Thanks to booming technology and the wide use of smartphones and laptops, it’s so simple and easy to go cashless with various electronic payment options.
Electronic payment is any kind of non-cash payment that doesn’t involve a paper check. Methods of electronic payments include credit cards, debit cards, and the ACH (Automated Clearing House) network. The ACH system comprises direct deposit, direct debit, and electronic checks (e-checks).
Types Of Electronic Payment Transaction
There are three types of transactions related to electronic payments.
1. The one-time customer-to-vendor payment
This method is used when customers shop online at an e-commerce site, such as Amazon. They click on the shopping cart icon, type in their credit card information, and click on the checkout button. The site processes the credit card information and sends out an e-mail notifying that the payment was received. On some websites, the customers can use an e-check instead of a credit card. To pay by e-check, they type in their account number and their bank’s routing number. The vendor authorizes a payment through the customer’s bank, which then either initiates an electronic funds transfer (EFT) or prints a check and mails it to the vendor.
2. The recurring customer-to-vendor payment
This method is used when customers pay a bill through a regularly scheduled direct debit from their checking account or an automatic charge to their credit card. This type of payment plan is often offered by car insurance companies, phone companies, and loan management companies. Additionally, long-term contracts normally require this type of automated payment schedule such as gym memberships.
3. Automatic bank-to-vendor payment
This method can only be used when customers’ banks offer a service called online bill pay. Customers log on to their bank’s website, enter the vendor’s information and authorize the bank to electronically transfer money from their account to pay their bill. In most cases, customers can choose whether to do this manually for each billing cycle or have their bills automatically paid on the same day each month.
Benefits of Electronic Payment
1. General benefits
- Complete and develop e-commerce: In many different ways, online payment can perfect e-commerce in the true sense of online transactions. With safe and convenient e-commerce payment, the development of global commerce is inevitable for a large and constantly increasing population.
- Increase the circulation of money and goods: Electronic payment helps the payment process to be quick and safe, ensuring the interests of all parties, and minimizing risks.
- Modernize the payment system: Electronic payment creates a new kind of money (Cryptocurrency) that not only satisfies banks but also meets the needs of buying ordinary goods. The transaction process is simple, fast, and transaction costs are significantly reduced.
2. Benefits for banks and businesses
- Increase revenue: Electronic payment not only helps to expand the customer system but also increases access to the world market. Additionally, it helps to get more sales from existing customers and other value-creating services.
- Reduce business costs, selling expenses, transaction costs, and at the same time increase business efficiency.
- Reduce office costs, shorten operation time, standardize procedures, improve the ability to search and process documents.
- Reduce staff costs, reduce sales and marketing costs.
- Expand the market through electronic payment methods. Banks, instead of spending more money to open branches, can provide Internet Banking services to expand the scope of service provision.
- Diversification of services and products: Banks can develop and provide new services to customers such as phone banking, home banking, Internet banking, money transfer, withdrawal, automatic payment.
- Enhance competitiveness and create unique features in business activities.
- Implement the globalization strategy without having to open more branches, saving money, and serving a larger customer base.
- Trade promotion, brand promotion to the world: Through electronic payment, banks and businesses can post all financial information for foreigners to know, in order to increase their brand’s value. Intellectual properties and services serve the purpose of advertising promotion.
- Facilitate the establishment and strengthen business relationships.
- Create conditions to spread and popularize images and product brands with international customers.
3. Benefits for Customers
- Fast, convenient: This is probably the first benefit to mention of the electronic payment method. In the past, to top up a phone, top up a game card, and pay the utility bills, customers had to go to a store or to a specific address to pay. Now, with just a computer or smartphone connected to the Internet, customers can pay for everything 24/7.
- Save cost and time: Not only fast and convenient but an online payment service also helps to save money and time. Customers just need to sit at home, perform a few simple steps and it’s done. Moreover, online payment services at banks often apply promotions to help customers enjoy the best service at the cheapest price.
- Information security: Online payment service providers all have the best information security mechanism for customers. So customers don’t need to worry about their account information being leaked out. Compared to using cash, online payment is much safer and more secure.
- Flexible payment: Customers are provided with many different payment methods such as e-wallets, domestic bank accounts, international cards, making it more convenient to make online payments according to their needs.
Disadvantages of Electronic Payment
Besides the benefits and advantages, electronic payment methods also have certain disadvantages such as:
- Tampering and technical risks: Nowadays, counterfeiting is becoming more and more sophisticated and is an organized activity. Although the number of forgery cases did not increase much, the size of each case increased by a large amount. This is a potential risk for banks and their customers.
- Need reinforcement and vigilance from many sides: Experts say that the risk of information insecurity coming from devices connected to the Internet is increasing. Therefore, customers themselves need to pay attention to strange points in cash machines, card machines, When using e-wallets, Internet Banking, users need to pay attention to their devices with programs installed. anti-virus program or not, be careful not to click on strange links.
Above are the key benefits of electronic payment methods. Hopefully, the article has brought you a lot of useful information.
We would love to hear your thoughts and questions on electronic payment in the comment section below.
Shoeboxed can help
Bookkeeping management software developed by Shoeboxed is an ideal tool for professional accounts and small business owners. With Shoeboxed, you can turn your receipts into data and organize, make reports and analyze your current financial position at any time and anywhere. To get the most out of your bookkeeping management, get started with Shoeboxed for free!