Simply put, digital payments are payments that do not involve any fiat money, where both the payer and receiver use an online mode to exchange money.
Not only does a payment made online on the shopping website come under the ambit of digital payment, but a simple “scan and pay” of the UPI at a local chai shop also qualifies as a digital payment.
Under the Government of India’s ‘Digital India’ initiative, India has seen a rise in cashless transactions. In 2021 alone, 40% of all digital transactions processed contributed to payments worth staggering $3 trillion.
To push the initiative, the government has also included UPI as a mode of payment other than RTGS, NEFT, account payee cheques, demand draft, etc.
Benefits of Digital Payments:
- Safe, quick, easy and convenient: Digital Payments reduce the risk of theft of physical cash and cards. Moreover, lengthy information such as account name, IFSC code, etc., are not required every time a transfer or payment is made.
- Low to No Cost Transaction Fee: Most digital payments, especially UPI, have low to no transaction fees.
- Digital record of transactions: Digital payments help in maintaining a track record of all transactions.
- No counterfeit money: To avoid counterfeiting currency, digital payments are one of the best and easiest options. It also enables the government to maintain track of all transactions so that the black money circulation can be curbed and done away with.
Modes of Digital Payments in India
To say the least, digital payments are the future. So why not understand the various modes of digital payments that are currently operational in India:
1. Unified Payments Interface
Unified Payments Interface, simply known as a UPI, allows real-time money transfers between bank accounts through a mobile application. It eliminates the need for bank account details of the receiver or card details of the payer. Money can be transferred using a mobile number linked to the receiver’s bank account, a UPI ID, or a QR code. A simple two-factor authorisation process has made it the most common and preferred digital payment mode in India.
2. Banking Cards
Debit and credit cards have been the most widely-used cashless payment method for years before the popularity of UPI. Preferred for the safety and convenience they provide, bank cards have evolved to enable contactless payments using Radio Frequency Identification (RFID) technology. One can simply tap the wifi-enabled card over the card reader to make payments. This helps in eliminating the steps of swiping the card and entering the PIN, making it contactless and quick.
3. Unstructured Supplementary Service Data (USSD)
To provide access to the underbanked sector of India’s population and where banking and internet facilities are sparse, USSD mobile banking is possible without using the mobile internet in a feature phone.
Simply dial *99#, a common number across all the Telecom Service Providers (TSPs), on the registered mobile phone(feature or smart) and transact through an interactive menu displayed on the screen. It allows interbank account-to-account fund transfers, balance inquiries, and mini statements.
Offered by 51 banks in 12 different languages, this service aims to improve and provide accessibility across India despite the poor internet connectivity or lack of smartphones by bringing the Banks and TSPs together. The transfer limit has been capped at Rs. 5,000 per day and Rs. 50,000 per annum. This limit varies based on the bank.
4. Aadhar Enabled Payment System (AEPS)
AEPS is a bank-led digital payment model that enables banks to route Aadhar-enabled interbank transactions through a business correspondent/bank mitra of any bank using Aadhaar authentication. Simply put, two Aadhaar-linked bank accounts can transfer money between them along with other services like balance inquiry, cash withdrawal, cash deposit and payment transactions (customer-to-business and customer-to-government). Currently 118 banks offer APES service.
5. Mobile Wallets
Mobile Wallets can be simply described as an e-wallet or digital wallet that links debit card or credit card information to a mobile app. As the name suggests, the app permits you to transfer/load money online to the mobile wallet after linking it with the bank account. Once you add the money to the wallet, purchases can be made using a smartphone, tablet or smartwatch instead of using debit/credit cards.
6. Bank Prepaid Cards
Bank prepaid cards are like, but not similar to, debit cards which are pre-loaded with money. Unlike debit cards, these are not linked to any account, and for money to be added to these cards, one must either do it online or by visiting a bank branch.
They are available for single or multiple-usage. Once the amount is exhausted in a single-use prepaid card, it gets blocked automatically. A multi-use prepaid card generally comes with a certain expiry date, and the card can be loaded with money multiple times until its expiry.
7. Point of Sale (PoS) Terminals:
Point of sale terminal is a combination of software and hardware that allows processing card payments at retail outlets. These are essentially a digital replacement for a cash register which can process debit or debit card transactions. The most commonly used payment mediums at PoS terminals are debit cards, credit cards, contactless cards and UPI payments.
There are also electronic PoS systems available that enable merchants/businesses to start accepting payments by simply downloading an EPOS app on an NFC-enabled device.
8. Internet Banking
Otherwise known as online banking, e-banking or virtual banking, internet banking is an electronic payment system that enables a transaction to be completed through a bank’s website once the customer has registered with the bank for internet banking.
The various methods of internet banking are NEFT (National Electronic Fund Transfer), Real Time Gross Settlement (RTGS), Electronic Clearing System (ECS) and Immediate Payment Service (IMPS).
9. Mobile Banking
Mobile banking is a service provided by a bank to allow its customers to perform banking functions without visiting the branch such as balance inquiry, transfer of money to another bank account of the same bank or a different bank, paying utility bills, generating account statements (passbook), among many other functions. Banking activities are carried over the smartphone using the bank’s mobile application.
10. Micro ATMs
Micro ATMs are devices that enable the transfer of money via Aadhar-linked bank accounts by authenticating fingerprints or card swipes. Used by business correspondents (BCs) to deliver basic banking functions, Micro ATMs enable instant deposit or withdrawal of money. BCs must verify the authenticity of a customer using the customer’s UID, which can be done using the fingerprint or a card swipe. Once verification is complete, options for various transactions like cash deposit, fund transfer, PoS, and cash withdrawal can be carried on.
