Digital checking payment system
Electronic checks that debit bank accounts.
5-mark Exam Answer
A digital checking payment system extends the traditional checking account to the online environment by enabling electronic cheques (e-checks) that debit the consumer's bank account directly. According to Laudon and Traver, this bypasses the credit card network, and EBPP systems are a major application.
- 1.Electronic cheques debit bank accounts directly
- 2.Bypasses the credit card network and its fees
- 3.EBPP enables online bill delivery and payment
- 4.Four EBPP models: online banking, biller-direct, consolidator, mobile
- 5.Dwolla is a cash-based digital checking network
A digital checking payment system extends the traditional checking account to the online environment by enabling electronic cheques (e-checks) that debit the consumer's bank account directly. This bypasses the credit card network and its associated fees, settling payments through bank-to-bank transfer mechanisms such as the Automated Clearing House (ACH).
Electronic Billing Presentment and Payment (EBPP) systems are a major application of digital checking. EBPP systems enable the online delivery and payment of monthly bills, allowing consumers to view bills electronically and pay them through electronic funds transfers from bank or credit card accounts. In 2007, for the first time, the number of bill payments made online exceeded the number of physical checks written.
There are four EBPP business models: online banking, biller-direct, mobile, and consolidator. In the online banking model, the consumer's bank presents and pays bills. In the biller-direct model, the consumer visits each biller's site. The consolidator model aggregates bills from multiple billers at a single site. The mobile model extends EBPP to smartphones.
Dwolla is an example of a cash-based digital checking network that bypasses the credit card network and connects directly into a bank account. It has its own network that bypasses the ACH. Stripe is another company providing alternative payment infrastructure, focused on simplifying merchant-side credit card processing.
A consumer pays their electricity bill through their bank's online bill-pay service: the bank presents the bill and debits the consumer's checking account via an electronic funds transfer — no paper check and no credit card.
Digital checking payment systems extend cheques online via e-checks and EBPP, debiting bank accounts directly to bypass card networks, with Dwolla and bank bill-pay as leading examples.
The exam interface follows the university paper pattern: Section A & B carry 5-mark questions; Section C carries objective questions.