What is an electronic payment system?

Electronic payment systems are services or platforms that allow for the transferring of funds via digital routes — i.e., without any physical payment method involved, like checks or cash.

These systems can often be seen as a more trustworthy way to pay employees, whether they’re in the same country as the employer, or abroad. Some electronic payment systems also include additional features to automate the payment process and manage any necessary record keeping.

Examples of electronic payment systems types

Some common examples of electronic payment systems may include the following:

• • Bank services, like wire transfers, direct deposits, and ACH payments
  • Digital payment platforms, which are used to manage electronic payment transfers and usually include a range of payment options, including bank transfers, credit cards and e-wallets.
  • Payment apps, which allow for sending and receiving funds via phone. The apps are often connected to a person’s bank account or credit card. Generally, they’re used for peer-to-peer payments rather than employee compensation

Peer-to-peer systems that allow individuals to send and receive payments. These include cryptocurrencies.

Online payment gateways that facilitate secure online transactions for e-commerce businesses.

Contactless payment cards allow quick and secure payments by tapping the card on a reader.

How do electronic payment systems work?

How electronic payment systems work will depend on the type of system in question. In general, though, it will involve the following steps:

• Customers initiate a purchase by swiping, inserting, or tapping a mobile device for mobile payment.
• The payment gateway transmits transaction data from the merchant’s website or point-of-sale system to the payment processor.
• Payment processor: The payment processor receives the transaction data and verifies the card number, expiration date, and CVV code.
• The acquiring bank sends the transaction details to the card network (e.g., Visa, Mastercard, American Express).
• The card network sends the transaction information to the issuing bank for approval, ensuring the transaction complies with network standards.
• The issuing bank receives the transaction request from the card network and verifies that the customer can cover the transaction.
• If the transaction is approved, the issuing bank sends an authorization code that verifies the funds to the acquiring bank and merchant.
• The merchant receives the authorization code, the customer receives a receipt and the transaction amount is temporarily held on their card or deducted from their account.
• At the end of the business day, the merchant submits all authorized transactions to the acquiring bank for settlement. The acquiring bank deposits the funds into the merchant’s account within a few business days.
• During this process, fees are deducted to pay the issuing bank, card network, payment processor, and acquiring bank.

Common Methods of E-Payment

The most common electronic payment options are ACH, debit and credit cards, wire and bank transfers, digital wallets, and mobile pay methods:
Credit or Debit Card Payments: When paying by card, an electronic payment device begins the online payment transfer.
Internet Banking: This method digitally transfers funds from one bank account to another.
Direct Debit: Direct debit transactions transfer funds from a customer’s account using a third party.
E-Wallet: An E-Wallet is a prepaid account that stores the customer’s account information electronically, enabling easy transactions.
Store Credit Card: A store credit card has a prepaid value. These are also called gift cards.

Are Electronic Payment Systems Secure?

Electronic payments are more secure than paper-based processes. ePayment methods have built-in security checks such as payment tokenization, encryption, SSL, and more. Security checks that the person initiating the transaction owns the account, eliminating fraud.

Checks also keep account numbers confidential so they can’t be stolen.
Electronic payments are the most secure payment form for businesses making mass payments to employees, suppliers, and contractors.

Electronic payment system in banking

Through electronic payment systems, companies can transfer funds, pay bills, and make purchases online from their bank account. Companies can also transfer funds from one bank account to another through ACH transfers. Like direct deposits, ACH transfer payments are deposited electronically into the recipient’s bank account.

Banks also use the following for payment options in electronic systems:

• Digital wallets
• Credit cards
• Contactless payments

Use of electronic payment systems for a global workforce

Electronic payment systems have become a regular part of organizations’ toolbox for paying employees abroad.

However, the payment compensation can get a bit complicated and if differences in tax requirements and regulations aren’t taken into account and if relevant policies aren’t set. A few ways things companies can do to solve this includes:

• Ensuring proper training for all payroll staff
• Setting clear protocols and policies tailored for each location
• Conducting regular audits and ensuring employee payment data is up to date
• Partnering with third-party providers to ensure secure regulated transfers
• Utilizing technology to offer a centralized system that ensures both payment and payroll data are in sync