Digital Payments in India: Methods and Benefits

February 4, 2022 Mutual Fund

Through the Government of India’s flagship programme ‘Digital India’ that aims to transform India into a digitally empowered society and knowledge economy, the government has been taking several measures to promote digital payments in the country. India’s digital leap is further augmented by the announcement Finance Minister Nirmala Sitharaman made during her Budget 2022 speech to set up 75 digital banking units in 75 districts. It also stated the inclusion of all 1.5 lakh post offices under the core banking system, digital currency, and financial support to promote the use of digital payments. The government measures indicate its commitment towards a “Faceless, Paperless, Cashless” economy.

Understanding Digital Payment:

A Digital payment, also known as electronic payment, is a transfer of money from one account to another using an electronic medium. So, there is no exchange of physical money or instruments like cash, cheque, etc. However, you should know that digital payment is not limited to online payments as it also covers payments made on brick-mortar premises, at a physical location. For example, payment done through UPI to the grocery store or salon also qualifies for digital payment.

10 Types of Digital Payment Methods in India:

Currently, we have 10 methods of digital payment. The government has been constantly promoting and encouraging all of these methods for secured and convenient payments at lower costs.

1. Banking Cards:

Banking cards are the most used digital payment method in India. It includes all the types of cards – debit cards, credit cards, and pre-paid cards. The leading card payment systems in India are Visa, MasterCard, and RuPay. Banking cards have become one of the preferred payment methods due to the enormous convenience, control, flexibility, and security they offer, compared to the other payment methods. With all the banks and Non-Banking Financial Companies (NBFCs) offering a variety of banking cards, the customers have a choice to choose the right type of card for them.

Some of the key features and benefits of the banking cards are:

• Highly versatile usage for withdrawals at ATMs, purchases at Point of Sale (POS) devices, micro ATMs, shops/establishments, savings in e-wallets, as well as online transactions on e-commerce websites and mobile apps.

• Customers can make secure payments within a minute or two for their online as well as offline purchases. A customer can either present a physical card or provide card details for online transactions.

• The cards are less likely to be used for fraudulent transactions unless the card data is revealed because, for a transaction to take place, a cardholder is required to do a two-factor authentication by entering either a Personal Identification Code (PIN) or One Time Password (OTP).

• Nil transaction fee to the customer (a bank may charge for cash withdrawals after a certain number of transactions done from non-network ATMs)

• A customer might have to pay an annual fee or transaction fee (for the number of transactions above the specified limit) by bank's discretion.

• Customers can use Travellers and International cards globally. A customer can set up transaction limits as per their requirements

2. Unstructured Supplementary Service Data (USSD):

Unstructured Supplementary Service Data (USSD) is an innovative payment service that allows customers to make mobile banking transactions using a basic mobile phone without internet facility. Banking customers can avail of this service by dialling *99#, a common number across all the Telecom Service Providers (TSPs). The service is envisioned to provide financial inclusion and deepening of rural areas and the areas with poor internet connectivity.

Some of the key features and benefits of the Unstructured Supplementary Service Data are:

• It offers all the basic services, such as balance enquiry, interbank funds transfer, mini statement, etc. The service is currently offered by 51 leading banks and all GSM service providers.

• A customer can access the service in 12 different languages. Customers simply have to register for the USSD with the mobile number they have registered with the bank account.

• A customer receives a Mobile Money Identifier (MMID) and Mobile Personal Identification Number (MPIN), which needs to be remembered, without which the transaction will not take place. A transaction fee of Rs 0.50 is charged to the customer.

• For safety purposes, the fund transfer is capped at Rs 5,000 per transaction.

3. Aadhar Enabled Payment System (AePS):

In order to further speed-track financial inclusion in the country and leverage the presence and reach of Aadhar, a bank-led model for digital payments, the AePS, was initiated. It enables banks to route the Aadhar initiated interbank transactions through a central switching and clearing agency in a safe and secured manner.

Some of the key features and benefits of AePS are:

• It allows online interoperable financial transactions at PoS/Micro ATMs through the business correspondence or Bank Mitra of any bank using the Aadhar Authentication.

• The AePS does not require any physical activity like visiting the bank, using any banking card, making a signature, etc.

• A customer has to do Aadhar seeding to the bank account.

• No transaction fee is charged to the customer.

• The Reserve Bank of India has not set any transaction limit, but each bank has set its own limit.

• The AePS allows all the basic transactions, such as balance enquiry, cash withdrawal, cash deposit, Aadhar to Aadhar fund transfer, payment transaction like Customer-to-Business (C2B) and Customer-to-Government (C2G).

• As of now, the service is offered by 118 banks.

4. Unified Payment Interface (UPI):

Unified Payment Interface, also known as UPI, has gained immense popularity, especially in urban areas. It powers multiple bank accounts (of any participating banks) into a single mobile application that allows several banking features, seamless fund routing, and merchant payments under a single roof. Currently, 224 banks are live on the UPI.

Some of the key features and benefits of UPI are:

• Each bank has uploaded their UPI-enabled app on App Store, Google Play Store, and Microsoft Store.

• One app lets you access different bank accounts. It allows immediate fund transfer through registered mobile phone 24*7*365. Money can be instantly transferred to the phone contacts registered with the UPI, QR codes in shops, by typing the contact number or UPI ID, to pay the utility bill and make donations, etc.

• For double-layer security, a 2-factor authentication is required to process transactions.

• UPI allows scheduled payments that can be made as per requirement and convenience. A customer has to provide the banking details, such as account number, card number, IFSC, etc. only at the time of registration.

• A user can send a collection request to another user

• For doing a UPI transaction, a customer requires a registered mobile device with an internet facility and MPIN.

• The banks do not charge the customer for the UPI transactions. The maximum amount that can be transferred per transaction is Rs 1 lakh.

• A customer can check the account balance, check the transaction history, send/pay money, collect money, add bank accounts, change/set MPIN, invite contacts to UPI, etc.

5. Mobile Wallets:

A mobile wallet, also known as a digital wallet or e-wallet, is a type of virtual wallet that can link your debit card and/or credit card information in a mobile device to your mobile wallet app and lets you transfer funds online to the wallet. This app can be seamlessly used to make purchases through your smartphone, tablet, or smartwatch, instead of physically using plastic cards. To load money in the mobile wallet, a customer has to link their bank account to it.

Some of the key features and benefits of mobile wallets are:

• Most banks have their mobile wallets (PayZapp by HDFC Bank, ICICI Pockets, SBI Buddy, etc.) that offer discounts on bill payments and purchases made with partner merchants.

• Paytm, Freecharge, Mobikwik, Jio Money, mRupee are some of the popular non-banking mobile wallets

• Banks generally charge a fixed fee for the remittance. A customer can make a transaction of up to Rs 2,00,000 through a mobile wallet.

• Through a mobile wallet, a customer can send or receive money, pay utility bills, pay insurance premiums, scan the QR code to make a purchase, and much more.

6. Bank Pre-Paid Cards:

Bank pre-paid cards are the plastic cards issued by the bank that are pre-loaded with money and can be used like a debit card. However, the main difference is that these cards are not linked to the account and requires to be loaded with money from your bank account either online or by visiting the bank branch.

Some of the key features and benefits of Bank Pre-Paid Cards are:

• These cards can either be single-use cards or multiple-use cards.

• Once the loaded amount is exhausted in a single-use pre-paid card, it automatically gets blocked.

• A multiple-use pre-paid card generally comes with a certain expiry date and a user can reload and use the card numerous times until its expiry.

• These cards are commonly used as corporate gift cards, reward cards, travel cards (to load the foreign currency), etc.

• Generally, the bank pre-paid cards are used for specific purchases only. For example, an Amazon Gift Card can only be used to make purchases through Amazon.

• Up to Rs 2 lakhs can be loaded on a pre-paid card with full KYC. The loading money on pre-paid cards is mostly free, but some cards may have charges.

7. Point of Sale (POS) Terminals:

A POS is a place where sales are made. So, a POS can be any location; a mall, a market, or a city. However, on a micro-level, it is considered as an area where a customer completes the transaction, like a checkout counter of a mall. To make the POS more secured and touch-free, contactless POS machines and banking cards are introduced, which can debit amounts up to Rs 2,000 automatically and without having to input a PIN. To use the facility, a customer must have a contactless card and register it for contactless payments.

Some of the key features and benefits of POS Terminals are:

• It is widely available with no transaction limit stipulated by the RBI, and thus, a convenient and secure mode for payment of purchases.

• A customer can choose from the different types of POS terminals as per their business requirements; Physical POS, Mobile POS, and Virtual POS. A Physical POS can receive money through cards and AePS. A Mobile POS can be used with a smartphone to receive money through cards, AePS, Mobile Wallets, and QR Code scanner. A Virtual POS can be used through a smartphone or web browser with an e-payment gateway to receive money through cards, Mobile Wallets, and QR code scanners.

• Service provider charges monthly rental and transaction charges to the POS holder.

• In addition to the charges, a user has to pay a refundable deposit to the service provider.

8. Internet Banking:

Internet Banking or Online Banking lets the customer make transactions and other financial activities through a bank’s website. Internet Banking allows a customer to do all the banking transactions that are possible to do online. A customer has to register themselves for internet banking with the bank they hold their Savings Account with.

Some of the key features and benefits of Internet Banking are:

• Money transfer can be done to any bank account through National Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS), Immediate Payment Services (IMPS). Click here to know more about these services and how to choose the right payment method.

• Each of these payment methods has its own transaction limit.

• Stop payment of cheque, chequebook request, downloading of bank statements of up to 3-5 years, checking balance, using Electronic Clearing System (ECS), applying for a loan, availing of the instant loans, paying credit card and utility bills, purchasing mutual fund and insurance, applying or renewing a credit card, debit card, pre-paid card, and redeeming the reward points, are some of the examples of the requests and transactions that can be done through internet banking.

• Most banks do not charge for payments done through internet banking.

9. Mobile Banking:

Most banks have their mobile apps that can be downloaded from an application store like Google Play Store, App Store, and Microsoft Store. It allows users to conduct different types of financial transactions remotely using a smartphone or tablet.

Some of the key features and benefits of Mobile Banking are:

• It lets you do most of the internet banking transactions on your smartphone or tablet.

• In today's fast-paced lifestyle, Mobile Banking is a great way to track your bank accounts.

• A customer has to register with the bank for Mobile Banking. The transactions limits are the same as Internet Banking.

10. Micro ATMs:

Millions of Business Correspondents are using Micro ATM devices to deliver basic banking services. A Business Correspondent, who could be a grocery shopkeeper, uses a device that lets you transfer money via your Aadhar-linked bank account by authenticating your fingerprint.

Some of the features and benefits of the Micro ATMs are:

• A Business Correspondent acts as a Micro ATM that lets you do the instant transaction.

• The Micro ATM devices are connected to banks across the country.

• It enables a person to instantly deposit or withdraw funds regardless of the bank associated with the Business Correspondent. A customer only has to get their identity authenticated.

• A Business Correspondent acts as a bank for the customers. The basic transactions that can be done through Micro ATMs are balance enquiry, cash deposit, cash withdrawal, and fund transfer.

To Conclude:

On the backdrop of demonetization and India’s endevaour towards cashless transactions, our dependency on cash transactions is much lower after the introduction of multiple methods of digital payments. These methods are not only easy and convenient to use, but also offer added security, overall reduced costs, and flexibility.

This article first appeared on PersonalFN here