In this article, you will learn:
National Payment Corporation of India (NPCI) urged Indian citizens to use digital payments in order to reduce social contact and contain the COVID-19 outbreak.
As per a survey conducted by Mckinsey, the post-COVID-19 usage intent for digital payments is 92% than its current user growth of 12%. This clearly indicates that digital payment systems would continue to command a high level of confidence from the general population post-COVID-19.
In this article, we shall discuss the benefits of accepting digital payments and how one can accept digital payments during COVID-19.
What are Digital Payments?
Digital payments are nothing but electronic funds transfer that is initiated by a person by way of instruction, authorization, or order to a bank to debit or credit an account maintained with that bank via electronic means.
Benefits of Accepting Digital Payments
Accepting payments digitally leads to:
- Buyers do not have to rely on cash as they can pay directly from their bank account using debit cards, mobile wallets, etc
- They can avail loan limits via credit cards to make purchases when they do not have enough money in their bank accounts
- Incentives like cashback and reward points offered on digital payments act as a great attraction for buyers to make purchases
Tax and Cash Management
- Small business owners can maintain digital records of sales or invoices mandatory to pay GST.
- They can collect payments remotely from customers
- Fear of fake currency, losing cash or getting robbed gets eliminated
- Business owners can pay suppliers via credit cards as credit card companies offer 45-day credit at no interest
Spontaneous Access to Credit and Other Services
- Banks and financial institutions will have access to your transaction history and hence would offer you loans accordingly
- Business wonders can get access to value-added services like inventory management, electronic receipts, etc via mPOS (mobile Point of Sale) providers
How to Accept Digital Payments?
The following are digital payment systems that one can use during the COVID-19 pandemic.
Real-Time Gross Settlement (RTGS) is a continuous and real-time settlement of fund transfers individually on a transaction by transaction basis.
Here, real-time means that instructions are processed at the moment they are received. Whereas the gross settlement means that the settlement of these fund transfer instruction occurs individually, that is one at a time.
This system of payment is primarily used for large value transactions. Accordingly, the minimum amount one can remit through RTGS is Rs. 2,00,000 with no upper limit.
The only drawback of using the RTGS facility is that it is not available 27×7, and customers can undertake transactions from 7 am to 6 pm on a working day. Furthermore, from July 1, 2019, RBI has waived processing charges for RTGS transactions.
National Electronic Funds Transfer (NEFT) is a nation-wide centralized electronic fund transfer system to transfer funds from one bank account to another in a safe and easy way.
Currently, NEFT operates in batches on half-hourly intervals throughout the day. Furthermore, there is no limit imposed by RBI for funds transfer through NEFT. However, banks may set limits based on their understanding of risk. Individuals, firms, and corporates who have accounts with any of the banks giving NEFT facilities can transfer funds electronically to any individual, firm, or corporate having an account with any other bank in the country.
Furthermore, to avail NEFT services, no charges are levied for inward transactions by the recipient bank. However, the banks making outward transactions charge fees on the basis of the amount transacted.
The only challenge with NEFT is that settlement happens in batches and this system is not available round the clock.
Immediate Payment Services (IMPS) is an innovative, real-time payment service offered by NPCI round the clock. It empowers customers to transfer money instantly via banks and RBI authorized Prepaid Payment Instruments (PPIs) across India. What makes this facility different from NEFT and RTGS is that fund transfer can take place quickly and in real-time and that too 24×7, 365 days a year.
Furthermore, this service can be accessed on multiple channels like mobile, internet, ATM, SMS, branch, etc. The charges of remittance through IMPS are determined by individual member banks and PPIs. So, you need to check with them for the same.
United Payment Interface is an instant real-time payment system developed by NPCI that allows different banks to interconnect and transfer funds. That is to say, using a single mobile application of any participating bank, multiple bank accounts can be accessed to transfer funds. Thus, such a system merges various banking features, offers seamless fund transfer, and allows merchants to make payments with a single application.
This system allows immediate transfer on money through mobile devices round the clock, 24×7, and 365 days. The idea behind introducing UPI was to allow account holders to have different bank accounts to send and receive money via smartphones using just their Aadhaar Unique Identity number, mobile number, or virtual payment address without providing bank details like account number, account type, bank name, and IFSC code.
Currently, there are no charges for transactions done through UPI. However, it is subject to revisions in the future.
Debit cards are issued by banks and are linked to a bank account. These cards are used to withdraw cash from ATM, purchase goods and services at Point of Sale terminal or e-commerce. Such cards can also be used for domestic funds transfer from one person to another subject to prescribed limits and conditions.
Credit cards are typically issued by banks and some non-banks. But these can also be issued by other approved entities. Such cards can be used for:
- Purchase of goods and services at POS terminals or e-commerce
- Withdrawal of cash from ATM
- Transfer of funds to bank accounts, debit cards, credit cards and prepaid cards within the country subject to conditions and limits
- Can be used domestically and internationally, provided the holder requests for the same
Prepaid cards are issued by banks or non-banks against an amount that is paid by the cardholder in advance. The amount thus paid in advance is stored in the prepaid cards which can be used in the form of either cards or wallets.
Prepaid cards can be open or semi-closed in nature and can be used:
- To withdraw cash from ATM
- To purchase goods and services at POS terminals or e-commerce
- For domestic fund transfer from one person to another subject to limits and conditions
Electronic cards can be considered as debit cards that are issued to specific persons having overdraft accounts with banks. These cards are in the nature of personal loan without any particular end-use restrictions.
Other Digital Payment Options
- Electronic Clearing Service (ECS)
- National Automated Clearing House (NACH)
- Prepaid Payment Instruments (PPIs)