The transfer of funds from one party to another over electronic media is known as electronic payment. The different approaches to electronic payments include card payment, mail order, and online payment. Online transactions are a daily activity for almost everyone today. With the introduction of the Internet, online transactions became easy. Most product and service companies made their web presence prominent and started interacting with their customers online. Online shopping became popular. With financial institutions working on similar lines, people around the world began to carry out financial transactions over the Internet. Credit and debit cards became commonplace and gave impetus to electronic payment systems.
While most of us prefer the convenience in transactions that electronic payment systems offer, some dislike the idea or are not very comfortable with it. The discomfort is primarily due to the security risks involved in electronic transactions. Though e-payment systems have turned out to be very useful, the privacy and security concerns raised by them, cannot be ignored.
Electronic Payment Systems and their Disadvantages
In case of e-banking or online financial transactions, you need to be a registered user with the respective website. Though most transactions involve the use of one-time passwords thus ensuring safety to a considerable extent, some parts of a transaction, or your personal details and bank account information is accessible through your credentials for the online portal. This gives rise to the need of password protection when handling financial accounts online. Also, if you are transacting with multiple financial institutions or have accounts with multiple banks, the risk of privacy breach is multiplied. For some, maintaining multiple accounts online feels tedious.
Limitations on Amount and Time
For withdrawal or fund transfer, certain banks may impose limits on the amount or the number of daily transactions, whereby an amount exceeding a certain figure cannot be withdrawn at once, or only a certain number of transactions are allowed per day. While this is taken as a safety measure, some may find it inconvenient. The access to money may be delayed in case of electronic modes as against having physical access to money. In case of taking electronic payments, the payment terms may need to be longer. When different electronic payment services do not cooperate with one another, e-currency exchange services may need to be opted for.
Risk of Being Hacked
When transacting online, your personal or account information and credit card number is exposed over the Internet. This leads to the risk of your account being hacked. Hackers may use your identity for fraudulent activities or make huge fund transfers from your account, which could mean financial losses for you.
There are no means to verify if the person entering information online is the same person he claims to be. This is because unlike physical transactions, the individual is not present in person, and one's identity is not verified using a photograph or a physical signature. Mostly, electronic cash transactions are based on cryptographic systems. Information being transferred is encoded by means of numeric keys when the transaction details travel across the web. Though electronic payments carry less risk of forgery, the keys are vulnerable to attack.
Anonymity and Privacy Concerns
All the transaction and user details are recorded by the payment systems you are using, and stored in their database. This leads to lack of anonymity. Cases of identity theft have raised privacy concerns in electronic payments. If credit card details are not sent over a secure server, if online transactions are not carried out over a secure Internet connection, if virus protection software or firewalls are not in place, or if data encryption techniques are not used, there is a serious risk of privacy breach. In the absence of proper security measures, sensitive information may be exposed to hackers, leading to illegitimate use of your identity or money.
Additional Cost and Effort
Some electronic transaction services may require you to pay processing fees and the like, thus leading to increased costs. Some systems require setup fees, while some others enforce a certain number of transactions every month. Electronic payment systems need Internet access, which may invite additional costs. Setting up the account, accessing the Internet, familiarizing oneself with the interface and operating it efficiently, involves additional effort, and may be cumbersome for some.
Loss of Smart Cards
Electronic payments involve the use of smart cards (credit and debit cards, ATM cards, identity cards, etc.) And this involves the risk of their theft or loss. In case a lost smart card falls in the wrong hands or if it is stolen, your identity is at the risk of theft and the money in the account that the card is linked to, may be spent by fraudulent users. There are measures to inform the bank about the loss of your card and get it blocked. But the time between losing the card and blocking it, is critical. Unauthorized users may carry out transactions in your name during that period.
This was an overview of the disadvantages of electronic payment systems. While their advantages outweigh the risks involved in their use, we should be aware of these potential threats and take the safety measures needed.