Why use Digital Payment Systems?

The sudden move to abolish old high denomination notes of Rs.500 and Rs.1000 seems to have had a positive effect on digital payments systems, as more and more people turn to digital payments as an alternative.

Launch of Unified payments Interface

The Unified Payments Interface (UPI) was launched in April by National Payments Corporation of India (NPCI). However, it was only post 8th November 2016 that larger banks came aboard. Basically, UPI makes use of the IMPS (Immediate Payment Service) platform on the bank to transfer money between two bank accounts.

To use the BHIM app as its known, the user has to download it from the Android stores and create a virtual payment address, which is a unique ID like yourname@icici or yourname@hdfc, so on or your mobile number. Then the user can go on to create the 7 digit MMID or Mobile Money Identifier number, which is issued by the bank on registering.

To make a payment, user would have to identify the recipient of the amount using the MMID, the virtual address or even their mobile number. Meanwhile, the BHIM app for all the banks hopes to bring the facility for the payee to scan the QR code with a mobile camera so as to identify the recipient. This eliminates the need to enter details manually.

Rise in use of digital payment system (Source: https://www.rbi.org.in/home.aspx) (Value in billions)

Period NEFT IMPS Mobile Banking
Oct ‘169,504.5343.61,135.6
Dec ‘1611537.6431.91365.9
% difference 21.3%25.6%20.3%

 From here, you can infer that the digital mode of payments has increased significantly in Dec’16 from Oct ’16. 

Digital Payment Systems Value in Billion Rupees
Digital Payment Systems Value in Billion Rupees


Features of Digital Payment Transactions

  • Debit/Credit cards are swiped at the checkout counter to make payment. Can also use for online shopping
  • Enter your Customer ID and password at the bank’s website to do online transactions
  • Small business owners just need to sign up with a mobile number to start accepting digital payments. They print out a page with mobile number and QR code.
  • Customers with mobile wallet apps installed on their phone can point the camera at the QR code and make the payment
  • If a customer is not KYC compliant, the transactions per month are restricted to Rs. 20,000

Advantages of Digital Payment systems

One of the main advantages of digital payment system is its convenience and also its acceptance at more and more places. It can be used almost anywhere and everywhere. You can also easily access all the history of transactions so that you will have an account of your expenses, thus helping you control it. Digital payments also help save your time.

Mobile Wallets and Liquid Funds

 A lot of people have idle monies in their wallets and they wonder how to make better use of it. The answer to this would be SEBI’s consideration to allow mutual fund investments via digital wallets, in view of the fact that the government is aiming to boost digital transactions.

Meanwhile, another mobile wallet Paytm becomes Paytm Payments Bank on 15th Jan 2017. The remaining money in the wallet currently will reflect the same in their new Paytm Payments Bank Wallet. It is also not required for someone with Paytm Wallet to open an account in the bank to continue to access their wallets.

Mobile Wallet users will be able to get yearly returns of about 6%-7% by investing in liquid mutual funds. (Source: http://www.thehindubusinessline.com/money-and-banking/wallets-will-soon-fetch-you-money/article8876778.ece)

Mobile wallets like ITZ cash plans to introduce “investment and redemption” feature, following which if your account in the wallet is shut down, you would still be able to redeem the balance amount as well as the interest accrued over time. There would not be any need for a bank account to move the money.

Other Mobile Wallet companies also plan to launch services like Systematic Investment Plan (SIP) and insurance policies. In the meanwhile, one should also look at the advantages of having liquid mutual fund investments as they yield superior returns to those of savings accounts and mobile wallets. Easy liquidity without exit loads or lock in periods makes liquid funds popular.

To know which investment plans works best for your financial planning and wealth management goals, you can get help from a financial advisor.

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