Beginning of Digital Payment Modes
It was probably PayPal that introduced the world to a dedicated platform for digital payments. Though credit unions and banks were offering online banking operations right after the emergence of the Internet, it wasn’t until PayPal entered this domain and popularized digital payments, especially among online shoppers at eBay.
Features like linking bank accounts, multiple currencies, and easy transactional monitoring made PayPal as a strong rival of banks. Though eBay ultimately acquired PayPal after its three-year independent run, it sure spun off an entire e-payment industry, which registered a global transactional value of US $3598 in 2018.
Rise in Digital Payments Platforms: A Boon or a Bane?
For the past couple of years, big tech giants with immense funding for new projects have delivered online payment platforms, some of which bit the dust long ago while others are thriving and being popularized by masses daily. In the 2010s, companies like Amazon, Google, and then Apple launched their digital payment platforms and barged into marketing with strategic and highly attractive promotional tactics.
While paving the way for a cashless economy, digital payments have also given a boom to virtual currencies that are being transferred through such payment modes in value of worth millions. But is e-payment technology our beneficial evolution into the cashless economy? Wouldn’t the amount of unwanted exposure the internet has given us would turn back on us through these gateways?
In this piece, we discuss the merits and demerits of digital payments, their impact on the inevitable evolution of the economy and transactional functionalities, and the precautions one need to ensure while using digital payment platforms.
How Digital Payments Surpassed Traditional Banking?: Merits of E-Payment
Looking at how digital payments have benefitted the consumers and marketers alike, it seems that it has helped us all come a long way from traditional banking systems. If Digital Payments are to be deeply categorized, PayPal and other payment applications are not the only players that are digitizing paper currency.
From card payments to newly popularized NFC payments, all fall under this category. All of these technologies have offered us the merits of digital modes of payments, that we should be really glad for. And no, they aren’t limited to just taking the load off your wallets. Here’s how traditional banking has evolved over the merits of digital payments:
1. Ease of Transaction
This is an obvious benefit of online payments; however, this ease of transaction isn’t just about users getting a faster and simplified mode of making complex transactions. Earlier bank authorities had to go through the hectic rectification of paperwork and cash handling procedures to avoid errors in transactional and fund transfer operations.
With online payments, all that processes have been automated, relieving bank officials of a comparatively error-prone cash handling process.
2. Transparent Monitoring
Other benefits of a cashless transaction is smooth and seamless monitoring of in-flow and out-flow of money from your accounts. The applications supporting cashless online payments keep track or statement of transactions made through it, which can be easily accessed by the account holders without putting out any official request or without visiting the bank.
This surpasses the traditional systems where account holders had to get a physical, printed copy of their transactions, listed in order from the earliest to the oldest one.
3. Effective and Faster Wage Distribution
Imagine an organization of more than a hundred employees, all working at a different position in the hierarchy, which means everyone has a different pay scale. Now if you need to handle wage distribution in cash or by traditional banking methods, this is not just going to take a lot of time, but would also cost an organization a considerable amount of money.
By having an online payment system, the wage distribution process becomes centralized, limited to a small cabin-space. A centralized online payment platform would require fewer people to manage it and would pace up the distribution process as well, ultimately increasing organizational efficiency.
4. Service Inclusion
A digital payment platform combines banking services into one application, allowing those services to reach a wider population range. Features like direct deposits, creation of new accounts, and management of investment accounts on a common platform have brought people a better understanding of financial services, their associated terms and conditions, functioning of financial institutions.
It is one of the most significant merits of digital payments. It has allowed governments to reduce costs induced during printing, secured dispatching, and storing physical currencies. The storage of physical currencies on banks was a great deal of concern resulting in a high cost of securing it. Digital payments have allowed banks to lower down the presence of cash in their vaults and reduce costs for its security as well.
What Demerits of Cashless Economy and Online Payments People Face?
Decoding digital payments contrarily, there are factors to consider, which proves that the world is still not ready for going completely cashless and digital. Ranging from security to server errors, people have faced all sorts of issues, which remain unresolved. Plus, the privatization of digital payment platforms has created a havoc of multiple terms and conditions imposed on consumers unbeknownst to them.
Let’s find out what demerits of online payments have been experienced:
1. Lack of Knowledge
While urban states and nations have largely adopted the digital economy as a part of their daily life, people from smaller countries are still struggling with the understanding of digital payments and the economy. The lack of education, the poor reach of the internet, and no presence of even a centralized financial institution are some of the reasons.
2. Privatized Economy
Digital payments have given private organizations too much control over our financial lives. While they offer transparent credit monitoring, they also keep a similar track of our accounts, which accumulates to a kind of an intrusion.
Some of these private financial institutions impose varied terms over consumers, confusing them over what benefits they can receive and what they might have to give up to gain those benefits. A privatized monitoring of worth billions of economy may lead to a monopoly of more prominent financial institutions over people’s lives.
3. Technical Glitches and Faulty Support
Private platforms often face server issues, which sometimes results in people’s money being stuck in pending transaction approvals. In many cases, support staff employed by the organizations running such platforms fail to resolve these issues, causing severe economic losses to account holders. This has been a major fallback of using digital payment modes as one has to rely on an external support structure for resolving any arising concerns.
The undeniable and most threatening concern is the security of platforms we use for digital payments. These platforms run the entire process on dedicated servers, which can be breached if not protected by effective firewall methods. Various cases of server breaches, data leaks, and financial frauds have been registered in the past. Since they are almost impossible to trace, no legal proceedings are possible in such scenarios.
5. Faulty Telecommunication Infrastructure
Internet is still to reach properly in various states. Lack of telecommunication infrastructure would eventually fail a digital payment platform, as all its services run on a broadband connection or through a cellular internet network.
Is Reliance On Digital Payment Mode Worth It?
Digital payments have substantial beneficial potential in the foreseeable future, considering what it has in place for a cashless, transparent economy. However, in the current scenario, a one-hundred percent reliance on such modes is too complicated. The lack of knowledge among a major ratio of masses and lack of internet connectivity in developing or underdeveloped nations fail the purpose of a digital payment platform.
A pervasive myth that has been often circulated is that it would be difficult to circulate illegal currencies if payment modes are digitized. That is only possible if physical currencies are entirely removed from existent, and that is unlikely. At least not for the next five decades, I’d say. It would be
Besides, until the terms of using such modes are not made understood adequately to the users, there is no point in heading towards complete digitization.
Moreover, the process of storing, managing, and handling cash-based operations accounts for the employment of thousands of individuals. More than 90% of world nations suffer from unemployment issues. Digital economy would bring a kind of automation of several financial operations, which may lead to layoffs in lower-level departments of financial institutions. Certainly, that is a concern one can’t scratch out.
Digital Payment might be imminent, but that day is too far as of now. We might get two or more states who would declare themselves as a cashless economy. But to eradicate physical currency is not just risky, but it is also illogical given the various business infrastructure depends on it.
What Do You Feel?
Tell us about your views on digital payment platforms and how they can lead to a cashless economy. Do you think it’s reasonable to see these platforms as totally favorable innovation?