After the government of India demonetized high-value old currencies, a lot of people in the country are facing a cash crunch and struggling to make day-to-day transactions.
While the government is advocating for a cashless economy, there are arguments both in favor of and against the motion. Whether or not you’re in favor of a cashless economy, learning about how modern digital payment options will never hurt.
The purpose of this post is to educate readers about how digital payments work and how they can choose from the available digital payment options.
What is Digital Payment?
Digital Payment is a process of paying money via a digital interface, to a seller or service provider for the product or service received.
Whether you’re booking a train ticket, dining at a restaurant, paying house rent or buying grocery, you’re essentially paying for the products or services received.
In India, the conventional payment methods are predominately cash-oriented especially for small transactions such as paying for the snacks at a roadside vendor. Even though India is one of the largest users of mobile phones, many consumers still recharge their prepaid cards by paying cash at a local store.
The digital payment is essentially a process of paying the seller through the following options.
- Plastic Money (Debit Cards/Credit Cards)
- eWallet (PayZapp, Chillr, SBI Buddy, PayTM, Mobikwik etc)
- UPI Apps (SBI Pay, Asix Pay )
- UPI Wallets (PhonePe, Pockets)
Requirements for Digital Payment
In a cash-oriented economy, you would pay the service provider in cash. It wouldn’t matter if they had a bank account. However, in order to pay them digitally, they need to have a bank account as your payments would go directly to their bank account. In other words, you cannot pay someone who doesn’t have a bank account. For example, if you eat snacks at roadside stall who doesn’t have a bank account, you cannot pay them using digital payment interface.
This is exactly why the Jan Dhan Yojna was launched – to bring a lot of people into banking.
Digital Payment Ecosystem – an Introduction
In order to better understand different digital payment options available today, it is really important to be familiar with the digital payment ecosystem and its various stakeholders.
Apart from the buyer and seller, there are other stakeholders in a digital payment ecosystem. Let’s take a look at who they are.
Your Bank: The one who approves a digital payment
Your Digital Wallet (app) Company: The one who offers you an app which is integrated with your bank account
National Payments Corporation of India (NPCI): The government body who offers an infrastructure for digital payments and usually earns a commission on each transaction.
Various Options for Digital Payments
There are various digital payment options available today and many more are going to come up in future as people start adapting to the cashless economy.
As of today, you can make digital payments by using any of the following options:
If you have a debit or credit card, you have likely used it at a shopping mall or ticket counter. They usually carry a PoS (Point of Sale) device to swipe your card and receive payments from you.
Please, bear in mind, there’s a small fee on each of those transactions. You need to ask your call center to find out the transaction charges.
eWallets (aka Digital Wallets or Mobile Wallets)
An eWallet, also known as a digital wallet or mobile wallet, is essentially a smartphone app which is connected to your bank’s debit or credit card. While making a payment, all you need to do is authorize the payment simply by entering the PIN associated with your card and an authentication code thereof.
The reason why they are called eWallets is they allow you to load money (using your cards) in advance so you can checkout quickly while shopping at ecommerce sites. In short, you park your money in your wallet until you spend it. Once you exhaust the balance, you can refill your wallet.
Please, note that the money parked in your eWallet doesn’t earn any interest at all.
eWallets have become particularly popular with consumers who shop online quite friendly using apps. In fact, with the increasing in online shopping, a number of eWallet apps have entered the industry, giving tough competition to the existing apps.
As a result, each of these mobile wallets comes up with many deals and offers in order to incentivize their existing users as well as attract new customers.
There are many such digital payment apps available in the industry. While some of them are offered by banks, others belong to private companies.
Examples of eWallets Created by Banks:
PayZaap (HDFC Bank), Chillr (HDFC Bank), Pockets (ICICI Bank), LIME (Axis Bank), Citi MasterPass (Citi Bank), Yes Pay (Yes Bank), SBI Buddy (State Bank of India)
Examples of eWallets Created by Private Companies:
PayTM, Freecharge, Mobikwik, Ola Money, Airtel Money, Oxigen Wallet, Udio, PayUMoney, Citrus
While eWallet apps have been around for a while, UPI Apps are a recent phenomenon.
In fact, UPI was launched only in February, 2016 and the RBI made it available for banks in April, 2016.
The UPI or Unified Payment Interface is a system wherein you need to use a virtual address and make payments using your UPI app. You needn’t know the account number or IFSC code of the receiver. All you need is their virtual address (e.g. ravi@hdfc) in order to send payment via your UPI app. Sounds confusing? Read our comprehensive post on UPI to better understand how the UPI works.
As of today, a number of banks have joined the UPI and launched their UIP apps. If you’re wondering if your bank has launched a UPI app, check out this list or ask your customer support.
UPI apps of respective banks are way better than eWallets because unlike eWallets, you don’t need to park your money in the wallet. Therefore, you earn interest on your savings.
Moreover, the virtual address feature keeps your identity secret while receiving payment from others via UPI apps.
Please, note that you will be charged per transaction through UPI apps.
UPI Wallets are smartphone apps that combine the features of eWallets as well as UPI. As a result, you can use the features of UPI wallets while enjoying the benefits of eWallets such as cashback and other offers.
Currently, there are two UPI Wallets in the market. They are PhonePe and Pockets. However, many more UPI Wallets are expected soon as more and more people embrace cashless mechanism.
Hope you have enjoyed reading this guide. If you have any questions or suggestions on this guide, please, use the comment section below.