Digital Money For Digital India

By Manu Prasad

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On November 8, 2016, at 20:15, Prime Minister of India Narendra Modi addressed the nation through an unscheduled television speech. He declared that from November 9, 2016, the government of India would cease the usage of all 500- and 1000-rupee notes as legal tender, and instead new 500- and 2000-rupee notes would be available for exchange. The government claimed that this was being done to stop terrorism funding, crack down on black money, and reduce corruption and smuggling in India. However, after the announcement, banks and ATMs in the whole country faced severe shortages of currency.

The government of India is now trying to implement a cashless society. After the demonetisation move, several initiatives were taken to further encourage cashless transactions. Almost 300 per cent increase in digital payment activities has been observed since early November 2016.

In this article we present some of the many digital alternatives for making payments.

Debit and credit cards

A debit card is used to withdraw money from ATMs and to make purchases online and offline. The money is debited directly from your bank account. The card has a black magnetic strip on the back or a chip on one side, in which your account information and other details are embedded.

For making payments using a debit card, the merchant uses a point of sale (POS) machine to swipe or insert the card. Steps to be followed in this method are as follows:
1. While accepting a payment, the merchant submits the details after swiping or inserting the debit card on the POS machine.
2. You provide your personal identification number (PIN) though the machine.
3. After submission, the device communicates with your bank and deducts the amount from your account.
4. Two receipts are printed, one for you and the other for the merchant on the POS machine after successful payment.
5. An SMS from the bank confirming the transaction is sent to your registered mobile number.

In case of a credit card, the payment amount is not deducted while using the card; the payment is made later by the user.

Most online shopping websites support the use of debit and credit cards. Here, shopping venders direct you to the selected bank payment portals, where you enter your debit or credit card details like card number (16-digit number provided on the card), validity date and CVV number (last three digits provided on the back of the card next to your signature).

Then, you have to provide a one-time password sent by your bank to your phone or your Internet password for netbanking. A successful transaction message page is displayed after the payment is done.

RuPay is an Indian domestic card launched by National Payment Corp. of India. It facilitates electronic payments from all Indian banks. The procedure for using RuPay is the same as that of other debit cards.

Mobile/digital wallets

A mobile wallet is a virtual wallet where you can preload a certain amount of money from your bank account, and use this amount as cash. For example, if you go to a coffee shop and the coffee shop supports, say, PayTM wallet, you can pay your bill using the same.
There are four types of mobile wallets in India, namely, open, semi-open, closed and semi-closed. Open wallets allow you to buy goods and services, withdraw cash at ATMs or banks and transfer funds. These services can only be jointly launched with a bank; for example, M-Pesa by Vodafone and ICICI.

Fig. 1: Some popular mobile wallets in India | digital money
Fig. 1: Some popular mobile wallets in India

Airtel Money is an example of a semi-open wallet. To transact, the merchant must have a contract with Airtel. You have to spend what you add in the wallet, and would not be able to withdraw cash or get it back.

In a closed wallet, there is a certain amount in your account that will be locked with the merchant in case of cancellations or returns.

Semi-closed wallets do not permit any cash withdrawals or returns, but allow you to make purchases that support the wallet. The best example here is PayTM.

Steps to use a mobile wallet are:
1. Download the mobile wallet app on your mobile.
2. In the application, go to wallet section and add money to the wallet using the payment procedure.
3. After checkout from merchants who participate in the particular mobile wallet model, choose the mobile wallet option and pay. There are different types of verifications available in wallets like one-time password, PIN, scan code and so on.

NEFT, IMPS and RTGS

National Electronic Fund Transfer (NEFT), Immediate Payment Service (IMPS) and Real Time Gross Settlement (RTGS) allow fund transfer from bank to bank for individuals as well as companies. This can be done through the Internet banking facility, and it is possible to transfer money within the country only. To use these, you need to first add the beneficiaries to your account.

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