Payment Systems Overview

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is a common method for transferring money between different bank accounts?

Mobile payment apps

Email transfers

Electronic Fund Transfer (EFT) (correct)

Direct debit

Which component is essential for ensuring data integrity and confidentiality in electronic transactions?

Encryption algorithm

Transaction history log

Public-key infrastructure (PKI) (correct)

Digital wallet

What security feature is commonly used to prevent fraud in credit card transactions?

Card verification number (CVN) (correct)

Two-factor authentication

Biometric signatures

Customer service hotline

What happens when a customer initiates an EFT to a different bank?

The request is forwarded to an ACH Signup and view all the answers

Which of these is a disadvantage of accepting credit cards for online payment?

High transaction fees Signup and view all the answers

What technology is used to safeguard transactions conducted over public networks?

Transport layer security (TLS) Signup and view all the answers

Which of the following is an emerging trend in fund transfer methods?

Internet-based EFT Signup and view all the answers

Which factor contributes to the risk of identity theft in online banking?

Inadequate website coding Signup and view all the answers

What is the main use of a debit card compared to a credit card?

It deducts funds immediately from the cardholder's bank account. Signup and view all the answers

Which actor in the credit card system is responsible for issuing the card to the consumer?

The card issuer bank Signup and view all the answers

What is a key feature of smart cards that differentiates them from regular credit or debit cards?

They have a microprocessor chip embedded in them. Signup and view all the answers

What defines an e-money transaction?

It occurs over the network without middleman involvement. Signup and view all the answers

Why is a debit card commonly perceived as a way to control spending?

It has a daily withdrawal limit imposed. Signup and view all the answers

What is a significant disadvantage of debit cards compared to credit cards?

They demand sufficient balance in the bank for transactions. Signup and view all the answers

Which of these is an example of a smart card?

Mondex card Signup and view all the answers

In an e-cash transaction, what is required from both customer and merchant?

A bank account with the issuing company Signup and view all the answers

Study Notes

Payment Systems

Sales: All activities leading to selling goods, often tied to credit card payment cycles.

Credit Card System Actors

Card Holder: Customer
Merchant: Seller accepting credit card payments
Card Issuer Bank: Cardholder's bank
Acquirer Bank: Merchant's bank
Card Brand: Visa, Mastercard, etc.

Debit Cards

Mechanism: Payment immediately deducted from linked bank account; requires sufficient funds.
Benefits: Eliminates carrying cash/checks; readily accepted by merchants; spending limits.

Smart Cards

Characteristics: Small microprocessor chip, stores work/personal information, used for transactions.
Security: Access through personal identification number (PIN); encrypted data storage.
Examples: Mondex, Visa Cash.

E-Money

Mechanism: Electronic payment transfers between financial entities without intermediaries.
Types: Online payments using credit cards, debit cards, smart cards, e-cash, and cryptocurrencies like Bitcoin.
Convenience: Fast, convenient, and time-saving.

Electronic Fund Transfer (EFT)

Purpose: Transferring funds between bank accounts (same or different banks).
Methods: Automated Teller Machines (ATMs), computers, and increasingly, internet-based transfers.
Internet EFT: Customer logs in, requests transfer, bank transfers funds (same/different bank, using ACH for transfers to other banks.)

Online Payment Security

Authentication: Financial institutions on receiving end must obtain certificates from authorized certification authorities (CAs).
Data Integrity & Confidentiality: Public-key infrastructure (PKI) used.
Website Security: Customer-facing websites need careful coding to prevent credential leaks and identity theft.
Transport Layer Security (TLS): Protects transactions over public networks.

Credit Card Security in Specific Countries

Concerns: Countries like China and India face challenges with credit card security.
Security Enhancements: Card verification number (CVN) – compares verification number with cardholder’s bank information.

Credit Card vs Debit Card

Cost: Debit cards are often cheaper for merchants than credit cards due to lower transaction fees.
Security: Similar security measures exist but cost varies.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Explore the fundamental concepts of payment systems, including credit and debit card mechanisms, smart cards, and e-money. Understand the roles of various parties involved, such as cardholders and banks. This quiz is essential for anyone studying financial transactions and electronic payment methods.