There are lot of Digital Payments banks that are being setup, and I was recently asked by a friend to explain it. So dedicated to those who wants to have an insight of how Digital payments works out. In India NPCI (National Payment Corporation of India) was setup for all retail payments.
It offers IMPS (Immediate Payment Service), NEFT (National Electronic Funds Transfer) and RTGS (Real-time gross settlement systems). These are the few options even when you bank from your phone you would see these options. On top of these services wrappers have been created for additional payment options such as AEPS (Aadhaar Enabled Payment System), APB (Aadhaar Payment Bridge System) and UPI (Unified Payment Interface).
RBI allowed banks to offer FI (Financial Inclusion) in 2006 where a third party can offer banking services on people’s doorstep through third party services. Earlier this service was offered using PoS devices/card swipe machine or Micro ATMs. They used to get connected through GPRS. Now the same services are offered through Mobile apps.
Currently, the digital transaction initiated goes to a Bank Switch & server. Then it goes to the Gateway where it is orchestrated before reaching the CBS (Core Banking System) where all transactions are updated and sends a confirmation to the initiator.
In short, Digital payments work similarly like an email works, except when sending money you send it once else you might end up with multiple transactions.
Just like Coke took its biggest competitor as Water. For Digital Currency, biggest competitor is Cash. During a cash transaction no intermediator is required. It is a peer to peer transaction. However, during a digital transaction the liability has to be owned by a bank in the back end. Unless you tie up with a bank to back your Digital Payment venture, it won’t go far. Therefore, for a successful transaction you need Mobile Phone, Access to Internet & Literacy of paying by an app or phone number at both ends.
One of the challenges with e-Wallets is that they don’t work with each other. If I want to transfer funds from one wallet to another wallet. I need to transfer it back to my bank account and then again re-transfer funds from bank account into another wallet.
There is a huge opportunity for digital wallets to talk to each other just like banks talk to each other.
Another interesting option is of m-currency where you simply pay by sending money to another user by simply sending a text message or chat message. Money is deducted from user recharge account or chat wallet. But there are challenges of banking support & KYC etc. However, as Aadhaar and e-KYC become more popular, m-currency will prosper.
UPI 2.0 has released its new guidelines that talk about Integrating with Aadhaar and BBPS (Bharat Bill Payment System). In future, mobile phones will enable IRIS and Thumb identification and you shall be able to pay at shops without the need to enter PIN numbers or Credit Cards. As Aadhaar enabled phones become common in the market, you will be welcoming the next generation of payments tools, software and innovations.
