Digital Payment Simplified

Rajesh Dangi / Apr, 2021

Privacy Enhancing Technologies, Simplified!

Digital Payment Simplified

Rajesh Dangi, Apr 2021

Digital payments today is the main reason for thriving the global digital economy, with rising userbase of smart phones, mobile / internet banking, e-commerce and improved internet penetration world has stated witnessing downward trend of cash in circulation after decades of year on year increase. Fundamentally, Digital payments must be faceless, cashless and via completely electronic means of end to end transaction without compromising availability, provenance and traceability, repudiation and of course information security. Since last decade digital payments have garnered lot of interest and adoption from the users and positively influenced the digital agenda for enterprises and governments. According to Gartner..

  • 5 countries will launch digital initiatives to remove cash from circulation by 2023 fully replacing cash by digital means…
  • Global cash in circulation will reduce after decades of year-on-year increases by 2024.
  • Consumers using mobile proximity payment methods will be almost 2 billion, up from 2019’s figure of less than 1 billion, by 2024.

In India alone, Digital payments touched a record high in 2020 with all channels from the Unified Payments Interface (Read, UPI) to the Aadhar-enabled Payment System (AePS) registering stellar growth. After crossing the 200-crore mark in October, UPI transactions touched a record high at 221 crore transactions worth ₹3.9-lakh crore in November 2020… as per NPCI recent announcement that the UPI channel has recorded yet another record in monthly transactions, clocking 2.3 lakh billion transactions worth Rs 4.3 lakh crore in January 2021. This is a real testimony of digital transformation in the payment industry…

Lets talk about the key digital payment methods from Indian Context which is rapidly changing the digital payments landscape..

  • Banking Cards-Credit or Debit Cards remain dominant in the payments industry for several decades, these card payment methods also enable users making payments from Web or Mobiles using their cards. Today, these cards can be used at PoS (Point of Sale) machines, ATMs, microATMs, Shops, wallets, online transactions, and for e-commerce websites almost covering entire spectrum of the digital transactions
  • UPI-as mentioned above is now significantly used as a preferred method for digital payments. It is a payment transaction which any customer with a bank account can use with the help of a UPI-based Application. User can link more than one bank account with the UPI mobile App on their smartphone and initiate fund transfer seamlessly without exposing their bank account number of IFSC code to initiate fund transfer through UPI instead using a Virtual Payment Address (VPA) that secures the user bank account details.
  • Digital WalletsAlso known as e-wallet typically enables the users (or e-wallet) is a software-based system that securely stores users' payment information and passwords for numerous payment methods and websites. There are multiple types of digital wallets categorized as closed, semi open and open types wherein user can transact and initiate payments within and outside the wallet userbase and transact via POS, bill pay services as well..
  • USSD- Unstructured Supplementary Service Data, is another method of enabling digital transaction and can be used without downloading any mobile App and without mobile data. Since in India the not entire userbase uses smartphones this NPCI backed this USSD method using #99 from any phone to get the balance, statements and initiate fund transfers.
  • AEPS, is another method that liberates users from using banking card, web, mobile or even physical visits to bank but uses Aadhar verification instead. The users bank account once tagged with Aadhar number any banking transaction such as cash withdrawal, balance inquiry, cash deposit, funds transfers, etc. are carried out through Aadhaar biometric verification.

Apart from these methods, the users also can leverage digital banking using NEFT, IMPS, RTGS for mobile / net banking or e-banking via their respective banks to transact via IFSC codes. Just recently the coverage of these methods become near real time covering almost 24x7 basis.

On the innovation curve we have seen emerging technologies such as blockchains based digital currencies ( Read BitCoin) that is now disrupting the traditional governance paradigms replacing with pure play technologies, and the debates and consortiums opening up more choices for users and business entities to transact digitally and might change the legal and regulatory mechanisms in near future.

Digital payments adoption

In a report on digital payments by NPCI, mentions that the recent pandemic tiggered most of the digital payments adoption due to its impact on the people’s lives, changes in the lifestyle and subsequent situations of lock downs in various parts of the nation. It permanently altered the way Indians consumed and used digital payments, while everyone was finding ways to work remotely, interact and pay for order essential supplies and even send and receive money between friends and families.

On the other side government too was searching and deploying solutions enabling digital payments via Digital India, Jan Dhan Yojna, PM SVANidhi scheme for street vendors, DBT release, mandating FASTag for tolls, etc. thus broadening the ambit of coverage within the digital economy and even releasing guidelines on V-KYC, contactless payments, recurring payments on cards and UPI, standardization of QR and thus enabling banks, NBFCs / Payment providers for fast tracking their digital initiatives and innovating at dynamic pace to address the gaps for consumers, merchants and business entities in the value chain.

NPCI has embarked on a mission of touching every Indian through various digital payment enablers like UPI, BHIM, RuPay, NETC, AePS, BHIM Aadhaar, Bharat BillPay, NFS, NACH, CTS, IMPS and to facilitate safe and secure digital payments. These products help in ..

1. Person to Person money transfers.
2. Person to Business, such as kirana stores, petrol stations, recharges, e-commerce, retail.
3. Business to Business, such as Retailer to Supplier or Distributor.
4. Business to Person as salaries, reimbursements, refunds, claims.
5. Person to Government, such as tax, public transit, public distribution services. utility.
6. Government to Person, in the form of direct benefit transfer payments of various central and state government social security schemes.

Future Technologies of digital payments

While we discussed the business aspects of the digital payments and evolutions thereof, it is essential to keep an eye on the future of the technologies that will ease the way we authenticate, transact and secure the digital transactions, using DLTs, AI/ML and IoT technologies digital payments are experimenting and establishing the proof of concepts that can completely disrupt the way we transact today, few established technologies which are already passed the proof of concept stage are..

  • Use of Biometric - using unique fingerprints, facial recognition digital payments can be enabled via authenticating the users and authorizing the transactions, offering accurate, secure, instant and hassle-free way, rather than remembering various PINs and passwords from multiple entities and keeping track all the time. Most of the digital payment players leverage device based authentications and tokenize the transactions without need of user interventions, most of the payment wallets running on the mobile devices have successfully paved way of this method and good amount of research and development is happening in this area.
  • Use of VoiceSpeech Analytics and AI/ML based algorithms have been around for few years now and are driving the way we control our home appliances, even interact while driving etc. As these technologies will become more efficient and accurate the digital payments would be the ones to leverage them in real life. This will help create more secure and simple way to trade and transact within the digital payment domain.
  • Near Field / Contactless - Using proximity of device via EVM & RFIDs, POS machines via NFC there are many ways embedded workflows can be built to provide easy and secure way to transact. There are major credit card players already issuing the contactless cards ( Read, Tap-and-Go) that will work with ATMs and POS terminals and even interact with the mobile devices by and between the stakeholders involved in the workflow.
  • DLT's – Digital Ledgers / Blockchains have been in the foray with digital currency is well known and many regulators are finding ways to strike a balance between autonomous currencies and digital payments, e-KYC usecases, significantly decentralized, anti-fraud and business continuity driven DLT’s will surpass our expectations and establish the technological governance to fool proof the digital transactions in years to come.
  • AI/ML and Data Science -Will substantially improve the insights on the volume and velocity of digital transactions which is a common barrier for fraud detection, risk management and regulatory mandates etc. Use of AI/ML coupled with established data science practices will pave way for governments and banks for traceability, customer acquisition and retention, royalty management, credit scores, marketing etc expanding the canvas of intelligence of digital payment transactions.

In Summary, The first wave of the digital payments started a few years using the internet and major players got into action as first movers within patent filing, research and commercial appearance peaked around year 2000, yet did not make major headway until the start-up ecosystem triggered innovations and helped initiate relaxations by regulators to start thinking about the new ways technologies can enable, digital transactions outside the traditional banking regimes. The FinTech’s, Regulators, UPI and digital wallets stories keep winning and users can no longer be constrained by banking hours, type of devices, physical cards etc to transact by and between entities. While People, product and policies are getting aligned as the foundation of decentralized controls, round the clock availability, emerging technology interventions with built in governance will certainly keep evolving looking at ease of doing business and opening up new frontiers for the digital commerce to trade and transact, for Sure!