Top 6 Types of Digital Payments Systems

For an online firm to maintain growth in the online market, membership in this cashless environment is crucial. And one of the main ways to give your customers a flawless digital payment experience is by including a variety of digital payment options. A few factors that have aided the change include the widespread use of mobile devices and the internet, the epidemic of offline to online commerce, a strong digital infrastructure, simplicity of use and convenience, and a variety of digital payment options.

 

This blog goes into great detail on the many kinds of electronic payment systems and how a payment gateway helps businesses use them.

 

How do Digital Payments work?

 

In place of utilizing cash or cheques, financial transactions can now be completed using digital payments on smartphones, computers, and tablets. Online purchases, money transfers, bill payments, and other transactions are examples of this. Credit/debit cards, e-wallets, mobile banking, and virtual currencies like Bitcoin are a few examples of digital payment systems.

 

Fully digital payments involve a cashless exchange between the payer and the payee. Finally, in mostly digital payments, the payer utilizes a cashless system through an agent but the payee receives cash at the end. In half or partial digital payments, both the payer and the payee depend on a third party for cash.

 

You can therefore see that there is no set definition. In some circumstances, the interface of the party is regarded as a component for defining digital payment. While some define it in terms of payment kind. There must be additional requirements, too.

 

Whatever the criteria, it is undeniable that payment systems are evolving quickly in this area and changing regularly. The way we pay has been evolving gradually, as we have seen.

 

Before the advent of currencies or cash payments, people would trade items as payment. Next, come credit cards, debit cards, checks, and online transfers. Today, we use digital cards, online banking, on-tap systems, online wallets, and other things.

 

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Traditional and Digital Payment Methods: Differences

 

We can distinguish between digital and conventional payment mechanisms in a number of different ways. Wallets, cards, internet banking, and other digital payment methods are available, although traditional payment methods like cash and checks are also available.

 

The first one is determined by how much money we spend. Although we obviously spend extremely carefully when paying with cash, we occasionally overspend when paying with mobile wallets or other digital ways because transactions are completed so rapidly.

 

Second, using traditional techniques to manually track our spending takes time, whereas using a digital payment system, the application itself does the tracking. As a result, we have simple control.

 

Thirdly, with cash, a shopkeeper must count everything, pay the change, and then verify the validity of each note. With digital means, however, he receives every amount directly into his bank account or wallet without having to pay any change or verify authenticity.

 

What occurs if your money notes are torn? Before getting the notes exchanged at banks, you cannot utilize them. Such a problem won't occur at all when using digital payment methods, however.

 

According to conventional techniques, the more products you wish to buy, the more money you'll need to carry around; however, with digital methods, there's no need to carry any cash at all. Direct payments can be made from your account.

 

People who are technologically savvy and have a working grasp of the internet employ digital payment options. While anyone, whether literate or not, can employ traditional ways. Payer and payee are free to choose any method.

 

Also Read | What is Internet banking? Advantages and Disadvantages

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Different types of Digital Payments Methods

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Types of Digital Payment Methods

 

Given below are the different types of Digital Payment Systems:

 

1. Unified Payments Interface (UPI)

 

Unified Payments Interface (UPI), one of the most popular digital payment methods, combines many bank accounts and their capabilities on a mobile application. By connecting their bank accounts, users can use the app to transact using their preferred accounts.

 

When compared to other well-liked choices like NEFT, RTGS, or IMPS, UPI has greatly simplified bank transfers. With the help of the Unified Payments Interface, users can send and receive money by using a virtual ID instead of having to remember and enter their bank information repeatedly.

 

The program enables users to instantly initiate financial transfers and submit collect requests around-the-clock, every day of the year, by linking several bank accounts to a UPI app on their smartphone. UPI's key benefit is that it makes it possible for users to send money without a bank account or IFSC number. A virtual payment address is all that is required (VPA). There are several UPI apps on the market, and they work on both iOS and Android devices.

 

2. Unstructured Supplementary Service Data  (USSD)

 

The introduction of Unstructured Supplementary Service Data (USSD) has made it possible for digital payments to be more widely accepted and accessible. Users of this service can conduct business via mobile without a data connection by dialing *99# on any feature phone.

 

Interbank account-to-account fund transfers, balance inquiries, mini statements, and other options are available through the interactive menu on the phone. In order to use this approach, the user must connect their phone to their bank account. 

 

This type of digital payment service's major objective is to promote impoverished social groups' involvement in digital payment systems and to incorporate them into established banks. You can use this service to transfer money, view bank statements, and check balances. To make digital transactions accessible to everyone, this direct-to-consumer solution combines two disparate industries: banks and telecom service providers.

 

3. Micro ATMs

 

They are card swipe terminals that give banks remote access to their main banking network. This machine comes with a fingerprint scanner. Alternatively said, micro-ATMs are mobile point-of-sale devices that are used to disburse cash in locations where bank facilities are inaccessible. Micro ATMs are a sort of mobile banking equipment that may be used at home and are analogous to point-of-sale (PoS) terminals.

 

4. Internet Banking: 

 

You can transfer money, set up recurring deposits, and close accounts online. Internet banking is often referred to as e-banking and virtual banking. You can transfer money via NEFT, IMPS, RTGS, and other online transfer services in Internet Banking. Customers can use a username and password to log into their accounts on the websites of their banks to access all types of banking services.

 

Internet banking is available 24/7, wherever in the world, and during the entire year. It provides a variety of services that a physical bank is unable to do. Anyone who has registered for internet banking services and has an active bank account is able to utilize it. 

 

It is convenient to conduct banking business when a customer registers for online banking services since they eliminate the need for frequent bank visits. Net banking portals are secured by user/customer IDs and passwords. 

 

Internet banking offers a variety of services, including checking account balances, viewing bank account statements, NEFT & RTGS Funds Transfer, IMPS Fund Transfer, issuing checkbooks, and many others. There are three ways to transfer money through internet banking: NEFT, RTGS, and IMPS.

 

5. Mobile Banking:

 

By downloading the bank application on their mobile phones, users can conduct transactions through mobile banking, which is more of an extension of internet banking. Mobile banking is a more user-friendly and accessible approach than online banking given the rising prevalence of mobile devices in India.

 

6. Mobile Wallets:

 

Mobile wallets are identical to traditional wallets, with the exception that digital currency is used. Users can easily add money to their mobile wallets and withdraw it by connecting their bank accounts to the wallets.

 

Banks and independent businesses both provide mobile wallets. Customers all throughout India frequently utilize Paytm Wallet for their digital payments. Wallets frequently provide the user cashback and offer on the transactions as incentives. Users of mobile wallets can also scan barcodes and make payments right away.

 

Also Read | Is Artificial Intelligence (AI) the Future of Banking?

 

Advantages of Digital Payment Methods

 

While most of us have adapted to the change in payment methods, many people still favor traditional cash payments and have not fully embraced the idea of digital transactions. Digital payment methods cannot be used by persons who live in remote areas, do not have access to cellphones, or live without internet connections.

 

Here are some of the strongest arguments in favor of going cashless and taking advantage of digital payments:

 

1. Increased Security:

 

It can be risky to always have cash on you. People consequently frequently become the targets of small-time thefts or robberies. The fact that digital payments demand more thorough verification and authentication than traditional cash transactions make this one of their biggest advantages. OTPs and cross-verification, which can stop fraudulent transactions, are extra security measures for digital transactions offered by banks and other digital payment systems.

 

2. It's more practical:

 

It takes time and is not convenient to stand in long ATM queues for a modest amount of cash. But every time they go shopping, individuals are put in this situation. On the other hand, because they enable people to conduct financial transactions without being concerned about running out of cash, digital payment systems offer increased convenience for everyone.

 

3. Unique Deals and Discounts: 

 

To encourage digital payments, banks and other financial institutions frequently provide their customers with a variety of deals and discounts. By taking advantage of these offers, one can regularly obtain cashback, rewards, and discount coupons for online purchases. Additionally, certain banks and digital wallets provide their customers with exclusive discounts and privileges.

 

4. Physical Separation: 

 

The fact that digital payments promote safe and frictionless transactions is one of its most important features. It's imperative to avoid human interaction while the Covid-19 problem continues to hang over our heads. Senior citizens are known to be in greater danger in this scenario. Therefore, using digital payment systems is one of the best ways for them to keep protected during the Covid-19 pandemic.

 

5. Convenience when traveling: 

 

The days of having to bring large amounts of cash when leaving town are long gone. Retailers all around the nation have started to accept digital payments after realizing the benefits of going cashless. People no longer have to worry about finding an ATM or running out of cash when traveling to and from other Indian cities because of this.

 

6. Monitor your spending:

 

The first step toward achieving financial independence is maintaining a weekly/monthly budget. For those who depend on their pensions and other retirement money, this is extremely important. Digital payments enable them to keep track of their overall spending because they provide easy-to-access bank statements and transaction logs.

 

Also Read | Ways to Improve Digital Customer Experience in Banking

 

Conclusion:

 

People no longer frequently use conventional payment methods like cash and checks. Computers and mobile devices have completely changed how we work, live, manage our money, and conduct business. Due to the rapidly evolving and expanding technologies, the rise of modern services like e-commerce has led to a desire for quicker payment options.