The following types of electronic payments are most common today.

That

said, it is important to realize that new payment types are continual being

discovered and there are additional methods that exist or are being

developed continuously.

Cards

Credit cards, debit cards and prepaid cards currently represent the most

common form of electronic payments. For all 3 types of cards the consumer

or the business most often uses a plastic card, commonly with a magnetic

stripe. The cardholder gives his or her card or card number to a merchant

who swipes the card through a terminal or enters the data to a PC. The

terminal transmits data to his or her bank, the acquirer. The acquirer

transmits the data through a card association to the card issuer who makes

a decision on the transaction and relays it back to the merchant, who gives

goods or services to the cardholder. Funds flow later for settlement with

credit cards and are debited immediately for debit or pre-paid cards.

Along with magnetic stripe cards, smart cards are and will increasingly be

used for payments. Smart cards are at present overwhelmingly plastic

credit cards with an embedded computer chip. Until recently, many smart

cards operated using proprietary rather than common standards. A

standard set of specifications, EMV, has been developed and is being used

increasingly so that the chips on smart cards are interoperable. Korea and

Japan are among the most advanced countries in Asia for smart card

payments, with Malaysia catching up fast due to government mandates for

banks to issue smart cards. Most credit and debit cards are expected to be

issued or reissued as smart cards by 2008 or earlier.

Over time, the chip for payment can be expected to move onto other

devices. A smart card might then become the computer chip in a phone,

PDA or other device that can perform the same function as chip in a plastic

card, eliminating the need for the actual plastic card. Smart cards could

thus evolve into smart phones, smart PDAs or other smart devices.

Internet

Online payments involve the customer transferring money or making a

purchase online via the internet. Consumers and businesses can transfer

money to third parties from the bank or other account, and hey can also

use credit, debit and prepaid cards to make purchases online.

Current estimates are that over 80% of payments for online purchases are

made using a credit card or debit card. At present, most online transactions

involve payment with a credit card. While other forms of payment such as

direct debits to accounts or pre-paid accounts and cards are increasing,

they currently represent a less developed transaction methodology.

Mobile Payments

Mobile phones are currently used for a limited number of electronic

transactions. However, the percentage seems likely to increase as mobile

phone manufacturers enable the chip and software in the phone for easier

electronic commerce.

Consumers can use their mobile phone to pay for transactions in several

ways. Consumers may send an SMS message, transmit a PIN number,

use WAP to make online payments, or perform other segments of their

transaction with the phone. As phones develop further, consumers are

likely to be able to use infrared, Bluetooth and other means more frequently

to transmit full account data in order to make payments securely and easily

from their phone.

Additionally, merchants can obtain an authorization for a credit or debit

card transaction by attaching a device to their mobile phone. A consortium

in the US also recently announced PowerSwipe, for example, which

physically connects to a Nextel phone, weighs 3.1 ounces, and

incorporates a magnetic stripe reader, infrared printing port, and pass-

through connector for charging the handset battery.

Financial Service Kiosks

Companies and service providers in several countries, including Singapore

and the US, have set up kiosks to enable financial and non-financial

transactions. These kiosks are fixed stations with phone connections where

the customer usually uses a keyboard and television-like screen to

transaction or to access information.

At AXS stations in Singapore, for example, consumers can make electronic

bill payments, send email or SMS message and make phone calls. Kiosks

in the United States enable the customer to send money via wire transfers,

cash checks, make purchases using cash, and make phone calls.

Located at convenient public locations such as bus or subway stations,

convenience stores or shopping malls, these kiosks enable electronic

payments by individuals who may not have regular access to the internet or

mobile phones.

Television Set-Top Boxes and Satellite Receiver

Specialized boxes attached to a television can also be used for payments

in some locations. The set-top box attaches to the television and a

keyboard or other device, and customers can make purchases by viewing

items on the television. Payment is made electronically using a credit card

or other account. While usage is presently low, it could grow substantially in

countries with a strong cable or satellite television network.

Biometric Payments

Electronic payments using biometrics are still largely in their infancy. Trials

are underway in the United States, Australia and a limited number of other

countries. Most biometric payments involve using fingerprints as the

identification and access tool, though companies like Visa International are

piloting voice recognition technology and retina scans are also under

consideration. Essentially, a biometric identifier such as a fingerprint or

voice could replace the plastic card and more securely identifies the person

undertaking the transaction. The electronic payment is still charged to a

credit card or other account, with the biometric identifier replacing the card,

check or other transaction mechanism.

Electronic Payments Networks

Various countries have electronic payments networks that consumer can

use to make payments electronically. ACH (Automated Clearing House) in

the US, domestic EFTPOS networks in Australia and Singapore, and other

networks enable electronic payments between businesses and between

individuals. The consumer can go online, to a financial service kiosk or use

other front-end devices to access their account and make payments to

businesses or other individuals.

Person-to-Person (P2P) Payments

P2P payments enable one individual to pay another using an account, a

prepaid card or another mechanism that stores value. PayPal in the US,

which was recently purchased by Ebay, is one of the most frequently used

P2P mechanisms. The Tower Group estimates that the volume of P2P

payments will grow from 105 million transactions in 2002 to 1.4 billion

transactions by 2005. P2P payments can be made through a variety of

means, including services like PayPal, transfers using card readers, or

other. In the future other devices, such as mobile phones or PDAs, could

also be used to enable P2P electronic payments.

Types of E-payment and Initiatives

There are 2 types of players in this field, one is a 3rd party service like ccavenue, ebs etc which ties up with many banks, and other is the bank itself providing its own payment gateway (like ICICI payseal). Broadly they are different in the following ways:

Both players accept all type of Mastercard and Visa credit cards. 3rd party players

typically have more options than banks in terms of debit card acceptance, net banking options and other payments modes like cash card.

Banks are for high volume players. They have lower TDR (the % money they keep per transaction) plans and relatively lower setup fees than 3rd party providers, but if you have low volumes, they would turn out to be expensive. 3rd party players have plans as cheap as Rs 5,000 setup fee, but the TDRs can go as high as 7%. They would never go below a TDR of 2.5% approx, which means that at higher volumes, you would need to switch to a bank to get a TDR below 2.5% Banks need lots and lots of paperwork, and integration time is usually more than 2 weeks. 3rd party players typically have lesser requirements.