Digital payments, also known as e-payments, refer to the transfer of money from a payer’s account to a payee’s account electronically.
Digital payments range from a digital wallet that contains digital cards (credit cards, debit cards, and pre-paid cards) to mobile payment apps like M-Pesa and cryptocurrencies.
A digital wallet, also known as an e-wallet, allows you to make transactions electronically through your digital device, like a smartphone, computer, or the like.
With an e-wallet, you can hold your credit card, debit card, prepaid card, shopping reward card, etc. in one place.
This allows easy access to your funds and even information without necessarily going for the physical cards.
In the recent past, digital payments have become easier and faster to use due to the many available options.
What is the global response to digital payments?
As of June 10, 2023, according to The Economic Times, India topped the global rankings in digital payments in 2022.
It also accounted for 46% of the global real-time payments in the same year.
Even with that said, many countries are still reluctant to embrace technology.
This may be due to the technicalities that come with it.
For instance, retailers have to get payment terminals that are compatible with contactless payments, which may seem expensive to them.
However, the younger generation seems to have taken this with ease, and they are running with it.
And since they are the captains of tomorrow’s economy, it’s worth getting familiar with some of these digital payment technologies, which are essential for the global market.
You have to choose a digital wallet that is compatible with your digital device to enjoy it.
Common digital wallet examples used worldwide include PayPal, Apple Pay, Google Pay, and Samsung Pay, among others.
In this article, we will focus primarily on digital wallets, which include digital cards.
The Bible on Technology, i.e. Digital Payments
“You are worthy, our Lord and God,
to receive glory and honour and power,
for you created all things,
and by your will they were created,
and have their being.”
God is the creator of everything.
Technology is in existence because, by His will, He gave man something, i.e., brains, resources, and time to work on.
This, in turn, brought forth this major tool that is impacting the world in many positive ways.
Therefore, the entire power, honor, and glory belong to God.
Now that we already know what a digital wallet is, let’s proceed.
Ways in Which to Use a Digital Wallet.
- You can make your purchase online as your information is automatically filled out, thus making shopping easier.
- With a mobile wallet, payments can be made either at the point of sale (POS) machine or by scanning a QR code.
- You can withdraw cash from an ATM using your mobile wallet.
- You can make an app purchase.
What is the difference between a digital wallet and a mobile wallet?
Let’s say a digital wallet is a mother to the mobile wallet.
While you can access a digital wallet on any digital device, you can only access a mobile wallet through a mobile device, e.g., your smartphone or smartwatch.
Understanding Physical vs Digital Payments Process
For Physical payment:
When you go to the supermarket and present your physical debit card to pay for your shopping, the cashier usually swipes the card on a POS (point of sale) machine.
Before making a payment, you must enter your Personal Identification Number (PIN).
Upon verifying the PIN and ensuring there is sufficient balance in the account, the payment process is initiated by debiting your account and crediting the amount to the merchant’s account.
If you are using a credit card for payment, your credit limit has to be verified with your credit card provider before the transaction is processed.
For digital payments:
You can install a digital wallet app on your digital device, such as a smartphone, laptop, or smartwatch.
When you are using your smartphone or smartwatch, then that is a mobile wallet.
You can use it to pay for purchases at the supermarket by holding it at the POS machine or by scanning the QR code.
This process will require a password for authentication so as to proceed with the transaction. .
To facilitate a successful transaction, there has to be a complete ecosystem that includes a payee, a payer, a digital bank, and a payment network.
A payee who is the merchant could be your local supermarket, gas station, or e-commerce portal.
It can also be the service provider that helps facilitate the transaction on digital payment platforms.
The issuer bank debits money from the payer’s account, and the acquirer bank credits the payee’s account on receipt.
In the case of an e-commerce portal, a request is typically sent to a payment gateway.
For instance, in Kenya, we use M-Pesa, which then seeks your authority by asking you to enter your PIN.
Following verification and a sufficient account balance, the funds will be deducted from your account and credited to the e-commerce portal account.
Advantages of Digital Payments For Business
- It’s convenient since payments can be done worldwide and transactions happen faster compared to the traditional method of cash handling.
- Since the processes are automated, you can easily track and account for your money.You are able to identify the operational costs for your business or investment, and this enables you to comply with tax payments.
- Business owners can use customers’ payments as data for analysis and use it to retain customers and acquire new clients.
- By offering an e-commerce platform for your worldwide clients to make payments,you will be boosting sales in your business.
- Storage costs will be reduced since hard cash is no longer dealt with. All that is needed is an online payment gateway that can easily be set up and uses minimal transaction fees.
- The customer service experience is improved.
Disadvantages of Digital Payments
- Technical hitches usually lead to high bounce rates, thus posing great risks and inconveniences to the user.
- You risk the privacy of your personal data to online users.
- Scammers can exploit your data and use it for cybercrime activities.
- Transactional limits and deadlines may not be convenient to some users.
- Someone with access to your device and password can easily transact in your absence, so you may end up losing money.
- Due to advanced technology, the older generation may encounter some challenges when making payments.
Digital Cards as The Future Digital Payment Mode
The global adoption of digital wallets has prompted financial institutions to improve card issuance through digital banks in order to capitalize on the digital payment space.
Physical credit, debit, and prepaid cards are being replaced with digital card solutions, which allow payments to be settled in the cardholders’ digital wallets instantly.
The digital card issuers have put in place high-security technologies to mitigate fraud and identity theft and protect consumers.
This is done through tokenization, where card information is protected so that retailers cannot access the actual card number.
You can always authenticate using your unique features, e.g. fingerprint, face and PIN
How Digital Cards Work
As a cardholder, your digital bank account must be active and have sufficient funds for a transaction to take place.
Since the payments are done online, you have to install a digital wallet, i.e., if you are using PayPal, Google Pay, etc., on your digital device, e.g., a smartphone.
The digital card that is issued by your bank then links your bank account to the e-wallet, and you are then able to access your funds and transact via the digital wallet.
The processing system, which is the medium of transmission through which the process is done, allows the transaction to take place, and the payments are made quickly and easily.
At the end of this ecosystem is a merchant with a POS system, ready to receive the payments so as to settle in the payee’s account.
How to Safeguard Your Digital Payments from Fraudulent Activities.
- Always use a strong password and keep it to yourself.
- Monitor your accounts to identify suspicious transactions
- Don’t use public Wi-Fi to transact your business
- Never save your card information on your smartphone.
For digital payments to take place,there must be;
- An online banking method,
- A device on which payments can be made
- A medium of transmission where they have signed up to a payment provider, a digital bank or a mobile money service provider.
“Online payment will continue to play an ever-growing and significant role in the development of e-commerce as well as the stimulation of consumer demand.”Lucy Peng
Digital payments are the way to go since they are fast and convenient and can be done from any location in this world.
There is no need to carry many physical cards around when a digital wallet can hold all those at once and all you need is just a swipe or a tap to perform a transaction.