Digital Payments:
Their Functioning, Benefits and Complications
All of us have heard extensively, in
recent past, about the “war on cash”, the move to make India and other
countries “cashless economies”
and the general trend among policymakers worldwide to move the economies of the
world to a digital and information enabled paradigm. It is worth noting, in this framework, that
the emphasis laid on digital payments and the digitization of commerce has
implications for individuals, businesspersons, governments, and everyone who is
a participant in the economy.
Consequently, it is very-very important
to understand what digital payments are and how they work and how they benefit
the economy as well as the associated problems that ensue from using such modes
of transactions and commercial dealings. Digital Payments are payments that are conducted over the internet and
mobile channels and hence, any payment that is sent online or
through mobile computing and internet-enabled devices can be called digital
payments. For digital payments to take place, the sender of the payment must
have a bank account, an online banking method, a device from which he or she
can make the payment, and a medium of transmission meaning that either he or
she should have signed up to a provider or an intermediary such as a bank or a
service provider. We will come to the last part in a bit.
The receiver of the payment too must
have these ways to accept payments, apart from the sender having such means.
This means that there must be a medium of transmission between the sender and
the receiver wherein the former instead of paying the latter in cash and
physical format pays in digital format meaning that the transaction happens
over eCommerce or mCommerce modes of transmission. Thus, what is important in
any digital payment is the “via media” through which the payments happen which
means that the intermediary and the modes of transmission are indeed the keys
to making the transaction or the digital payment successful.
Let us first think, coming to the
intermediary, about what happens when we
pay cash in the physical format. We first need to withdraw the cash from the
bank or get it from someone who is likewise using cash obtained from the bank. Thus,
without banks and banking channels, there is no way we can access cash or
transact for commercial dealings. Similarly, the digital payments need the
intermediary as well and considering the fact that the payment still involves
money though not in physical format and in digital format means that there must
be infrastructure that connects the flow of digital cash across the payment
value chain.
