Things you must know about digital payments

Better than cash
Things you must know about digital payments

He, who every morning plans the transactions of the day, and follows that plan, carries a thread that will guide him through the labyrinth of the busiest life.

– Victor Hugo

Post demonetisation, all of you have faced cash crunch and have used your bank's payment websites for transactions or made transactions through credit/debit cards as well as through wallets or mobile apps. To promote such transactions and bring about a cashless economy, the government, in December last year, announced several incentives for transacting without cash.

With a view to help the common consumer understand the meaning of digital transactions, team Consumer Voice has put together their actual meaning, key features and benefits.

Defining Digital Payments

We all know that any monetary payment can be completed only via payment instruments. Cash, cheques and demand drafts are some known instruments. Digital payment is a generic term for a payment that is completed via payment instruments using the digital technology. While there is no standard definition of a digital payment, there are two key elements that make digital payments completely different from traditional modes of payment: a) the nature of the payment instrument and b) the payer-payee interface – both payer and payee use an electronic medium for a successful digital transaction. One common thing among digital and cashless payment alternatives is that they all, except for the USSD-based method, require internet connectivity.

From commonly used cards to the newly launched Unified Payment Interface (UPI) and mobile wallets, digital payments are of many types. While some modes are a bit elaborate and may take time to get used to, some are easy and just need basic understanding of Smartphone interfaces.

Unified Payment Interface (UPI) apps

The unified payment interface, or UPI, is used through the mobile app. You can transfer funds between two accounts by registering for mobile banking. Currently, this service is only available for Android phone users. Some of the commonly downloaded UPI apps are BHIM, SBI UPI app, HDFC UPI app, iMobile and PhonePe app. It is not mandatory to use the UPI app promoted by your bank to enjoy UPI service. You can download and use any UPI app.

Aadhaar-Enabled Payment Service (AEPS)

For AEPS, one needs only his or her Aadhaar number to pay to any merchant. AEPS allows bank-to-bank transactions – the amount you need to pay gets deducted from your account and is credited to the payee's account directly.

AEPS, however, can only be used via point-of-sale (PoS) machines and unlike cards and USSD, AEPS does not have any charges on transactions. You can withdraw or deposit cash and send money to another Aadhar-linked account without having to sign any paper. You do not even need your or payee's bank account details or any password. All you need to do is use your fingerprint as a password on the PoS – this, so far, is regarded as the most secure digital payment mode.

USSD (*99#)

USSD banking, or *99# banking, is a mobile banking-based digital payment mode. You do not need to have a smartphone or an internet connection as it can be used on any feature phone. USSD banking is as easy as sending a text message. You can use this service for many financial and non-financial operations such as checking balance, and sending money.

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. It has a transaction limit of Rs 5,000 per day. RBI has set a maximum charge of Rs 2.50 per operation.

Credit/Debit/Prepaid Cards

Many of you use credit or debit cards for transferring funds and making digital payments, and could already be aware of their uses. Prepaid cards are another type of cards which you use to pay digitally. You 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 as you have to pay anything between 0.75 per cent and 2.0 per cent on each transaction. Also, you cannot use cards to pay if the merchant does not have a PoS (swipe) machine.

E-Wallets/Mobile Wallets

Mobile wallets, which have gained popularity after demonetisation, are the digital version of your physical wallet with more functionality. You have to first transfer money to a mobile wallet via various modes like UPI, card and NEFT, and then use it at places where it is accepted or to recharge your phone, pay utility bills at various places, send money to your friends, and so on. 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 Paytm, Freecharge, State Bank Buddy, and ICICI Pockets.

Wallets are convenient as long as the transactions are wallet to wallet. However, if you wish to transfer the money to a bank account, you have to pay the wallet service provider. Also, these apps do not ask for any PIN or password when you perform a transaction, hence there is always a risk of losing money in the wallet when you lose your phone.