What You Need to Know About Electronic Payment Systems

What You Need to Know About Electronic Payment Systems
Whether you’re just starting a business or are a key player in your industry, here’s everything you need to know about electronic payment systems.
by Square Oct 02, 2017 — 4 min read
What You Need to Know About Electronic Payment Systems

Consumers want convenience; it’s one of the reasons that online shopping continues to grow in popularity. A study by BigCommerce found that eCommerce is increasing 23 percent year over year. Moreover, Millennials and Gen Xers — two generations who make up the majority of the U.S. population — spend six hours per week shopping online.

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 a business or are a key player in your industry, here’s everything you need to know about electronic payment systems.

What is an electronic payment?

Electronic payments allow customers to pay for products or services electronically. Electronic payments are what allow you to purchase clothes via your favorite online store or pay your cable bill online. So if you’re planning to create an online store, you need to have an eCommerce payment system and learn exactly how it works.

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.

Twenty-four percent of Americans make no purchases with cash during the week, according to the Pew Research Center. And the Wall Street Journal said that in 2016, credit cards eclipsed cash in transactions worldwide for the first time. We know that online shopping is on the rise — 8 in 10 Americans are online shoppers (according to Pew). What we’re seeing in this evolution is that consumers are gravitating toward the payment and shipping methods that offer more convenience and flexibility.

How do electronic payment systems work?

Understanding how an electronic payment works 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:

Electronic payment transactions are divided into two types: one-time vendor payments and recurring customer vendor payments.

Electronic payment methods

All transactions require a method of payment. With traditional payment processing systems, a customer can use cash, checks, magstripe cards, EMV chip cards, or mobile payment options.

Electronic payment 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:

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 online transactions.

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 payments. 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 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 e-commerce site 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.

Why do electronic payments benefit your eCommerce business?

Now you understand how electronic payment systems work. How do they work for your business?

Reach a new audience.

eCommerce 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.

The Bottom Line is brought to you by a global team of collaborators who believe that anyone should be able to participate and thrive in the economy.


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