Digital payment has revolutionized the way we transact, offering convenience, security and speed. With just a few taps on our smartphones or the swipe of a card, we can effortlessly make payments for goods and services. Digital payment methods such as mobile wallets and contactless payments have gained immense popularity in recent years, providing users with a seamless and hassle-free experience. Digital payment not only eliminates the need to carry cash, but also offers enhanced security measures, such as encryption and tokenization, to protect sensitive information. Additionally, digital payment options are available 24 hours a day, allowing us to transact anytime, anywhere. As technology continues to advance, we can expect even more innovative solutions in the digital payments space that will further streamline our financial transactions.
Digital Payment
Digital payments refer to the process of making payments using digital or online methods without the use of physical cash. These types of payments, also known as electronic payments or e-payments, involve the transfer of value from one payment account to another. Both the sender and the receiver use digital devices such as mobile phones, computers or credit, debit or prepaid cards for this transaction.
What is digital payment?
Digital payments require both the payer and the beneficiary to have a bank account, an online banking method, a device to make the payment, and a means of transmission. This can be done by registering with a payment provider or using an intermediary such as a bank or service provider. The payer and beneficiary can be a company or an individual.
Digital payment requirements
Digital payment transactions can be carried out both online and in person. For example, a buyer can pay through UPI while shopping on an e-commerce website or at their local supermarket. In both cases, the payment is considered a digital transaction. The use of digital payments has increased considerably in recent times due to their convenience, speed and security. Digital payments have made it easier for people and businesses to make transactions without the need for physical cash or checks. They have also helped reduce the risk of theft and fraud associated with traditional payment methods. With the increasing popularity of digital payments, it is important to ensure that we use secure platforms and take the necessary precautions to protect our financial information.
Digital payment method of transactions
Digital payments have revolutionized the way transactions are carried out in modern times. With a plethora of options available, consumers can choose from various modes like UPI, NEFT, AEPS, mobile wallets, and PoS terminals. Among them, UPI has become the most popular digital payment mode, with transaction value exceeding $1 trillion. This is due to its ease of use and convenience. UPI allows users to transfer funds instantly without having to enter bank details or account numbers every time they make a transaction. Its easy-to-use interface and accessibility across multiple banks have made it a preferred choice for many consumers. In contrast, mobile wallets offer a more secure digital payment method by storing card data in encrypted form in the app itself. Eliminates the need to carry physical money or cards when making transactions. Similarly, AEPS (Aadhaar Enabled Payment System) provides a biometric authentication system that enables hassle-free transactions without the need for credit/debit cards or any other credentials. NEFT (National Electronic Funds Transfer) is another widely used electronic payment mode that facilitates account-to-account transfers within India. PoS (Point of Sale) terminals are electronic devices that allow merchants to accept card payments in their stores. They are connected to a payment gateway that processes the transaction and sends an authorization code within seconds. In conclusion, digital payments offer enormous convenience and security compared to traditional payment methods; Choosing one depends on the needs and preferences of the individual.
Why pay digitally?
There are obvious advantages to adopting digital payments and receipts, especially for small businesses in India. Consumers and businesses alike now anticipate the convenience of digital payment options, which enable faster and more secure transactions without risk or fees. The payer can use their mobile phone for additional authentication using fingerprints or other biometric methods, thus minimizing potential risks.
Digital cash management
- By eliminating cash management, the risk of theft is reduced and expenses related to security and storage are also reduced.
- This leads to a more efficient and profitable system.
- Digital payments offer faster transactions, which in turn reduces wait times and improves customers’ overall shopping experience.
- As a result, customer convenience plays an important role in driving sales.
- Furthermore, the availability of a clear trail facilitates accounting and simplifies operations, while ensuring compliance with tax regulations.
Mobile-based digital payments
Mobile digital payments offer the beneficiary the opportunity to collect customer data for analysis and market segmentation. This allows retailers and issuing banks to leverage digital payments, as well as loyalty and rewards programs, to improve customer acquisition and retention through focused marketing efforts and personalized offers. Additionally, credit cards, a traditional payment method, and the modern buy now, pay later model, supported by digital payments, give customers access to credit.
Parts involved on the surface
While it may seem simple to make a digital payment with just a few clicks, there are multiple intermediaries within the digital payments ecosystem that collaborate seamlessly to ensure a successful transaction. These intermediaries include the merchant (the recipient of the payment), the consumer (the person making the payment), the bank, and the payment network. In this context, the term “merchant” encompasses various entities such as local Kirana stores, shopping malls, retail outlets, e-commerce portals and service providers that offer the option of transacting or settling invoices through digital payments.
Process of digital transactions by banks
When it comes to digital transactions, there are two banks involved: the issuing bank and the acquiring bank. The issuing bank debits the amount from the payer’s account, while the acquiring bank credits the same amount to the beneficiary’s account. For this process to work, both parties must have a bank account and access to online banking services. This ensures that funds can be transferred seamlessly between accounts without any physical exchange of cash. The use of digital transactions has become increasingly popular due to their convenience, speed and security features, making them the preferred option for many individuals and businesses alike.
How does the digital payment system work?
To understand how digital payments work, let’s demonstrate it with an example. Anjali Singh buys clothes worth INR 5,500 at Rupesh Garments, a store located on the bustling Kalbadevi Road in Mumbai. She chooses to make digital payment of this amount using her debit card at the Point of Sale (PoS) machine or using UPI to pay through any app (QR Code) available in the store.
Digital Payments with Debit Card
When the merchant swipes the card at the PoS machine, several steps must be taken before the payment is completed. If Anjali’s debit card is used for payment, the PoS provider will first check if there is enough money in your bank account. Only after Anjali enters her transaction PIN and it is verified, and if there is sufficient balance, the digital payment will be processed. At this point, the money will be deducted from Anjali’s account and credited to Rupesh Garments’ business account. If a credit card is used for digital payments, the payer’s available credit limit will be verified with their card provider before proceeding with the transaction.
Digital payments through portals
When Anjali makes a purchase on an e-commerce website, the e-commerce platform sends a payment request to the associated payment gateway for digital payment. The payment gateway then requests authorization from Anjali through an OTP or PIN, accepts the payment from her bank, and transfers the amount to the bank associated with the e-commerce portal. Before proceeding with authentication, the payment gateway checks the balance in Anjali’s bank account and rejects the request if she has an insufficient balance or enters incorrect payment information.
Conclusion
The payments industry is continually evolving to simplify and accelerate digital payments for users. By offering a variety of options and maximizing convenience and security in the checkout process, businesses can cultivate customer loyalty and improve their overall experience.
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Source: vtt.edu.vn