Bank “plastic” and electronic wallets are increasingly replacing cash. The statistics talk about it, and the personal experience of each of us also confirms that virtual money is used more often than paper money. Actively using payment systems to pay for goods and sending money transfers, it is good to know how they are designed and how they work. This is the subject of our article.
What is a payment system?
Simply put, a payment system (PS) is an intermediary between buyer and seller. A payment system is a money transfer service for making payments to banks, stores, and others. In addition to ease of use, payment systems have another important advantage: speed. If the usual money transfer can take several days, then the payment system processes payments instantly.
All operations are secure, payment systems are controlled by the law. Thus, PS ensure:
– Stable operation;
– Reliability and security;
– Insurance in case of any failures due to unforeseen circumstances.
How do the SARs function?
The essence of any PS is to conduct non-cash cash transactions. The process of using a payment system consists of the following steps:
- Choice of service – payment for goods in the internet shop, money transfer, mobile account refill, etc.
- Choice of payment method with the following transition to the secured page where the operation is carried out;
- 3. Entering of details and payment confirmation.
All information on the operation is transmitted via encrypted protocols, which ensures security. The whole procedure takes a few seconds.
Bank PS works based on plastic cards. These payment systems may be international, national, or intrabank.
Widely known, for example, such bank PS, such as VISA and MasterCard. They work all over the world. In Russia not so long ago was created a national payment system MIR, which is growing in popularity.
Many bank PS offers clients various loyalty programs: cashback, discounts in partner stores, bonuses, etc.
Money transfer
Money transfer is a financial operation between two persons using bank cards. To carry out a transfer, you must have your card in the PS and know the recipient’s details. Almost every modern payment system offers money transfer services.
Different systems may have some differences, but in general, the procedure of money transfer looks the same everywhere: the sender enters the transfer amount and beneficiary details and confirms the operation with a code. After the withdrawal of funds from the sender’s account, the PS clears and notifies the beneficiary bank of the need to transfer the required amount.
In contrast to the “normal” transfer, with a need to visit a bank branch, money transfers through payment systems can be sent without leaving home, the PS work around the clock, and the process takes a couple of minutes.
There are also disadvantages. First of all, it is the commission (in the region of one and a half percent) and restrictions on the limits of transfers. If the money does not reach the recipient because of a technical failure, the sender will have to talk to the PS support team. The problem, of course, will be solved, but finding out and eliminating the causes of failure may take time.
International PS
International systems are payment systems operating around the world. Above, we have already called the two most common, VISA and MasterCard. We devoted an article “VISA or MasterCard?” to the description of these payment systems, as well as recommendations for choosing between them, which we recommend reading.
Also widespread are the following international payment systems:
Diners Club International – founded in 1950, and became a model for the creation of some other PS. Plastic cards were firstly introduced by this payment system. The reason for creating PS was the situation when in 1949, financier Frank McNamara forgot his wallet and could not pay for lunch in a restaurant. The unpleasant situation encouraged him to create Diners Club, a club for restaurant regulars. Club members could not worry about cash when visiting their favorite restaurants.
The PS specializes in travel services. Cards are accepted in more than 200 countries, and there are more than 600 thousand ATMs worldwide, working with Diners Club International.
American Express – the company has been in business since 1850 (New York), provides travel services. It issues checks and plastic. Based on the company launched and SAR, which is considered the third after the giants’ VISA and MasterCard. It is oriented to people who travel frequently. It’s most common in the U.S. and Canada.
JCB is a Japanese PS founded in 1961. It offers several types of cards (credit, debit, prepaid) in 23 countries. Its issuing banks in Russia are AEB, DVB, Gazprombank and Rosselkhozbank. Holders of JCB cards get discounts in cafes and online stores, bonuses for travels in Europe and Asia.
Electronic payment systems
Electronic Payment Systems (EPS) differ from usual PSs in that they are based on electronic purses instead of plastic cards.
The first specialized software and payment system without using cash were created by E-Gold. This E-Gold became a stimulus for the creation of other similar systems all over the world.
The clients of EPS keep their money not on their bank accounts, but the e-wallets. You can deposit your wallet in different ways: from another wallet, from a bank account, through a terminal. Withdrawal of money from the electronic wallet is also possible in different ways. Let’s talk briefly about the most common eWallets.
WebMoney – this system appeared as one of the first in 1998, and today counts more than 40 million users. The following title signs are used for payments: WMR – Russian rubles; WMZ – US dollars; WME – Euro and other electronic analogs of national currencies.
PayPal is one of the largest EPS and was founded in 1998. The services of PayPal are used by more than 200 million people all over the world. The system works with 25 national currencies. In 2020, the system canceled the possibility of internal transfers for Russia, leaving only foreign.
UMoneu is a Russian electronic payment system, offering the service of settlements and electronic money transfers, equivalent to the Russian ruble. About 50 million users are registered in the system.
QIWI – digital payment system, created in 2007 by the Russian company, which is used by more than 20 million people, mostly in the CIS countries.
The advantages of the electronic payment system
The purpose of any electronic payment system is to give the client a simple, convenient, and safe way of financial transactions. EPS can be used for business, everyday shopping, and payment of bills, and many other operations.
Modern electronic payment systems give their users a lot of advantages:
– A multi-level security system. Besides the default protection levels, the client can set up some levels himself. Any operation with money requires the user’s confirmation;
– EPS allows you to pay fines, credits, utilities, transfer money to other users, use the services of exchangers, etc. Many payments can be put in automatic mode;
– All electronic payment systems have a simple and intuitive interface. The user can quickly contact the technical support if he has any questions about the EPS functionality;
– All operations are fulfilled as fast as possible. The longest process – registration, as it requires entering personal data and identity confirmation.
National payment systems
A national payment system (NPS) is a service of processing and execution of financial transactions within the country without the involvement of foreign processing departments. Although, many national systems support foreign settlements as well.
MIR – the reason for the creation of this payment system was the sanctions imposed on Russia after 2014. Now more than 400 banks cooperate with the MIR system, and some of them act as issuers. Since 2019, the MirPay function has been in operation, which can be used to pay for purchases and services via a smartphone with Android OS and NFC support.
Unistream is an NPS that offers services for legal entities. The operator and settlement center of the system is the bank of the same name. Clients use a mobile application, which is available on App Store and PlayMarket.
VTB – a system created by VTB Bank for transfers between the accounts of bank customers.
Zolotaya Korona – in 2013, the Central Bank of Russia recognized this payment service as socially significant. The system works with 550 banks in Russia, CIS countries, and some foreign countries.
SberPay is a system of payment services, which allows customers to make payments and money transfers through the Sberbank Online application. The system is considered convenient for customers because it works in more than 76 thousand ATMs, and requires a minimum of details at the time of payment.
Selection criteria for individuals will be, first of all, reliability of the system, support for bank cards and electronic payments, low commissions, feedback from users.
Legal entities when choosing a particular payment system should be guided by the stability of operation and absence of interruptions. It will also be important to assess the technical features of the system in terms of implementation in business and convenience for customers.