align the prices
Changes of demands for different qualities can be identified
• EFTPOS:
• The system used by banking organizations
for the transfer of funds between accounts
and the provision of (point-of-sale)
services to customers.