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A to Z of Payments - Part 2

Written by  Siddarth Tuesday, 30 May 2017 07:31



Public and Private. Payment firms use public and private keys to encrypt and decrypt sensitive information that is passed over the internet. This ensures the security of the information and also gives confidence to more people to use digital payment systems.



Many payment and card issuing firms give frequent users loyalty points for using their payment systems. It is estimated that there are over a billion loyalty points active at any point in time in the world! Just so that you know, I redeemed loyalty points worth ₹ 10,000. Isn’t that sweet!




Magnetic Stripe

The world is moving away from magnetic stripe cards but you still see them in all cards. The stripe (usually black) contains information such as card number, name of the card holder and expiry date. When the card is swiped on a reader, the information is passed on to the payment system to process the transaction. Magnetic stripes are prone to attacks and hence are being replaced by a more secure alternative called chip.



These are the ones who connect various banks and consumers across the world, thereby ensuring that merchants who accept payments that belong to members of those network are guaranteed. Typical networks include Master, Visa, Amex and Rupay. A network typically collects a small fee on all transaction for allowing various stakeholders to use their technology and platform. Visa is the largest payment network in the world.



OTP - One Time Password

This is typically sent over a SMS to the registered mobile no of the individual whose source of funds is used to pay. An OTP acts as a second factor of authentication for every transaction, thereby reducing frauds. OTPs are delivered to the registered mobile numbers and email addresses to ensure security but it does not address the fact that mobile devices and email addresses can be hacked.


PIN - Personal Identification Number

This is like OTP but it remains the same for that payment instrument until the user changes the same. Typically, a pin is entered after the card has been swiped. A pin is used as a second factor of authentication. A pin is supposed to be memorized by the individual but most of us end up writing this in a piece of paper and stick it to our card, thereby inviting trouble.



QR Codes

The payment industry is now moving to large scale QR code implementation. QR codes allow rapid exchange of information through a quick scan. Several payment players now provide merchants with a simple QR code and ask consumers to scan the QR code and make the payment. QR codes reduce friction and obviate the need of a device on the merchant side to start a transaction.



A payment is not complete until it is not reconciled. Reconciliation is the process of matching a payment received against an invoice that has been raised.  Reconciliation helps the merchant complete the order against which the invoice was raised. Any un-reconciled payment is returned to the payer.




Settlement is defined as the process of giving the merchant their dues after a payment processor has deducted their charges. Settlement cycles can range from daily (1 day after the transaction) to a fixed day per week.


TDR - Transaction Discount Rate

Transaction discount rate is the commission that payment processor charges for allowing the merchant to process digital transactions. Credit based instruments have a higher TDR when compared to bank account based debit cards. These rates are applied on a per transaction basis.


Read 1293 times Last modified on Thursday, 01 June 2017 06:16