Digital Payment Service – The Trendsetter bringing colossal metamorphosis

The paper and coin currency has been an inseparable part of the society right from the inception of the known human settlements. But with the changing time and requirements, the human race started looking for the alternatives for cash payments and transfers. Right after World War 2, banks began recording information about the day's transactions onto large magnetic reels instead of carrying the actual cash. This was done to increase the convenience and security. Later, wire connections were established between the banks so that the transfer information could be done directly. But the big change came with the introduction of internet in the world in the early 1990s with the commencement of World Wide Web (www). As the growth and development of the internet increased, the parallel growth of e-payments and online transactions was witnessed. In 1994, Stanford Federal Credit Union came into existence and is known to be the first financial institution which offered online internet banking services to all of its members.

After this initial step, the growth of the e-cash and online payments was unstoppable. The initial chief players on the e-payment market were Millicent (founded in 1995), E-Cash or Cyber Coin (both in 1996). The majority of the first online services were using micropayment systems and their common characteristic was the effort to implement the electronic cash alternatives (such as e-money, digital cash or tokens).

Coming to the present time, the online payment aspect has taken a gigantic shape with an enormous number of innovations and trends. The prime source available as of now for digital payment are credit and debit cards, e-cash, e-cheque and smart cards. These options have been summarized as below:

Feature

Credit Card

E-Cash

E-Cheque

Smart Card

 

Debit Card

Actual Payment Time

Paid Later

Prepaid

Paid Later

Prepaid

Prepaid

Online/Offline Transaction

Online Transaction

Online Transaction

Offline Transfer

Offline Transfer

Offline Transfer

Bank Account Involvement

Credit Card A/C makes payment

No Involvement

Account make payment

Account make payment

Account make payment

Users

Any legitimate credit card user

Anyone

Anyone with a bank a/c

Anyone with bank or credit card a/c

Anyone with bank or credit card a/c

 

Source: Kaur, K. and Pathak, A., (2015)

Apart from this, the market of e- payment has seen some recent technology-driven trends to suffice the insatiable urge of the digital age. 

  • Person to person (P2P) payments- P2P is an online technology that facilitates the customers in transfer and allocation of funds from their bank account or credit card to another individual's account via the Internet or a mobile phone. With the increase in the number of digital payment users and the recent growth in moving towards a cashless society, P2P payment methods have gained popularity.  The major players in this domain are PayPal, Google Wallet, Snap Cash, and Fiserv to name a few. The popularity of the segment can be estimated by the fact that in 2017 alone, 63.5 million consumers used a P2P payment app at least once a month across the globe, which is nearly one-third of all smartphone users, as per Laura Bruck, the VP of Marketing at EZShield Fraud Protection. Transaction Value from P2P money is expected to show an annual growth rate (CAGR 2018-2022) of 23.1% resulting in the total amount of US$31,136m by 2022 in Asia alone.
  • Point of Sale (PoS) system- The point of sale (POS) system is the software/ hardware where the customer executes the payment for goods or services bought from the provider or company. With an increase in the use of the card and digital payments, the use of PoS systems has increased enormously. It can be considered a big influencer that can facilitate us in moving toward a digitalized society. The must-have of a PoS system have been summarized as below:

     The popularity and growth of the POS system can be estimated from the fact that India    being one of the world’s fastest growing economy, witnessed the number of PoS terminals increasing to 3.16 million against 3.13 million in March 2018 as per the Economic Times.

  • Payment Application of Programming Interface (APIs) - Payment APIs are communications between various servers to facilitate and enable processing of payment transactions online. APIs serve as important points to collect data and information from different banks, merchants and other stakeholders for the development of new and improved modified services.  APIs significantly reduce the cost and time thereby increasing efficiency. APIs reduce the issues of application scalability since herein new functionalities can be added just by adding or deleting APIs. This further contributes to increased transaction speed and flexibility. Owing to the present dynamic and technology-driven environment, these characteristics of APIs make them the new choice for the stakeholders when it comes to digital transactions.
  • Digital wallets- These are used for online transactions through a computer or a smartphone. Its utility is similar to a credit or debit card and requires to be linked with the individual's bank account to make payments. Digital wallets make it possible for the customers to do online transactions and fund transfers without any hustle with just a click in the secure environment. Some of the biggest digital wallets across the world are Apple Pay, Samsung Pay, Android Pay and PayPal, etc. According to Statista, mobile payments and digital wallets will drive a revenue of 930 billion US dollars in 2018, compared to 780 billion dollars in 2017.
  • Bitcoin’s digital currency- Bitcoin digital currency is a cryptocurrency. It is a form of electronic cash that can be exchanged for other currencies, products and services. Bitcoin is basically a computer file which is stored in a 'digital wallet' app and is processed through a private network of computers linked through a shared program. Bitcoins can be exchanged between the e-wallets of the users. It is a decentralized digital currency without a central bank or single administrator. The transactions in bitcoins are recorded in a public list called Blockchain. The major advantages of Bitcoin are low transaction fees when compared with other payment modes like credit cards during cross border transactions. This makes it easier for international customers to do business. The hassle of the third party can be avoided while using bitcoin for transactions. Also, these payments are neither taxed nor affected by inflation and the receipt of funds is faster than through legacy financial institutions. All these advantages of Bitcoin digital currency have made it the most desirable and preferred currency.
  • According to Andreas Kaplan of Smartreum, an online market research website, the bitcoin is expected to reach$125,000 by 2022.

The revolution that is taking place in the payments industry is outstanding as can be inferred from the discussion above. It can be estimated that by 2020, the competitive environment will have been redefined; new services, providers and systems will create a very different digital payment industry to the one that is known today.