There’s every chance that you’ve used an electronic payment system. However, do you know what an e-payment really is? How many types of e-payments systems do you know? How do they work? How can you use an electronic payment system to grow your business? We’ll tell you all about it in this blog post. Keep reading.
What is an Electronic Payment?
When you make an e-payment, you’re simply paying for goods or services through the internet. Have you bought an item on Amazon lately? Did you pay a bill online recently? That’s an electronic payment right there.
How Does an e-Payment Work?
An e-payment is routed via an electronic “superhighway” system, also known as the payment gateway. The gateway delivers the payment into the payee’s bank account. Electronic payment is more convenient than a cash payment system or paper checks. It is also less expensive and more secure. With an e-payment, you don’t have to write a review or handle any paper money. You need to key in information into the internet and click your mouse. This level of convenience explains why more businesses are turning to e-payments as an alternative to mailing checks.
Types of Electronic Payment Systems
There are several types of electronic payment systems. These include:
- One-time customer to vendor payments
- Recurring customer to vendor payments
- Automatic bank to vendor payments
Below is a breakdown of each type of payment:
One-Time Customer to Vendor Payments
As the name suggests, a one-time payment is a non-recurring type of payment when a customer buys an item or pays a bill. Let’s say you’re looking for accounting software online. You’ll add the product to the cart on the vendor’s website, fill in your credit card or debit card information, and check out. The vendor will process your online payment and send you a confirmation email. The software’s manufacturer will verify the transaction and authorize the payment via your card’s bank account. If approved, your bank will electronically transfer the funds to the vendor’s account.
That’s a one-time e-payment from customer to vendor.
Recurring Customer to Vendor Payments
A recurring e-payment is more or less like a one-time payment. However, it occurs regularly, for example, after a week or month. A good example is a scheduled recurring mortgage or car loan payment.
How does a recurring payment occur?
A customer gives the vendor, for instance, a bank, their checking account number. The vendor then charges the customer’s account every time the payment is due. The money is withdrawn from the customer’s account automatically.
Automatic Bank to Vendor Payments
This payment type occurs when a bank sets up a recurring, regular payment on the vendor’s account. It is similar to recurring revenue, but the money is deducted straight from the vendor’s account.
Some popular forms of electronic payment transactions include:
- Automated clearing house
- Virtual credit cards
Below is a further breakdown of these types of e-payments.
Automated Clearing House (ACH)
ACH payments involve electronic funds transfer from bank to bank. An example of an ACH financial transaction is when a customer requests their bank to send money directly to a merchant account for an item bought online.
Virtual Credit Card
A virtual credit card is different from a traditional credit card. Unlike its conventional counterpart, a virtual contactless card doesn’t have a security code or an expiration date. Instead, the card allows you to log in to your net banking portal and generate a one-time use card. You don’t have to type the card’s number online when transacting. That way, your online transactions have an additional security layer which is not possible with a traditional credit card.
How Do Electronic Payment Systems Work?
E-payment systems happen when electronic technologies and people collaborate to enable the movement of payment information via a logical series of events, typically in a couple of seconds. Let’s say you’re buying an item online. When paying for the item on the vendor’s website, you’ll be asked to enter your credit card number, the card’s expiry date, and a three-digit verification code, usually at the back of your card.
Once you hit the “Pay Now” button, a payment gateway takes over. The gateway will do the following:
- Reject or accept your online payment request
- Transfer your information between the vendor’s website and your bank account
- Verifies the authenticity and accuracy of your information
- Use encryptions and protocols to ensure the transaction’s safety
- Forward the payment request to your credit card company which then verifies if there’s enough money in your account to pay for the item.
- Completes the transaction by sending money to the vendor if there’s enough money in your account. It also deducts the transaction fee.
Advantages of Electronic Payment Systems
Below is a rundown of using e-payment systems for business:
– Faster, Error-free Payments
Electronic payments systems allow you to start, perform, and complete transactions in a few seconds. That’s incredibly fast compared to paper-based transactions that can take several days or weeks to complete.
– Reduced Costs
E-payment systems significantly reduce processing costs. More specifically, they save money by removing the cost of paper checks, postage, and stamps.
– Safe, More Convenient Transactions
As a business owner, you should be flexible regarding receiving payments. E-payment systems bring in the flexibility your organization needs to make contactless transactions.
– Improved Data Access and Analytics
Businesses that make paper-based transactions waste a lot of time (and, by extension, money) searching for invoices and purchase orders.
With paper scattered all over the place, it can take hours or days to locate and organize documents. It takes even longer to match invoice data to enable accurate payment.
- Electronic payment systems enable businesses to bypass these inconveniences.
- One way that businesses can make e-payments even swifter is by adopting electronic invoicing.
- E-invoicing involves the exchange of bill and payment details between a supplier and buyer in electronic format. This implies that the invoice is issued, transmitted, and received in a structured electronic layout to enable automatic and electronic processing.
Some solutions combine electronic invoicing with payment – which means that the e-invoice is integrated with your existing payment system.
E-invoicing solutions are offered by banks or payment service providers. The electronic invoicing software enables a supplier to send the e-invoice to the buyer’s digital wallet, internet banking system, or a relevant application. The buyer approves the invoice and initiates payment through direct debit, credit transfer, or card payments.
The beauty is that the buyer doesn’t have to manually key in payment data since the electronic invoice comes with everything the buyer needs to pay. Because electronic invoices contain all the necessary info to make the payment. It eliminates the likelihood of making mistakes, such as sending the wrong amount or errors when keying in the payment details. Automating is part of the payment cycle means that trading partners can benefit from cost savings. Further, since the information is digitally stored in the cloud, the Account Payable department can find any payment data and report they need at the click of a button.
What is Driving the Growth of Electronic Payments?
There are several factors giving rise to the popularity and implementation of electronic payments, including:
The Development of e-Commerce
In 2020 alone, global e-commerce sales amounted to a staggering $4.28 trillion, with e-retail revenues forecasted to grow to $5.4 trillion in 2022.
The popularity of online shopping is a crucial driver of e-payments. Why? Electronic payments are convenient, cheaper, more secure, and faster than paper-based payments.
A Shift Toward Cashless Payments
Even before the raving pandemic, cashless pay had already won the appeal of billions of people.
According to Business Insider, the global digital payment industry is forecasted to grow to $6.6trn in 2021, a 40% increase in two years as more and more people embrace contactless payment.
The Increased Use of Mobile Phones
It is projected that there will be about $1.31 billion mobile payment transactions users worldwide by 2023, up from 950 million users in 2019.
As mobile phone usage continues to rise, so is the number of e-payments on these devices. The younger, tech-savvy generation is spearheading this trend, extensively leveraging online payment systems to buy things online.
Electronic payments are here to stay.
And, the sooner you go electronic, the sooner you’ll start to enjoy the benefits that come with business digitization.
Think about it – if an e-payment system is simple, fast, and convenient, why not have one?
You can integrate e-invoicing into your payment system if you’re a business. That way, you can build a payment ecosystem that makes it receive and pay e-bills. Speaking of digitization, Unimaze can help digitize your business, from purchase to payment, enabling you to reduce costs and increase efficiency.