Electronic Payment System: Digital Cash, Plastic Card, PSO and PSP.
Md. Shihab Uddin Khan
Associate Professor and
Director (Training and Certification Program), BIBM
E-mail:
Phone: 01556354558, 01710991890
Introduction
What is Payment System?
A payment system consists of a set of instruments, banking procedures and, typically,
inter-bank funds transfer systems that ensure the circulation of money.
Payment systems responsible for smooth transfer of money. Financial institutions accept,
collect, and process a variety of payment instruments, and participate in clearing and
settlement processes.
In some cases, financial institutions perform all of these tasks, but increasingly,
independent third parties play an important role in payment systems operation.
Types of Payment System:
Manual / Paper base Payment System:
Cash
Cheque
Electronic Payment System (EPS):
E-cash/Digital cash
Credit Card
Stored Value (Pre-paid card)
Debit Card
Another Classification of EPS (As per BB Guideline):
High Value Payment Systems (>= Taka 1 Lac)
Real Time Gross Settlement (RTGS) Systems
Normal Value/Retail Payment Systems
Cheque Clearing System
Electronic Funds transfer
ATM/POS Transaction
Internet Payments
Mobile payments
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,Definition of EPS:
Electronic Payment is a financial exchange that takes place online between buyers and sellers.
The content of this exchange is usually some form of digital financial instrument (such as
encrypted credit card numbers, electronic cheques or digital cash) that is backed by a bank or an
intermediary, or by a legal tender.
The various factors that have leaded the financial institutions to make use of electronic
payments are:
Decreasing technology cost: The technology used in the networks is decreasing day by day,
which is evident from the fact that computers are now dirt-cheap and Internet is becoming
free almost everywhere in the world.
Reduced operational and processing cost: Due to reduced technology cost the processing
cost of various commerce activities becomes very less. A very simple reason to prove this is
the fact that in electronic transactions we save both paper and time.
Increasing online commerce:
The above two factors have led many institutions to go online and many others are following
them. We began E-Commerce with EDI, this was primarily for large business houses not for the
common man. Many new technologies, innovations have led to use of E-Commerce for the
common man also.
We will now briefly enumerate these innovations based on whom they affected:
Affecting the consumers: Credit cards, Debit Cards, ATMs (Automated Teller Machines),
Stored value cards, E-Banking.
Enabling online commerce: Digital Cash, E-Cash, Smart cards (or Electronic Purse) and
encrypted Credit cards.
Affecting Companies: The payment mechanisms that a bank provides to a company have
changed drastically. The Company can now directly deposit money into its employee’s bank
account. These transfers are done through Automated Transfer Houses.
There are also many problems with the traditional payment systems that are leading to its fade
out. Some of them are enumerated below:
Lack of Convenience: Traditional payment systems require the consumer to either send
paper cheques by snail-mail or require him/her to physically come over and sign papers
before performing a transaction. This may lead to annoying circumstances sometimes.
Lack of Security: This is because the consumer has to send all confidential data on a paper,
which is not encrypted, that too by post where it may be read by anyone.
Lack of Coverage: When we talk in terms of current businesses, they span many countries or
states. These business houses need faster transactions everywhere. This is not possible
without the bank having branch near all of the company’s offices. This statement is self-
explanatory.
Lack of Eligibility: Not all potential buyers may have a bank account.
2 | 15
, Lack of support for micro-transactions: Many transactions done on the Internet are of very
low cost though they involve data flow between two entities in two countries. The same if
done on paper may not be feasible at all.
What is Digital Cash?
Digital cash (also known as e-currency, e-money, electronic cash, electronic currency, digital
money, digital currency, cyber currency) refers to money or script which is only exchanged
electronically. Typically, this involves the use of computer networks, the internet and digital
stored value systems. Electronic Funds Transfer (EFT), direct deposit, digital gold currency and
virtual currency are all examples of electronic money. Also, it is a collective term for financial
cryptography and technologies enabling it.
A system that allows a person to pay for goods or services by transmitting a number from one
computer to another. Like the serial numbers on real dollar bills, the digital cash numbers are
unique. Each one is issued by a bank and represents a specified sum of real money. One of the
key features of digital cash is that, like real cash, it is anonymous and reusable. That is, when a
digital cash amount is sent from a buyer to a vendor, there is no way to obtain information about
the buyer. This is one of the key differences between digital cash and credit card systems.
Another key difference is that a digital cash certificate can be reused.
Digital cash transactions are becoming commonplace now. However, there a number of
competing protocols and it is unclear which ones will become dominant. Most digital cash
systems start with a participating bank that issues cash numbers or other unique identifiers that
carry a given value, such as five dollars. To obtain such a certificate, you must have an account
at the bank; when you purchase digital cash certificates, the money is withdrawn from your
account. You transfer the certificate to the vendor to pay for a product or service, and the vendor
deposits the cash number in any participating bank or retransmits it to another vendor. For large
purchases, the vendor can check the validity of a cash number by contacting the issuing bank.
Issues (Benefits and Challenges)
Although electronic money can provide many benefits—such as convenience and privacy,
increased efficiency of transactions, lower transaction fees, and new business opportunities with
the expansion of economic activities on the Internet—there are many potential issues with the
use of e-money. The transfer of digital currencies raises local issues such as how to levy taxes or
the possible ease of money laundering. There are also potential macro-economic effects such as
3 | 15
Md. Shihab Uddin Khan
Associate Professor and
Director (Training and Certification Program), BIBM
E-mail:
Phone: 01556354558, 01710991890
Introduction
What is Payment System?
A payment system consists of a set of instruments, banking procedures and, typically,
inter-bank funds transfer systems that ensure the circulation of money.
Payment systems responsible for smooth transfer of money. Financial institutions accept,
collect, and process a variety of payment instruments, and participate in clearing and
settlement processes.
In some cases, financial institutions perform all of these tasks, but increasingly,
independent third parties play an important role in payment systems operation.
Types of Payment System:
Manual / Paper base Payment System:
Cash
Cheque
Electronic Payment System (EPS):
E-cash/Digital cash
Credit Card
Stored Value (Pre-paid card)
Debit Card
Another Classification of EPS (As per BB Guideline):
High Value Payment Systems (>= Taka 1 Lac)
Real Time Gross Settlement (RTGS) Systems
Normal Value/Retail Payment Systems
Cheque Clearing System
Electronic Funds transfer
ATM/POS Transaction
Internet Payments
Mobile payments
1 | 15
,Definition of EPS:
Electronic Payment is a financial exchange that takes place online between buyers and sellers.
The content of this exchange is usually some form of digital financial instrument (such as
encrypted credit card numbers, electronic cheques or digital cash) that is backed by a bank or an
intermediary, or by a legal tender.
The various factors that have leaded the financial institutions to make use of electronic
payments are:
Decreasing technology cost: The technology used in the networks is decreasing day by day,
which is evident from the fact that computers are now dirt-cheap and Internet is becoming
free almost everywhere in the world.
Reduced operational and processing cost: Due to reduced technology cost the processing
cost of various commerce activities becomes very less. A very simple reason to prove this is
the fact that in electronic transactions we save both paper and time.
Increasing online commerce:
The above two factors have led many institutions to go online and many others are following
them. We began E-Commerce with EDI, this was primarily for large business houses not for the
common man. Many new technologies, innovations have led to use of E-Commerce for the
common man also.
We will now briefly enumerate these innovations based on whom they affected:
Affecting the consumers: Credit cards, Debit Cards, ATMs (Automated Teller Machines),
Stored value cards, E-Banking.
Enabling online commerce: Digital Cash, E-Cash, Smart cards (or Electronic Purse) and
encrypted Credit cards.
Affecting Companies: The payment mechanisms that a bank provides to a company have
changed drastically. The Company can now directly deposit money into its employee’s bank
account. These transfers are done through Automated Transfer Houses.
There are also many problems with the traditional payment systems that are leading to its fade
out. Some of them are enumerated below:
Lack of Convenience: Traditional payment systems require the consumer to either send
paper cheques by snail-mail or require him/her to physically come over and sign papers
before performing a transaction. This may lead to annoying circumstances sometimes.
Lack of Security: This is because the consumer has to send all confidential data on a paper,
which is not encrypted, that too by post where it may be read by anyone.
Lack of Coverage: When we talk in terms of current businesses, they span many countries or
states. These business houses need faster transactions everywhere. This is not possible
without the bank having branch near all of the company’s offices. This statement is self-
explanatory.
Lack of Eligibility: Not all potential buyers may have a bank account.
2 | 15
, Lack of support for micro-transactions: Many transactions done on the Internet are of very
low cost though they involve data flow between two entities in two countries. The same if
done on paper may not be feasible at all.
What is Digital Cash?
Digital cash (also known as e-currency, e-money, electronic cash, electronic currency, digital
money, digital currency, cyber currency) refers to money or script which is only exchanged
electronically. Typically, this involves the use of computer networks, the internet and digital
stored value systems. Electronic Funds Transfer (EFT), direct deposit, digital gold currency and
virtual currency are all examples of electronic money. Also, it is a collective term for financial
cryptography and technologies enabling it.
A system that allows a person to pay for goods or services by transmitting a number from one
computer to another. Like the serial numbers on real dollar bills, the digital cash numbers are
unique. Each one is issued by a bank and represents a specified sum of real money. One of the
key features of digital cash is that, like real cash, it is anonymous and reusable. That is, when a
digital cash amount is sent from a buyer to a vendor, there is no way to obtain information about
the buyer. This is one of the key differences between digital cash and credit card systems.
Another key difference is that a digital cash certificate can be reused.
Digital cash transactions are becoming commonplace now. However, there a number of
competing protocols and it is unclear which ones will become dominant. Most digital cash
systems start with a participating bank that issues cash numbers or other unique identifiers that
carry a given value, such as five dollars. To obtain such a certificate, you must have an account
at the bank; when you purchase digital cash certificates, the money is withdrawn from your
account. You transfer the certificate to the vendor to pay for a product or service, and the vendor
deposits the cash number in any participating bank or retransmits it to another vendor. For large
purchases, the vendor can check the validity of a cash number by contacting the issuing bank.
Issues (Benefits and Challenges)
Although electronic money can provide many benefits—such as convenience and privacy,
increased efficiency of transactions, lower transaction fees, and new business opportunities with
the expansion of economic activities on the Internet—there are many potential issues with the
use of e-money. The transfer of digital currencies raises local issues such as how to levy taxes or
the possible ease of money laundering. There are also potential macro-economic effects such as
3 | 15
