Table of contents
Consumers want convenience; it’s one of the reasons that online shopping continues to grow in popularity. A study by Digital Commerce 360 on the COVID-19 impact on shopping found that eCommerce, specifically click and collect purchases, increased 248 percent at the end of May 2020. Moreover, another study on COVID-19 purchasing habits showed that 77 percent of those interviews said they would expect to purchase online more once lockdown is over.
This is a huge opportunity for businesses to expand their brand presence and increase their revenue substantially. In order to do so, you need to invest in an electronic payment system. Whether you’re just starting an online business or thinking of some home business ideas in your industry, here’s everything you need to know about electronic payment systems.
What is an electronic payment?
An electronic payments system allows customers to pay for products or services electronically. Online payment systems are what allow you to purchase clothes via your favourite online store or pay your cable bill online. So if you’re planning to create an online store, you need to be able to accept online payments and learn exactly how they work.
Even if you’re not planning to invest in eCommerce, it’s important to understand how electronic payments work (as a customer) and the role they play in the evolution of the payment processing ecosystem.
According to a recent article in The Guardian, a vast majority of the U.K. uses cashless purchases, and based on our own study, 1 in 6 Brits are “card-only” shoppers. What we’re seeing in this evolution is that consumers are gravitating toward the electronic payments and shipping methods that offer more convenience and flexibility.
How do electronic payment systems work?
Understanding how electronic payment systems work can get technical since there are a lot of moving parts. Here’s a breakdown of the main participants required for an electronic payment transaction:
- The cardholder is identified as the consumer who purchases a product or service online.
- The merchant is the person or business that sells goods and services to the cardholder.
- The issuer is the financial institution that provides the cardholder with the payment card. This is usually the cardholder’s bank.
- The acquirer, or merchant account provider, is the financial institution that establishes an account with the merchant. The acquirer authorises the legitimacy of the cardholder account.
- The payments processor handles the official transaction between the cardholder and merchant.
- The payment gateway processes merchant payment messages and uses security protocols and encryptions to ensure transaction safety. You don’t need a payment gateway with Square because our hardware and services create an end-to-end payment processing system.
Electronic payment transactions are divided into two types: one-time vendor payments and recurring customer vendor payments.
- One-time vendor payments are commonly used on eCommerce payment systems. A cardholder types in the card or banking information on a checkout page and simply clicks to purchase.
- Recurring customer vendor payments are used when the cardholder is paying for a product or service regularly. Customers enter their information once and then opt in for a recurring billing option with a set date for the payment to go through. This is often used by car insurance agencies, phone companies, and other types of businesses.
What is a card not present transaction?
At one time or another, every small business owner has probably asked “what is a card not present (CNP) transaction.” In brief, a card not present (CNP) transaction is a card transaction made where the cardholder doesn’t or can’t physically present the card to the merchant for a physical examination. CNP transactions are commonly processed for phone, fax, mail, and internet orders.
Electronic payment methods
All transactions require a method of payment. With traditional payment processing systems, a customer can use cash, cheques, magstripe cards, EMV chip cards, or mobile payment options.
Electronic payment system methods differ slightly. E-payments are orchestrated by an electronic funds transfer (EFT), which is the process of transferring money from one bank account to another without any exchange by hand. Online payment methods that use EFT include:
- Credit and debit cards. Businesses must have eCommerce software to accept payments online. A customer enters the debit or credit card information into a virtual terminal or online invoice when a product or service is purchased.
- eChecks. Instead of inputting card information, a customer can use an electronic check to pay online by entering the checking account and routing numbers from the bank.
Are electronic payments secure?
Credit card security is a top priority for any business, especially if you have an online store or use the internet to complete transactions in any way. But don’t worry, there are a number of security standards and protocols in place to ensure the security of financial transactions online.
Here’s how you can abide by industry standards and keep sensitive data secure.
Learn about the Secure Electronic Transaction system.
The Secure Electronic Transaction system (SET) is a set of security protocols used to facilitate electronic payment systems. With SET, a few components are integrated to authenticate and ensure confidentiality: digital wallet software, merchant software, and payment gateway server software.
Ensure your electronic payment system is PCI compliant.
When you are assessing different options for an electronic payment system, make sure you select one that is PCI compliant. The Payment Card Industry Data Security Standard (PCI DSS) sets a list of requirements for card payment systems to securely accept, store, and process payments.
Create an eCommerce site that uses SSL encryption technology.
Secure socket layer (SSL) technology is a security model that meets the following security provisions: encryption, authentication, non-reputability, and integrity. It ensures that all electronic payment transactions made on your online payments systems in the U.K. are safe and secure.
Set up digital signatures.
Digital signatures are an electronic fingerprint that associates a cardholder with an online transaction. These signatures use public key infrastructure to keep each transaction secure for payment systems in the U.K.
How long does an electronic payment take?
Typically, transactions made via electronic payment systems are verified within 24 to 48 hours. If the payment is processed after bank business hours, then it will be verified on the following business day.
Why do electronic payments benefit your business?
Now you understand how electronic payment systems work. How do they work for your business?
Reach a new audience.
E-commerce opens up your target market substantially. Because you don’t have geographic or time limits, customers can access your website and purchase products from anywhere and at any time.
Improve purchasing efficiency.
Customers don’t have to wait in line to buy products or services when using an electronic payment system. This kind of purchasing efficiency can actually encourage consumers to buy from your business more often.
Increase payment security.
There are a plethora of security measures and protocols in place to ensure your online transactions are safe and secure.
