The pandemic has spurred the use of digital payment solutions in our daily lives. Not just businesses, but common consumers use digital payments more than ever to pay bills, send money, shop online and much more.
Digital payments are soon replacing traditional payment methods and for good reason. So, let’s ask ourselves-
why stand in long queues to pay your ward’s fees when you can pay via a mobile application or a link shared through mail, right?
This changing consumer preference is also causing disruptive changes in every business sector, from EdTech to Fintech, all are switching to the easier, quicker, and safer electronic modes of payment.
In this blog, we cover
What are traditional payment methods?
What are electronic payment methods?
How do traditional payment methods differ from electronic payment methods?
What are the features of traditional and digital payment methods?
What are the benefits of Digital Payment Solutions?
Let’s dive right in and explore each of these sections one by one.
What are traditional payment methods?
Any transaction that involves the exchange of physical money is called traditional payment method. Just a decade ago, ours was a fully cash-dependent society.
After all, who doesn’t like the whiff of freshly minted currency notes!
The trust in traditional payment methods is overwhelming, which explains why despite the increasingly digitizing global economy, more than 55% of all transactions worldwide is still cash-based.
Some Surprising Numbers
According to the YouGov Global Report 2021, in the UAE, a country that boasts more than 90% smartphone penetration, 39% of consumers preferred cash for all major transactions.
Surprisingly, going by the stats, physical money still, dominates the payment industry.
Additionally, among the countries that prefer cash payments are Germany with a staggering 46% preferring traditional payments over all other forms of payments.
In countries like the UAE, India, Indonesia, Spain the number stands at 39%.
Also, in the USA, Australia, and Italy 30% of consumers prefer traditional payment methods.
What are Electronic or Digital Payments Methods?
Any transaction that takes place via digital or online means come under Digital or Electronic payment methods.
There is essentially no physical exchange of cash or money. The payer and payee use only electronic mediums to complete the transaction.
In the last couple of years, Digital Payment industry was still in its nascent stage. It became a necessity, all thanks to Covid 19 pandemic that threw the world into a tizzy.
Hence, countries like India and the UAE saw its government fully backing Digital Payment industry by running Digital India Campaign and E-Dirham launch respectively.
Now, Let us look at some numbers, shall we?
In 2020, electronic payments accounted for more than 45% of global payments. By 2023, 1.31 billion people will prefer mobile payments.
In the UAE, 2/3 of consumers prefer to continue digital payments even after Covid abates.
49% of people in the UAE prefer card to make payments, e wallet at 18%, cash at 12%, bank transfers at 11% and other modes at 10%.
Digital payment solutions doesn’t necessarily mean that a transaction is devoid of any physical hardware. PoS machines or card readers are also required when one uses a card to complete the transaction.
When you purchase a product from Amazon and you use a UPI to complete the transaction, it is a digital payment.
What are the different Digital Payment methods?
1. Banking Cards
Do you know which was the first ever credit card? The Diners Club introduced by the American Express Company in 1958.
In most developed and developing countries, people prefer card and other digital payment modes. Safety, convenience, security are a few reasons why people prefer card payments as a global payment solution.
Did you know that there are applications simply to handle cards?
Unstructured Supplementary Service Data or the USSD. If one is to point out one drawback of electronic payment solution, it is perhaps the over-reliance on internet connectivity.
For several consumers, internet connectivity is still inaccessible or they are simply not aware of such advanced technology.
But who said digital payments need internet connectivity anymore? Enter USSD and now anyone can make online payments without proper banking or internet facilities.
Unified Payments Interface or UPIs is a payment ecosystem that connects several bank accounts onto a single platform making banking, online transactions, bill payments, etc, an easy, safe, quick option for the end user.
Hence, a single application facilitates hassle free money transfer free between two parties.
Since UPIs are standardized across banks, it is far more reliant, safe and well-structured as compared with NEFT (National Electronic Funds Transfer) or RTGS (Real Time Gross Settlement) or IMPS (Immediate Payment Service) systems.
UPIs are fast becoming one of most popular payment methods globally.
4. Mobile Wallets
Mobile Wallets are essentially a wallet in your mobile. You can securely save your card details in your mobile and make payments on the go.
So, it is basically carrying cash in the digital format sans the risk of pickpocketing.
Additionally, you can add money to the wallet and then use that to make payments or transfer funds.
Banks are distributing their wallets to reach and serve customers better. With the private companies also pitching in, digital wallets are getting all the fillip it needed in a post-covid world.
Payit, Emirates Digital Wallet, Samsung Pay, Beam Wallet, Etisalat Wallet, Apple Pay, WePay are a few popular digital wallets in the UAE.
5. Bank Prepaid Cards
Prepaid bank cards, issued by banks have money pre-loaded in them.
Usually, it is for single use purposes or reloadable for future uses.
A KYC- complied account created by visiting bank’s website, is all that you need to get a prepaid card.
PoS terminals or Point of Sale is a location where transaction or sale happens. A Card reader which can read your card’s details and complete the transaction by entering a PIN is all that is needed in a PoS terminal.
PoS has now flourished to mPoS or the mobile PoS- that use a tablet or a smartphone, and soft PoS or virtual PoS that use web applications to complete transactions, both equally popular among consumers preferring a cashless payment system.
7. Internet Banking
When you complete transactions via your bank’s website it is called internet banking or e-banking.
There are hardly any bank today which doesn’t provide internet banking services to its customers. So, internet banking is at an all time high.
NEFT, RTGS, IMPS etc are a few options while internet banking.
8. Mobile Banking
Internet banking using a mobile is called mobile banking. Users can download bank’s own applications and and have a seamless experience of banking on the go!
In short, the convenience of having digital payments including IMPS, NEFT, RTGS, and creating bank statements, making bill payments, transferring funds all in one single platform cannot be overstated.
What are the Benefits of Digital Payments?
Digital Payments is not just another payment method anymore.
On the contrary, it is opening up several opportunities for businesses to grow quicker and tap markets more effectively.
Now, Banking is simple, thanks to the popularity of Mobile applications and online platforms. No one visits a bank anymore to transfer cash or pay bills. It can all be done in an instant.
The world is surely at one’s finger tips. But a section of our society is falling behind in this increasingly digital world, our senior citizens.
They older generation may not be as tech-savvy as today’s youth. Hence, they still prefer and trust traditional payment methods.
Additionally, they have grown in a cash-only society and trust in cash is deep-rooted. Digital ignorance doesn’t help either.
Nonetheless, there are a host of reasons why seniors too should switch to digital payments.
Let’s explore them one by one
1. Better Security
Anti-social elements target senior citizens because they are vulnerable and physically weak. They cannot always defend themselves against a theft or physical attack.
There is risk in carrying cash. This is one of the major benefit of digital payments.
A digital transaction will be completed only with proper customer authentication and verification.
Also, banks use various security parameters like OTPs, cross-verification processes, Strong Customer Authorization, 3D Security, etc, to keep fraudulent transactions at bay.
2. Increased Convenience
Imagine your aged parent standing in long queues at ATMs or at a bank counter to withdraw a small amount of money? Not a very pleasant experience, especially in the heat and dust of a typical UAE climate.
However, that is exactly what an elderly has to go through every time they have to buy grocery or vegetables. So, how can we eliminate this hassle?
With Digital payment solutions.
They can do all day-to-day activities hassle-free within the comforts of their home.
No more worrying if cash in hand will suffice or no. No more sweating and panting standing in long queues to buy milk and groceries.
3. Easy Transactions
Transactions have become incredibly easy and smooth.
Slowly but surely, even for the senior citizens who were initially reluctant to adopt the digital payment solutions are now shifting to it after learning about it’s super easy transactions.
Mobile banking apps, introduction of UPIs and digital wallets have made buying and selling a seamless process for all parties concerned.
4. Multiple Payment Options
The host of payment options in digital payments is reason enough to switch to a completely cashless society.
From Debit and Credit cards to digital wallets, to UPI and Pay-by-link via WhatsApp/mail or SMS, digital payment options are easily accessible.
5. Offer Discounts
Banks provide cashbacks, rewards, discount vouchers, special rewards to encourage digital payments.
6. Contactless and safe
During Covid, everything became contactless, including transactions. In today’s changing times, consumers prefer Digital payment solutions because it was contactless and hence, more safe.
7. Super easy tracking
One of the best features of digital payments is the elimination of manual tracking.
So, maintaining budget, tracking spend history is no more as difficult as it was!
8. Transparent transactions
Real time tracking is easy and so is maintaining transparency because of the ease in data trailing
9. Reduced Operational costs
Collaborating with a card processor to give payment services to your customers is very expensive.
On the other hand, if you use electronic payment methods, such costs incurred are eliminated fully.
Let’s Conclude the benefits of Electronic payments..
Firstly, global cash transactions are on the decline.
This was practically possible because electronic payment integration due to fast digital adaption.
Secondly, harnessing the latest technology helps businesses to stay ahead in this highly competitive world.
Cash reigned supreme at one time but not anymore as businesses couldn’t rise to full potential because of cross-border and international payment difficulties.
All this has been easily solved by electronic payment methods. Nobody thought a day would come when cash can be replaced with a card.
Now, we are looking at a future when even card will be completely replaced with other electronic payment solutions.
Finally, yes the future looks cashless, card-less, and effortless!
Click on the link to know how digital payments can transform your business?