Description
How E.P.S works
N-CAP Users’ Guide
Everything You Need to Know About Using the Internet!
How Electronic Payment Works
How Electronic Payment Works
By J ennifer Hord
When it comes to payment options, nothing is more convenient than electronic
payment. You don't have to write a check, swipe & credit card or handle any paper
money; all you have to do is enter some information into your Web browser and click
your mouse. It's no wonder that more and more people are turning to electronic
payment - or e-payment ~as an alternative to sending checks through the mail.
In this article, we'll look at the types of electronic payment, discuss its benefits and
limitations and explain how to add e-payment capability to your Web site.
Methods and Types of Electronic Payment
An electronic payment is any kind of non-cash payment that doesn't involve a paper
check. Methods of electronic payments include credit cards, debit cards and the ACH
(Automated Clearing House) network. The ACH system comprises direct deposit, direct
debit and electronic checks (e-checks).
For all these methods of electronic payment, there are three main types of transactions;
1. A one-time customer-to-vendor payment is commonly used when you shop online at
an e-commerce site; such as Amazon. You click on the shopping cart icon, type in your
credit card information and click on the checkout button. The site processes your credit
card information and sends you an e-mail notifying you that your payment was received.
On some Web sites, you can use an e-check instead of a credit card. To pay by e-
check, you type in your account number and your bank's routing number. The vendor
authorizes payment through the customer's bank, which then either initiates an
electronic funds transfer (EFT) or prints a check and mails it to the vendor.
2. You make a recurring customer-to-vendor payment when you pay a bill through a
regularly scheduled direct debit from your checking account or an automatic charge to
your credit card. This type of payment plan is commonly offered by car insurance
companies, phone companies and loan management companies. Some long -term
contracts (like those at gyms or fitness centers) require this type of automated payment
schedule.
3. To use automatic bank-to-vendor payment, your bank must offer a service called
online bill pay. You log on to your bank's Web site, enter the vendor's information and
authorize your bank to electronically transfer money from your account to pay your bill.
In most cases, you can choose whether to do this manually for each billing cycle or
have your bills automatically paid on the same day each month.
Benefits of Electronic Payment
Electronic payment is very convenient for the consumer. In most cases, you only need
to enter your account information - such as your credit card number and shipping
address — once. The information is then stored in a database on the retailer's Web
server. When you come back to the Web site, you just log in with your username and
password. Completing a transaction is as simple as clicking your mouse: All you have to
do is confirm your purchase and you're done.
Electronic payment lowers costs for businesses. The more payments they can process
electronically, the less they spend on paper and postage. Offering electronic payment
can also help businesses improve customer retention. A customer is more likely to
return to the same e-commerce site where his or her information has already been
entered and stored.
With all the benefits of electronic payment, it's no wonder that its use is on the rise.
More than 12 billion ACH payments were made in 2004, a 20 percent increase from
2003 [ref]. The 2004 Federal Reserve Payments Study noted that from 2000 to 2003,
electronic payments grew as payment by check declined, which Suggests that
electronic payments are replacing checks.
In order to better serve their customers, banks are swiftly moving to offer online bill pay
services. Grant Thornton's 2005 survey of bank executives found that 65 percent of
community banks and 94 percent of large banks offer 24/7 online bill payment [ref].
Most of these services are free to members and coordinate easily with personal
software programs such Quicken or MS Money. Alternatively, consumers can subscribe
to online bill pay services such as Paytrust or Yahoo! Bill Pay. These services charge a
monthly fee in exchange for the convenience of paperless bill paying.
In the next section we'll discuss the concerns that some people have about using
electronic payment.
Concerns About Electronic Payment
The main drawbacks to electronic payments are concerns over privacy and the
possibility of identity theft. Fortunately; there are many safeguards available to protect
your sensitive personal information from falling into the wrong hands.
You can defend yourself against identity theft by using virus protection software and a
firewall on your computer. You should also make sure that you send your credit card
information over a secure server. Your Internet browser will notify you when a server is
secure by showing a lock or key icon. In addition, the URL on a secure site is usually
designated by the prefix "https" instead of "http." Retailers do their part by using data
encryption, which codes your information in such a way that only the key holder can
decode it.
Privacy concerns aside, some people simply dislike making electronic payments. They
find the setup too time-consuming and don't want more logons and passwords to
remember. Others simply prefer the familiarity of writing checks and dropping envelopes
in the mail. Regardless of these concerns, electronic payment will likely continue to rise
in popularity.
How to Set Up E-Payment for Your Business
Let's say you have a small business and you want to set up online payments via your
Web site. Your first decision is whether to outsource your payment solution or handle it
in-house. For those who want an all-in-one solution, services like PayPal and ProPay
make it easy for you to accept credit cards and other forms of electronic payment from
your site. When a customer enters his or her information on your site, your payment
service authorizes the transaction and transfers funds to your account. These services
charge a processing fee per transaction.
If you prefer to process payments in-house, the first thing you need to do Is set up a
secure server. This is a computer that uses encryption to make it difficult for intruders to
intercept confidential information. Secure Socket Layer (SSL) technology is used to
encrypt the data. You can apply for an SSL certificate online.
Once you have an SSL certificate, you need to register your site with a digital
authentication service. A digital certificate validates that the site receiving your
customers' information is the correct one. It assures customers that your site is
legitimate and that their information is encrypted.
Now that you have a secure server, you'll need to build or buy shopping software that
allows a customer to choose products from your site and add them to a virtual shopping
cart. When customers are ready to complete their orders, they click on a "checkout" link
that takes them to your secure server, where they enter their credit card information.
Finally, you need a system to process credit card payments and an Internet merchant
account with a bank. Credit card payment processing services are available through
online companies such as Verisign. They provide you with software that validates your
customer's credit card information over your secure server, some businesses also
choose to accept electronic checks from customers.
doc_398891153.pdf
How E.P.S works
N-CAP Users’ Guide
Everything You Need to Know About Using the Internet!
How Electronic Payment Works
How Electronic Payment Works
By J ennifer Hord
When it comes to payment options, nothing is more convenient than electronic
payment. You don't have to write a check, swipe & credit card or handle any paper
money; all you have to do is enter some information into your Web browser and click
your mouse. It's no wonder that more and more people are turning to electronic
payment - or e-payment ~as an alternative to sending checks through the mail.
In this article, we'll look at the types of electronic payment, discuss its benefits and
limitations and explain how to add e-payment capability to your Web site.
Methods and Types of Electronic Payment
An electronic payment is any kind of non-cash payment that doesn't involve a paper
check. Methods of electronic payments include credit cards, debit cards and the ACH
(Automated Clearing House) network. The ACH system comprises direct deposit, direct
debit and electronic checks (e-checks).
For all these methods of electronic payment, there are three main types of transactions;
1. A one-time customer-to-vendor payment is commonly used when you shop online at
an e-commerce site; such as Amazon. You click on the shopping cart icon, type in your
credit card information and click on the checkout button. The site processes your credit
card information and sends you an e-mail notifying you that your payment was received.
On some Web sites, you can use an e-check instead of a credit card. To pay by e-
check, you type in your account number and your bank's routing number. The vendor
authorizes payment through the customer's bank, which then either initiates an
electronic funds transfer (EFT) or prints a check and mails it to the vendor.
2. You make a recurring customer-to-vendor payment when you pay a bill through a
regularly scheduled direct debit from your checking account or an automatic charge to
your credit card. This type of payment plan is commonly offered by car insurance
companies, phone companies and loan management companies. Some long -term
contracts (like those at gyms or fitness centers) require this type of automated payment
schedule.
3. To use automatic bank-to-vendor payment, your bank must offer a service called
online bill pay. You log on to your bank's Web site, enter the vendor's information and
authorize your bank to electronically transfer money from your account to pay your bill.
In most cases, you can choose whether to do this manually for each billing cycle or
have your bills automatically paid on the same day each month.
Benefits of Electronic Payment
Electronic payment is very convenient for the consumer. In most cases, you only need
to enter your account information - such as your credit card number and shipping
address — once. The information is then stored in a database on the retailer's Web
server. When you come back to the Web site, you just log in with your username and
password. Completing a transaction is as simple as clicking your mouse: All you have to
do is confirm your purchase and you're done.
Electronic payment lowers costs for businesses. The more payments they can process
electronically, the less they spend on paper and postage. Offering electronic payment
can also help businesses improve customer retention. A customer is more likely to
return to the same e-commerce site where his or her information has already been
entered and stored.
With all the benefits of electronic payment, it's no wonder that its use is on the rise.
More than 12 billion ACH payments were made in 2004, a 20 percent increase from
2003 [ref]. The 2004 Federal Reserve Payments Study noted that from 2000 to 2003,
electronic payments grew as payment by check declined, which Suggests that
electronic payments are replacing checks.
In order to better serve their customers, banks are swiftly moving to offer online bill pay
services. Grant Thornton's 2005 survey of bank executives found that 65 percent of
community banks and 94 percent of large banks offer 24/7 online bill payment [ref].
Most of these services are free to members and coordinate easily with personal
software programs such Quicken or MS Money. Alternatively, consumers can subscribe
to online bill pay services such as Paytrust or Yahoo! Bill Pay. These services charge a
monthly fee in exchange for the convenience of paperless bill paying.
In the next section we'll discuss the concerns that some people have about using
electronic payment.
Concerns About Electronic Payment
The main drawbacks to electronic payments are concerns over privacy and the
possibility of identity theft. Fortunately; there are many safeguards available to protect
your sensitive personal information from falling into the wrong hands.
You can defend yourself against identity theft by using virus protection software and a
firewall on your computer. You should also make sure that you send your credit card
information over a secure server. Your Internet browser will notify you when a server is
secure by showing a lock or key icon. In addition, the URL on a secure site is usually
designated by the prefix "https" instead of "http." Retailers do their part by using data
encryption, which codes your information in such a way that only the key holder can
decode it.
Privacy concerns aside, some people simply dislike making electronic payments. They
find the setup too time-consuming and don't want more logons and passwords to
remember. Others simply prefer the familiarity of writing checks and dropping envelopes
in the mail. Regardless of these concerns, electronic payment will likely continue to rise
in popularity.
How to Set Up E-Payment for Your Business
Let's say you have a small business and you want to set up online payments via your
Web site. Your first decision is whether to outsource your payment solution or handle it
in-house. For those who want an all-in-one solution, services like PayPal and ProPay
make it easy for you to accept credit cards and other forms of electronic payment from
your site. When a customer enters his or her information on your site, your payment
service authorizes the transaction and transfers funds to your account. These services
charge a processing fee per transaction.
If you prefer to process payments in-house, the first thing you need to do Is set up a
secure server. This is a computer that uses encryption to make it difficult for intruders to
intercept confidential information. Secure Socket Layer (SSL) technology is used to
encrypt the data. You can apply for an SSL certificate online.
Once you have an SSL certificate, you need to register your site with a digital
authentication service. A digital certificate validates that the site receiving your
customers' information is the correct one. It assures customers that your site is
legitimate and that their information is encrypted.
Now that you have a secure server, you'll need to build or buy shopping software that
allows a customer to choose products from your site and add them to a virtual shopping
cart. When customers are ready to complete their orders, they click on a "checkout" link
that takes them to your secure server, where they enter their credit card information.
Finally, you need a system to process credit card payments and an Internet merchant
account with a bank. Credit card payment processing services are available through
online companies such as Verisign. They provide you with software that validates your
customer's credit card information over your secure server, some businesses also
choose to accept electronic checks from customers.
doc_398891153.pdf