As a customer, they say, it is always better to be spoilt for choice. Financial transactions are a backbone of any economy and having multiple options to undertake P2P and P2M transactions ease out the flow of money.
We have had quite a few ways of sending money to another person, paying our next-door mom-and-pop-store, paying bills and fees, honoring a loan installment, splitting restaurant bills etc. The sheer “variations” of paying and the “options” one has amongst these variations is baffling and a tad too many for a common man to understand and use simultaneously.
Tangible Modes of Payments
There are payment modes which can be done through tangible form factors, this section highlights some of the important such options.
- Cash has been a predominant mode of payment and a preferred mode as well. It is one of the oldest modes and is convenient for most people. Access to cash was difficult earlier but with the advent of ATMs the time factor for accessing cash has spread out.
- Cheques are used by customers with a heavier usage for business purpose. Cheques, however, have a lag between issuance and clearance hence may not be a preferred mode with the advent of various other instant payment options. The benefit of a cheque is that it transcends the boundaries of the value of a transaction.
- Demand Drafts are like cheques but have the benefit of payment being honored since it is a pre-paid instrument. Demand Drafts, however, have a limited usage currently and is usually used in C2B transactions.
- Debit Cards which come along with a Savings / Current account is a significant mode of payment with more than Rs 85 crore outstanding cards in the market. With the advent of new banks and advancement in competition, the customer can end up benefitting with various cash back offers and discounts which are offered. But since these offers have a shelf-life, to take complete advantage of each lucrative offer would entail changing bank accounts often and this may not be very feasible.
- Credit Cards are preferred due to the credit period the product offers. The customer is benefitted with the offers and discounts provided by various players in the market. Here again, the offers have a shelf-life and credit shopping for different credit cards may not be seen in good light by the credit bureaus.
- Prepaid Cards of different types – closed loop, semi-closed loop, open loop – offer flexibility to customers. They can be chosen for a specific purpose and have a wide acceptance like the debit and credit card infrastructure. Multiple options are available to the customers for opting the Prepaid Cards.
Digital modes of transactions have been in the vogue for a while now and they have received a considerable fillip post-demonetization period. The benefit these modes provide is near instant payment and convenience.
- NEFT / RTGS have been in existence for some time, these are offered for near real-time payments based on the value of a transaction with RTGS for transactions of Rs. 2 lakhs and above. The facilities are available along with a bank account and can be rendered to the customer through a branch, net banking or mobile banking. There are charges associated with these modes which have max limits specified by the RBI – to make the most of it one can choose banks which offer unlimited free over channels.
- IMPS (Immediate Payment Services) has been introduced a couple of years back where the inter-bank payment can be made 365/6 days 24X7. This was one of the first revolutionary payments mechanism which cut across time. IMPS today has a limit on the maximum value of transaction but the comfort it offers in the completion of the transaction is immense. There are limitations in adding a beneficiary to make the payment, however, there are some banks which allow ad-hoc payments without registering a beneficiary.
- USSD (Unstructured Supplementary Service Data) is a mode of transaction where the user need not have a smartphone and does not need internet connectivity. The service is available by dialing *99# on the phone and can help the user send money, request money, check balance among other things. The user needs to assign a bank account to utilize the services of USSD.
- UPI (Unified Payments Interface) is a 365/6 days 24X7 system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments. It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience. A UPI virtual ID needs to be generated to transact and a UPI Pin needs to be selected. This is a new mode and most of the banks are on this bandwagon.
- BHIM (Bharat Interface for Money) is an app that lets the user make simple, easy and quick payment transactions using Unified Payments Interface (UPI). A user can make instant bank-to-bank payments and Pay and collect money using just the Mobile number or Virtual Payment Address (UPI ID). Since it uses UPI, the payments can be immediate. However, a key factor to be kept in mind is that the services must be initiated necessarily through a separate app which has to be downloaded.
- Wallets have been in use in India and offer various benefits like offers and cash backs. A user can opt for any wallet with or without KYC with the limits prescribed and make a transaction. Wallets are closed-loop and the payment can be accepted only within the ecosystem currently. Ease of transacting is a critical benefit however the user needs to essentially install another app on the phone.
- NACH (National Automated Clearing House) is a centralised system for Banks, Financial Institutions, Corporates, and Government a web-based solution to facilitate interbank, high volume, electronic transactions which are repetitive and periodic in nature. NACH System can be used for making bulk transactions towards the distribution of subsidies, dividends, interest, salary, pension etc. and for bulk transactions towards the collection of payments pertaining to telephone, electricity, water, loans, investments in mutual funds, insurance premium etc.
- Bharat QR is Quick Response code-based service where the merchants need to display QR codes in their premises. A user can scan this QR via BQR enabled mobile banking app and pay using Card linked account / VPA / IFSC + Account / Aadhaar. This is rapidly developing mode and a user with smartphone and a QR code reader can utilise this mode for seamless payments.
- Bharat Bill Pay is a one-stop payment platform for all bills providing an interoperable and accessible “Anytime Anywhere” bill payment service to all customers across India with certainty, reliability, and safety of transactions. Bharat BillPay transaction can be initiated through multiple payment channels like Internet, Internet Banking, Mobile, Mobile-Banking, POS (Point of Sale terminal), Mobile Wallets, MPOS (Mobile Point of Sale terminal), Kiosk, ATM, Bank Branch, Agents and Business Correspondents.
- Aadhaar Enabled Payment System (AePS) is a bank-led model which allows online interoperable financial inclusion transaction at PoS (Micro ATM) through the Business correspondent of any bank using the Aadhaar authentication. AePS allows a user to do six types of transactions: cash withdrawal, cash deposit, balance inquiry, Aadhaar to Aadhaar Funds transfer, mini statement and best finger detection.
- WhatsApp Pay is a new mode of payment which is on the back of UPI infrastructure. Upon pairing a bank account and setting up a UPI Pin the user can pay money to another user active on WhatsApp pay. This, however, does not have the facility of request pay as of now. The facility is available currently in a beta version
This write-up covers most of the payments modes, however, is not exhaustive in nature. There are a lot of modes available and the awareness on each of them is difficult to have. In such situations, it is best to know and use what is convenient. Choosing a mode which is agnostic of the provider and is interoperable in nature is likely to go a long way.