Digital Economy — Digital Payment System make it Go!
Digital Payments system is one of the main components of Digital Economy. There has been a significant transformation in the way that we make payments over the last few years. We now have more options than ever before, and payments are faster and more flexible than they used to be. Innovative technologies have brought new paradigms in the global business. Digital payments have transformed the way people spend their money. The financial services industry has undergone dramatic technical advancement and as a result, this sector has expanded considerably.
What are Digital Payments Systems?
Digital payment is a way of payment which is made through digital modes. In digital payments, payer and payee both use digital modes to send and receive money. This is also known as electronic payment system.
Modes of Digital Payments
1. Card Payment: Cards are the most common form of electronic payment in the world. These cards are given to the customer by financial institutions to allow them to pay digitally.
2. Bank Transfer: There are many options to transfer money from one bank to another, but nowadays bank customers choose digital money transfer. In India, money can be moved from one bank to another by using NEFT, RTGS, IMPS and UPI Transfer.
3. E-Wallets: E-Wallets will take over the payments system in future. These wallets hold customer debit or credit cards details on mobile devices. These wallets can be used either by phone near a NFC enabled payment machines in stores or by smartphone users for in-app or online transactions.
Digital Payment options in India
1. Banking Cards: where transfers may be made with a Debit card or Credit card.
2. Unstructured Supplementary Service Data: The path breaking payment service *99# works on Unstructured Supplementary Service Data (USSD) channel. One can make payments from any mobile phone whether it is a high-end phone or a normal phone in which there is only a calling function. One just need to dial *99# from your mobile number which is linked to one’s bank account.
3. Aadhaar Enabled Payment System: One can make payments using Aadhaar authentication at Point of Sale.
4. UPI: Unified Payments Interface (UPI) is a framework that helps us to use multiple bank accounts from a single smartphone device. This is one of the most used digital payment methods after the Covid-19 Pandemic. Currently, around 200 Bank registered on UPI platform in India. BHIM, Google Pay, PhonePe, Paytm, WhatsApp are some of the Major apps used for UPI payments.
5. Mobile Wallets: Mobile wallets are a way to hold cash in digital format. In India there are a range of smartphone apps offering Mobile Wallets for example, Paytm, Freecharge, Mobikwik, Oxigen, mRuppee, Airtel Money etc.
6. Internet Banking: Internet banking, also called as online banking, e-banking or virtual banking. It is a digital payments system through which one can make digital payments using website of the bank or financial institution. National Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS), Electronic Clearing System (ECS), Immediate Payment Service (IMPS) are the types of digital transactions which can be made using internet banking.
7. Mobile Banking: It is a service offered by bank or financial institutions to make financial transaction remotely using mobile application. Each bank has its own mobile applications which can run on Windows, Androids and iOS mobile devices.
Benefits of Digital Payments
1. Save time and its economical
Transactions cost less the physical transaction and a lot of time can be saved by transacting digital transactions. Traditionally it used to take a lot of time to collect cash from the bank or ATM but now it is only an away.
One of the biggest issues regarding digital payments in the past was the issue of security. This is no longer the case now. Digital payment transfers are carried out through encrypted financial networks which is safe and efficient. One can block his digital accounts or cards in case of fraud or cyber-attacks, but this cannot be accomplished in case the wallet is robbed. In addition, there is the question of accountability and transparency, which is important for various stakeholders. With digital payments, all transaction can be tracked and stored reliably.
Transparency in transactions is important for various stakeholder. With digital payments, all transactions can be tracked and stored efficiently. Governments can also trace the transactions that can also help them track any tax fraud.
4. Automated Transfers
The transaction is carried automatically without the intervention of bank officials, all the credentials are reviewed and verified automatically by payment servers.
Challenges involved in Digital Payments System
1. Service Charges
Payment Gateways and bank charges some amount of money on each transaction which is be critical for small business.
2. Cross-border transactions
Transaction across border payments can be sluggish, cumbersome, and even costly, but they have an important role to play in global trade. Currently there are only a few platforms that allow cross border payments to be made in a few clicks.
3. Vulnerability to Cyber-criminals
Cyber-crime remains one of the most critical problems affecting many around the world. It has increased after the pandemic.
The digital payments at a turning point. Regulator mandate together with the FinTech boom has introduced a new era of payment. At a moment when FinTech are making enormous strides through numerous applications in the payment’s markets, banks and card networks are compelled to remain relevant. Emerging innovations in technologies have now simplified and improved business-to-business and business-to-customer experiences with mobile payments, e-wallets, and contact-less cards. As the online payment processing market grows, user demands for additional payment features and options lead growth in multiple directions. Therefore, the role of digital payments system is going to be significant in growing Digital Economy.
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