“Within five years, half of today’s smartphone users will be using their phones and mobile wallets as their preferred method for payments.”
- Peter Olynick
It is absolutely true as half of the smartphone users are using their devices for paying. We know that these are called Digital Payments. But how exactly can we define such payments? And if a smartphone is a digital mode then what were the traditional ones?
In this blog, you will get an answer to each of the above questions. We will understand the meaning of Digital Payments. The modes of Digital Payments as well as the differences between the e-modes and the traditional one.
Also Read | Introduction to Central Bank Digital Currencies (CBDC)
What are Digital Payments?
Till now there is no clear definition for digital payments. As in, no clear parameter is present to underline the meaning of it. Since there is no universal definition we can say Digital Payments can be- fully digital, half digital or even primarily digital.
Fully Digital payment means both the parties i.e. the payer and payee do a cashless transaction. In half/partial digital payment both the payer and payee depend on a thor party for cash and lastly in primarily digital payments payer uses a cashless system via an agent but the payee gets cash at the end.
So, you see there is no fixed definition. In some cases the party's interface is considered an element for defining digital payment. While others use payment type to define it. Probably there must be other criterias as well.
Whatever be the definition, one thing is sure that payment systems are constantly changing and rapid innovations are being done in this regard. We have witnessed a gradual change in the way we pay.
In earlier times, people used to exchange goods as payment, then came currencies i.e. cash payment. Then bank cards, credit cards, cheques, online transfer. And now we are using online wallets, on tap systems, digital cards, online banking and what not.
What can be expected from the payment systems that we have now? Will there be more innovations and upgrades? Yes, considering the frequent changes in technologies we can expect a lot more.
Payment systems will become quicker, safer and even easier. Here are some innovations:
No Contact Payment
We are moving towards non- contact debit cards, credit cards and smart cards. They will be radiofrequency enabled. This way no contact will be needed. This method is not used by many people till now. But it is very effective considering the pandemic.
Quick Response System
Quick Response codes are being used by small and big vendors to allow a seamless payment directly into their bank accounts. These barcodes have data and when you scan it you get all the information about the payee on your device. Through these codes the payment related costs are reduced.
Biometric systems are being used in payments nowadays. It is not so commonly used by general people right now but in the future we can expect it certainly. Approval to complete a transaction is given after scanning eyes, fingers or any other biological feature. After successful verification you can complete the transaction.
Benefits of Digital Payments
Given below are some benefits of digital payments. In fact, senior citizens are also preferring digital payments over cash transactions.
You cannot carry cash with you every time. There is a risk of theft. Therefore, paying via digital methods is a safer option. For senior citizens also this mode is a lot more safer. No need to carry wallets.
If you feel digital payments are not safe as frauds happen all the time, then you need to be careful with your one time passwords. If you don’t share it with anyone then it is totally safe.
Be it any middle aged person or senior citizen, ATM lines can be nerve racking. There are so many people that still withdraw small amounts for daily needs. If you follow the digital payment system then you don’t have to stand in lines for withdrawals. You just need your phone or your cards and make payments easily and conveniently.
There are so many platforms that offer payment services. You can use bank cards, smart cards or even Paytm, Paypal or even Google Pay if you want. Numerous methods are present and you can choose any one you like. For older people, this is a great opportunity to make transactions without any cash involvement.
Imagine going on a holiday with a small bag which has all your cash and you have to constantly carry it around every time you go out. It can be frustrating, plus the fear of theft can become a headache.
But now almost every shop and hotel accepts digital payments across the world. Therefore, complete ease when you go out with friends or family.
As we know the government wants to promote digital payments therefore, banks and other payment platforms are constantly giving offers and discounts when you pay through them. You get flat discounts, cashbacks, rewards, coupons, deals and so much more.
To be financially independent you have to track all your expenses and then control the extra ones. For older people, tracking their expenses is equally important. They don’t have a regular income source.
They only have pension and savings. Digital Payment platforms allow you to track your expenses on a monthly basis. The best example is Paytm wherein you get your monthly statements via emails.
Types of Digital Payment Methods
“At 2030, I would say that you probably have two billion people that’ll be using day-to-day banking services, independent of banks.”
There are so many modes of Digital Payments. The main aim of these is to facilitate every transaction with ease and security and involving no cash at all. Here are some of the digital payment methods:
Types of Digital Payment Methods
Cards issued by banks and other financial institutions are completely safe and convenient. You may get a credit card, debit card, smart card or even a prepaid card based on your needs. Cards are also based on domestic transactions and international transactions i.e Rupay and Visa.
MasterCards are also very popular for payments. Time involved while paying via cards is also very less. You have to enter one time passwords or a PIN before completing the transaction.
Some banks and FI offer mobile banking facilities. Through this method you can make all financial transactions via your mobile/smartphone. There is a bank application used for this purpose. There are applications for Android as well as IOS devices.
Also known as Online banking or e-banking. Through Internet Banking, customers can engage in any kind of financial activity using the website of the bank. Activities like money transfers, FDs and even online payments.
Wallets or mobile wallets are just like regular wallets that we carry. But in mobile wallets there is digital cash and not physical money. All sorts of payments can be done via mobile wallets. There are many popular wallets like Amazon wallet, Paytm wallets, SBI Buddy wallet etc.
UPI stands for Unified Payment Interface. In this multiple banks are unified in a single application. Just like Paytm has its own UPI application. In order to receive money you have to share your UPI id with the sender. The whole payment system is very simple and smooth.
AEPS is an ongoing system and not very popular. Before using this method one has to fulfill some conditions like linking Aadhar cards with banks. In this mode a certain limit is there beyond which funds can’t be transferred. This limit will be defined by the banks.
This method is very useful in areas with no internet connectivity. You just need to dial*99# and activate USSD on your mobiles. You don’t even need a smartphone for this. In this method there is a limit for every day transactions as well as a set annual limit beyond which cannot do any transactions.
Also Read | Cloud Banking
Differences between Digital and Traditional Payment Methods
There are multiple ways in which we can differentiate digital payment methods from traditional methods. Digital Payment methods include wallets, cards, online banking etc, whereas Traditional methods include cash payments, cheques etc.
The first one is based on the amount we spend. Obviously when we use cash to make payments we spend very carefully but when we use mobile wallets or digital methods we sometimes overspend because payments are done very quickly.
Secondly, in traditional methods we can monitor how much we spend but doing it manually takes time whereas in digital payment system monitoring is done by the application itself. Therefore, we can easily control.
Third, when a shopkeeper accepts cash, he has to count everything and pay the change then check the authenticity of each note whereas in case of digital methods he receives every amount straight in his bank account or wallet without having to pay any change or checking realness.
What happens when you get your currency notes torn? You cannot use the notes until you get them exchanged from banks. But when using digital payment methods, no such issue will arise at all.
The more goods you want to buy the more money you have to keep in your pocket as per traditional methods but in case of digital methods no need to carry any money at all. You can pay directly from your account.
Digital Payment methods are used by people who have technological knowledge and understand how to use the internet. Whereas traditional methods can be used by anyone be it literate or illiterate. Choosing any method is the choice of payer and payee.
In today’s time when everyone wants a seamless experience in everything, we should go for digital payments. These methods are more convenient, safer and transactions take only a few seconds.