Know the Different Types of E-commerce Payment Systems in India

As part of the overarching Digital India initiative, one of the cornerstones of this technological evolution has been the promotion of a cashless economy framework. The concept of electronic payments, also known as digital payments, which involve financial transactions conducted through online platforms, has swiftly become a cornerstone of this transformation. This evolution not only offered convenience and efficiency but has also opened new avenues for businesses and consumers.

This article elucidates different e-commerce payment systems in India that have surged in popularity. As a business owner navigating the ever-evolving landscape of commerce, equipping yourself with the knowledge of these payment systems is essential for seizing opportunities and ensuring seamless transactions in this digital age.

What is an e-commerce payment system?

An electronic payment, often known as a digital payment, entails the electronic transfer of funds from one account to another, eliminating the need for physical currency or traditional instruments like cash or checks. It is worth noting that electronic payments include not only online transactions but also payments made in physical, brick-and-mortar places settings. For instance, using a service like UPI to pay for groceries or salon services qualifies as an electronic payment.

Electronic payment essentially encompasses the electronic exchange of currency via the internet. In these transactions, money is transferred from a customer's bank account, debit card, or credit card to the seller's bank account. This online e-payment method is particularly convenient for purchasing products or services from sellers.

E-commerce payment systems serve as essential tools for both buyers and sellers in facilitating these digital transactions. On the buyer's side, the transaction occurs with the intent to receive goods or services, while for the seller, it involves the delivery of products or services.

These user-friendly e-commerce payment options include a series of steps that enable the successful transfer of funds from the buyer to the seller, with both parties relying on specific online payment apps to ensure the transaction's smooth completion.

These e-commerce payment systems have dramatically transformed the online business landscape, simplifying transactions for both businesses and customers.

The operation of an e-commerce payment system involves linking a digital storefront to the preferred payment processing network via a payment gateway. This processing network, in turn, collaborates with your bank to complete the fund transfer.

A user-friendly payment gateway eliminates the requirement to repeatedly input card information or personal details. Instead, it relies on third-party processing to streamline the checkout process, enhancing convenience and efficiency.

The various forms of e-commerce payment methods in use today are:

1. Debit Card:

In India, debit cards are one of the most popular e-commerce payment methods. It is a small plastic card bearing a unique number. Obtaining a debit card necessitates having a bank account.

Customers who prefer online purchases within their budget opt for debit cards as they can only spend the funds available in their bank account.

The principal distinction between a debit card and a credit card lies in the fact that with a debit card, the amount is deducted directly from the linked bank account, which must maintain a sufficient balance. In contrast, a credit card doestn't draw from a personal account balance.

2. Credit Card:

Today, the most widely adopted modern e-commerce method of payment is the use of credit cards. It's an easy and convenient process where customers simply input their credit card number and expiration date on the seller's website.

To bolster security, additional measures like the Card Verification Value (CVV) have been introduced for online credit card payments. The CVV enhances security by cross-referencing the CVV number with the cardholder's information to detect potential fraud.

Consumers rely on credit cards to fund various payment options, including digital wallets. This is one of the most reliable payment systems, primarily due to the extensive presence and trustworthiness of payment processors like Visa, Mastercard, RuPay, and others, which have established themselves over a considerable period.

3. UPI:

The Unified Payment Interface (UPI) has received significant popularity, particularly in urban areas. It consolidates multiple bank accounts from various participating banks into a single mobile application, offering a range of banking features, seamless fund transfers, and merchant payments within a single, convenient platform. Presently, 224 banks are actively participating in the UPI system.

Users can access multiple bank accounts using a single application, facilitating round-the-clock, 365-day-a-year fund transfers through registered mobile phones. Money can be instantly sent to phone contacts registered with the UPI via QR codes at stores by entering the recipient's contact number or UPI ID, for purposes such as settling utility bills and making payments and donations.

UPI incorporates a two-factor authentication system to enhance security for transaction processing. Scheduled payments can be set up to suit a user's specific requirements and convenience. A customer only needs to provide banking details, such as account number, card number, IFSC, etc., during the registration process. Users can send collection requests to other UPI users.

To perform a UPI transaction, customers need a registered mobile device with internet connectivity and an MPIN (Mobile Personal Identification Number). UPI transactions do not incur charges for customers; the maximum amount that can be transferred per transaction is Rs 1 lakh.

Customers can check their account balances, review transaction histories, send or receive money, link additional bank accounts, set or change their MPIN, invite contacts to join UPI, and more.

4. E-Wallet:

An e-wallet, also known as a mobile wallet and digital wallet, is a software-based solution created to simplify electronic transactions, including tasks such as paying utility bills, recharging prepaid mobile, and booking movie tickets.

Furthermore, digital wallets provide the ease and security of transferring money between bank accounts, serving as a substitute for traditional physical wallets.

E-wallets provide users with a convenient and efficient e-commerce payment method. They offer flexibility for various transactions, from booking train or plane tickets to recharging mobile phones and settling utility bills.

To commence transactions through an e-wallet, users must first transfer funds from a linked bank account to an e-wallet. Digital wallets prioritise security and can be employed for a diverse array of financial transactions.

To engage in transactions using a mobile wallet, all that is required is a smartphone, a designated e-wallet app, and an active internet connection.

5. Smart Card:

Smart cards bear a resemblance to debit and credit cards in terms of their physical appearance, yet they distinguish themselves by featuring an embedded microprocessor chip. This chip is equipped to store financial data as well as an individual's personal and professional information.

Smart cards offer swifter processing at lower transaction costs. The balance on the smart card decreases as the customer uses it and needs to be replenished from their bank account.

6. Internet Banking:

Internet banking is another preferred e-commerce payment method. Customers can easily make purchases by directly debiting their bank accounts through internet banking. Internet banking doesn't require customers to possess a payment card, but they do need to register with their bank for net banking services.

To complete a purchase, customers need to input their net banking ID and PIN, facilitating a convenient and efficient payment process.

7. Mobile Banking:

The majority of banks offer their own mobile applications, available for download from popular app stores such as Google Play Store, App Store, and Microsoft Store. These apps empower users to carry out various financial transactions from their smartphones or tablets, all from a distance.

It provides the capability to perform a wide range of internet banking transactions directly on your smartphone or tablet.

To use mobile banking, customers must register with their bank. Transaction limits align with those of internet banking, offering a similar level of functionality.

8. Unstructured Supplementary Service Data (USSD):

Unstructured Supplementary Service Data (USSD) is an innovative payment service that enables banking customers to conduct mobile banking transactions using a basic mobile phone, even without internet access.

To access this service, customers can simply dial *99#, a universal code shared by all Telecom Service Providers (TSPs). The primary objective of this service is to promote financial inclusion in rural areas and regions with limited internet connectivity.

It offers essential services such as checking account balances, transferring funds between banks, and obtaining mini statements. Currently, this service is available from 51 leading banks and all GSM service providers.

Customers can access the service in 12 different languages. Registration for USSD is linked to the mobile number registered with the bank account.

Customers receive a Mobile Money Identifier (MMID) and Mobile Personal Identification Number (MPIN), which are crucial for completing transactions. A nominal transaction fee of Rs 0.50 is charged to the customer.

To ensure security, fund transfers are capped at Rs 5,000 per transaction.

9. Aadhar Enabled Payment System (AePS):

To expedite financial inclusion in the country and leverage the extensive reach of Aadhar, the Aadhar Enabled Payment System (AePS) was introduced as a bank-led electronic payment model. It enables banks to facilitate interbank transactions initiated through Aadhar in a secure and efficient manner.

It allows online interoperable financial transactions at Point of Sale (PoS) terminals and Micro ATMs, and these transactions can be conducted through business correspondents or Bank Mitras from any bank using Aadhar authentication.

AePS eliminates the need for physical activities like visiting a bank branch, using a banking card, or signing documents. Customers must link their Aadhar number to their bank account to use AePS.

No transaction fees are imposed on customers. While the Reserve Bank of India has not set a specific transaction limit, individual banks may establish their own limits.

AePS supports a range of basic transactions, including actions such as checking account balances, cash withdrawals, cash deposits, Aadhar-to-Aadhar fund transfers, and payment transactions like Customer-to-Business (C2B) and Customer-to-Government (C2G). Currently, the AePS service is provided by 118 banks.

To conclude:

Against the backdrop of demonetisation and India's push for cashless transactions, our reliance on physical currency has significantly diminished since the introduction of various e-commerce payment options. These alternatives are not only user-friendly and convenient but also provide enhanced security, reduced expenses, and increased versatility.

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KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

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