What is Digital Payment?
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. It is also called electronic payment. No hard cash is involved in the digital payments. All the transactions in digital payments are completed online. It is an instant and convenient way to make payments.
If we talk about cash payments, you have to first withdraw cash from your account. Then you use this cash to pay at shops. Shopkeeper goes to the bank to deposit the cash which he got from you. This process is time-consuming for you and also for the shopkeeper. But in digital payments, the money transfers from your account to the shopkeeper’s account immediately. This process is automatic and neither you nor the shopkeeper is required to visit the bank.
Digital payments save you from long queues of ATMs and banks. If you pay digitally, you won’t need to withdraw cash from your account. It also saves lots of time and a little bit of money as well.
From commonly used cards to newly launched UPI, digital payments has many types of payment. Some modes meant for tech-savvies and some for less-technical persons. Below are the different modes of digital payments.
UPI or unified payment interface is a payment mode which is used to make fund transfers through the mobile app. You can transfer funds between two accounts using UPI apps. You will have to register for mobile banking to use UPI apps. Currently, this service is only available for android phone users. Hence you can use UPI only when you have an android phone.
You need to download a UPI app and create a VPA or UPI ID. There are too many good UPI apps available such as BHIM, BOB MAPY,SBI UPI app, HDFC UPI app, etc. It is not mandatory to use the UPI app from your bank to enjoy UPI service. You can download and use any UPI app.
UPI apps are a faster solution to send money using VPA or even IFSC and account number. But they have some limitations also. If you do not have an android phone you cannot use UPI app, It is not for you. Lack of stable internet connection can also cause trouble for these apps.
ADHAR ENABLED PAYMENT SYSTEM (AEPS)
AEPS is an Aadhaar based digital payment mode. The term AEPS stands for Aadhaar Enabled Payment Service. Customer needs only his or her Aadhaar number to pay to any merchant. AEPS allows bank to bank transactions. It means the money you pay will be deducted from your account and credited to the payee’s account directly.
You need to link your Aadhaar number with your bank account to use AEPS. Unlike cards and USSD, AEPS does not have any charges on transactions. You can use AEPS with the help of PoS (Point of sale) machines. You can withdraw or deposit cash, send money to another Aadhar linked account with it. The good thing about AEPS is that it doesn’t need your signature, bank account details or any password. It uses your fingerprint as a password. No one can forge your fingerprints, thus it is the most secure digital payment mode.
UNSTRUCTURED SUPPLEMENTARY SERVICE DATA PAYMENT (USSD)
USSD banking or *99# Banking is a mobile banking based digital payment mode. You do not need to have a smartphone or internet connection to use USSD banking. You can easily use it with any normal feature phone. USSD banking is as easy as checking your mobile balance. You can use this service for many financial and non-financial operations such as checking balance, sending money, changing MPIN and getting MMID.
The *99# code works as a bridge between your telecom operator’s server and your bank’s server. It uses your registered mobile number to connect with your bank account. Hence, dial *99# with your registered number only. USSD banking has a transaction limit of Rs. 5000 per day per customer. RBI has also set a maximum charge of Rs. 2.5 per operation.
Cards are provided by banks to their account holders. These have been the most used digital payment modes till now. Many of us use cards for transferring funds and making digital payments. Credit cards, debit cards and prepaid cards are the main types of cards. You can also use Rupay debit card for digital payments.
Credit cards are issued by banks and some other entities authorized by RBI. These cards give you the ability to withdraw or use extra money. Credit cards are used for domestic as well as international payments.
Debit cards are issued by the bank where you have your account. You can use these cards for the money in your account. The payments you make with these cards debit from your account and credit immediately to the payee’s account. You can use these cards to make payments to one bank account to another.
Prepaid cards are another type of cards which you use to pay digitally. You must have to recharge these cards before using just like prepaid SIM cards.
Cards are one of the best modes when you pay at portals or E-commerce sites. But if we talk about paying to merchants it is not the most suitable way. It charges 0.75% – 2.0% on transactions. Also, you cannot use cards to pay if the merchant does not have a PoS (swipe) machine.
E-wallet or mobile wallet is the digital version of your physical wallet with more functionality. You can keep your money in an E-wallet and use it when needed. Use the E-wallets to recharge your phone, pay at various places and send money to your friends. If you have a smartphone and a stable internet connection, you can use E-wallets to make payments. These E-Wallets also give additional cashback offers. Some of the most used E-wallets are State bank buddy, ICICI Pockets, Freecharge, Paytm etc.
E-Wallets are an easy and faster way to make payments but have some limitations. These apps are good if you send money to a wallet to another. But if you want to send money to a bank account these apps are not suitable. Also, you have to be extra careful with these apps. These apps do not ask for any PIN or password when you perform a transaction using your wallet money. If you do not lock your phone, anyone can use the money in your wallet. I suggest you must lock your phone if you want to use E-Wallet apps.
Easy and convenient: Digital payments are easy and convenient . You do not need to take loads of cash with you. All you need is your mobile phone or Aadhaar number or a card to pay. UPI apps and E-Wallets made digital payments easier.
Pay or send money from anywhere: With digital payment modes, you can pay from anywhere anytime. Suppose your close friend’s mother fell ill at night. He called you at midnight and asked some money. Don’t worry, you can send money to your friend using digital payment modes such as UPI apps, USSD or E-Wallets.
Discounts from taxes: Government has announced many discounts to encourage digital payments. If you use digital modes to make a payment up to Rs. 2000, you get full exemption from service tax. You also get 0.75% discounts on fuels and 10% discount on insurance premiums of government insurers.
Written record: You often forget to note down your cash spendings. Or even if you note, it takes a lot of time. But you do not need to note your spendings every time with digital payments. These are automatically recorded in your passbook or inside your E-Wallet app. This helps to maintain your record, track your spendings and budget planning.
Less Risk: Digital payments have less risk if you use them wisely. If you lose your mobile phone or debit/credit card or Aadhar card you don’t have to worry a lot. No one can use your money without MPIN, PIN or your fingerprint in the case of Aadhar. But it is advised that you should get your card blocked if you lost it. Also call the helpline of your E-wallet to suspend the wallet account to prevent anyone from using your wallet money.
Every coin has two sides so as the digital payments. Despite many advantages, digital payments have a few drawbacks also.
Difficult for a non-technical person: As most of the digital payment modes are based on mobile phone, the internet and cards. These modes are somewhat difficult for non-technical persons such as farmers, workers etc.
The risk of data theft: There is a big risk of data theft associated with the digital payment. Hackers can hack the servers of the bank or the E-Wallet you are using and easily get your personal information. They can use this information to steal money from your account.
Overspending: You keep limited cash in your physical wallet. Hence, you think twice before buying anything. But if you use digital payment modes, you have all your money with you always. This can result in overspending .
The future of digital payments is very bright. India is experiencing a remarkable growth in digital payments. In 2015-16, a total of Rs. 4018 billion transacted through mobile banking as compared to Rs. 60 billion in 2012-13. The percentage of the digital payments through other modes is also increasing in a significant speed.
There are many factors which are affecting the future of digital payments.
Digital revolution has provided an easy way to go for digital payments. India has more than 100 crore active mobile connections and more than 22 crore smart phone users as of March 2016. This number is going to increase further with a faster internet speed. The reach of mobile network, Internet and electricity is also expanding digital payments to remote areas. This will surely increase the number of digital payments.
The government is supporting digital payments a lot. It has reduced some taxes and announced incentives for digital payments. It has launched Lucky Grahak Yojna for customers and Digi Dhan Vyapar Yojna for shopkeepers. You can get cash prizes up to 1 crore if you pay digitally. Due to these incentives and waivers, more people are showing interest in digital payments.