06 Aug 2017 15:27 IST

Key into the digi world

With so many digital payment options available, which one is for you?

Not so long ago, credit and debit cards were the most prevalent cashless payment options for individuals. But the government’s move to scrap the ₹500 and ₹1,000 notes in November last year has brought about a sea-change in the digital payment ecosystem.

While payment options such as e-wallet and mobile banking, which were already available, gained traction with refurbished products and more companies entering this space, new digital payment offerings such as Unified Payment Interface (UPI) also debuted last year.

Here’s taking a look at the different digital payment options available to an individual and where they can be used optimally, by weighing their pros and cons.

Through internet, mobile

Most banking operations, including applying for a cheque book, investing in a fixed deposit and transferring money to others, can be done through net banking. The bank’s system can be accessed through a computer or a laptop, with user-ID and password. There is also a shift happening towards accessing banks through the mobile phone or mobile banking.

Net banking is useful for paying your electricity or credit card bills. Using it in place of other modes such as credit card may save you money in some cases. For instance, if you pay your power bill with credit card, a transaction fee of 1 to 2 per cent of the bill amount is levied. But this charge is not levied if you pay through net banking.

The biggest advantage of net banking, however, is in the online fund transfer facility. This can be done through various options such as Real Time Gross Settlement (RTGS), National Electronic Fund Transfer (NEFT) and Immediate Payment Service (IMPS).

The fund transfer in RTGS is immediate, done in real-time. This is useful for transferring large amounts; the lower limit is ₹2 lakh while there is no upper limit. NEFT does not have any limitations on the quantum of money that can be transferred.

However, the settlement in NEFT is done in batches, unlike RTGS, which is real-time.

Funds can transferred instantaneously using the IMPS facility any time during the day or night. To use IMPS you have to register your mobile number for mobile banking and get a Mobile Money Identifier (MMID) number. You can use the counter party’s mobile number and MMID or their account number and IFSC to transfer fund up to ₹2 lakh per transaction.

Wide acceptance almost everywhere in any online platform, including the e-commerce portals, is a big advantage of net banking. It scores the highest in terms of security among all systems since the bank’s platform is accessed directly using your log-in credentials. The option to give standing instructions for bill payments is available only here and not in other payment modes such as wallets.

The basic disadvantage is that there is no incentive in the form of a cash-back or reward points while transacting through net banking, unlike credit card and wallets. Fund transfer charges have increased after the implementation of the Goods and Services Tax (GST). The total process might be cumbersome and can take more time as it involves many steps. Transaction time can increase if the banks’ portal is not user-friendly.

A wallet on your mobile

As the name suggests, it is a mobile app that creates a wallet on your mobile where you can load money for both online and offline purchases. Paytm, Oxigen, Freecharge, etc., are well-known wallets that are widely in use.

Banks also offer their own wallets. ICICI Bank’s Pockets, HDFC Bank’s PayZapp are some examples. Wallets can be broadly classified into three categories — open, closed and semi-closed (see table for details). An individual using the wallet will have to load it with money first and then use it.

Wallets are commonly used for small-ticket payments like groceries, cab aggregators, mobile recharges.

It also makes sense to use wallets in e-commerce portals at times of special discounts and offers because some offers are targeted at users of e-wallets. But the challenge here is to keep track of the ongoing offers.

Ease of use is one of the major advantages of wallets. Once installed, the transactions can be made at one click of a button and are quite straightforward.

The discounts, cash-back and other offers given for using this mode of payment in many online portals and e-commerce websites are another attraction.

The major disadvantage is the cap on the amount that you can hold and on transactions made through the wallet. You can load only up to ₹20,000 in your wallet if you have not undergone KYC verification. The limit is ₹1 lakh if you are KYC-compliant.

Different vendors and e-commerce portals integrate with different wallets providers. So you may have to use multiple wallets to avail the discounts offered on all the major e-commerce portals.

In terms of security, wallets score the lowest. That’s because, if the mobile is lost, the fraudster has access to all the money you have in the wallet. Having multiple wallets might be quite risky, for chances of losing your money are highest here. Small offline merchants, such as grocery shops and mobile re-charge outlets who receive payment in to their e-wallets, have to pay a transfer charge to their banks when the money is transferred to the bank account. This can be between 1 and 2 per cent of the value transferred and hence can pinch the business.

Almost all transactions through mobile wallets are free at the moment. But there is a possibility of charges being levied on these transactions in the future.

Unified payment

Unified Payment Interface (UPI) is a mobile application which allows you to transfer money from one bank account to another instantly. One has to install the UPI app on the mobile, create a virtual address, link the bank account and start using it. UPI can be used for making payments to merchants, utilities, etc, and for peer-to-peer transactions.

According to experts, BHIM (Bharat Interface for Money), an app developed by the National Payments Corporation of India (NPCI), is the best in terms of security as well as ease of use, among all the UPI apps provided by different banks.

According to experts, UPI is the best payment and fund transfer option available. But since banks do not earn any revenue through this route, they are not pushing it to their customers. Also, limited acceptance by merchants, for making purchases, is crimping this channel.

Unlike a wallet you don’t have to load cash on to the UPI app since it is directly linked to your bank account and the usage can extend to the quantum of money you have in the bank.

Since the money gets transferred instantly and also directly to the bank account, it is the best form of transfer from a merchant’s point of view.

At the moment there are no charges levied for the transactions made through UPI and it is the only mode of transaction available at zero cost, currently.

Too many apps from different banks, along with BHIM from NPCI, make it confusing for the user to zoom in on what might suit him. No offers, discounts or other incentive in any form are offered by merchants for using UPI.

Plastic money

Credit/debit cards are one of the oldest forms of cashless payment method. Credit cards can be used everywhere for both online and offline purchases. It is the only way to get short-term credit at zero cost. The card has credit limit but it is much higher when compared to wallets.

If you are highly disciplined about your spending, credit card is preferable. It is ideal for online transactions and for purchasing on e-commerce portals.

Debit cards give direct access to the money in your bank account. They It can be used almost everywhere, both online and offline, like a credit card. Debit card is the only mechanism available to convert the digital money into physical cash and the cost of using this cash is zero.

If you are not much disciplined with your spending, debit card is the best for you as it limits your spending to the quantum you have in your account. But debit card may not enjoy some of the benefits offered by a credit card. For instance, using your debit does not usually earn you any reward points.

Also, most of the offers that come up in any e-commerce portal will pertain only to the credit card and not to the debit card.

Security is high with multiple levels of authentication. You have the option to block the card in case you lose it. Reward points that runs all through the life-time of the credit card are a big advantage.

The threat of losing the credit/debit card and it being misused is one of the major disadvantage. The process of applying for credit card is time consuming and there is a possibility of rejection if your credit history is not good. Unlike other payment modes, you can use this option only if the bank wants to give it to you.

Usage in online portals is time consuming as you have to enter the card details every time and you will also have to carry it all the time. Free credit encourages you to over-spend and the cost of missing the payment is high. Though you get about three week time for making payments from the day your bill is generated, the interest charged are high; between 2 to 4 per cent per month, if you default on the bill payment

(The article first appeared in The Hindu BusinessLine.)