Tuesday, April 16, 2024

The Spectrum of Cashless Transactions From SMSes to Cryptocurrency

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With ineffective cash in hand, market was ripe for widespread popularisation of mobile wallets. For starters, the e-commerce industry observed an increase of about 52 percent transactions taking place through digital payments providing a huge boost to the Digital India campaign. Digital payment usage have gone up by a significant margin recently. Certain mobile wallets are reporting an increase of up to 200 percent in application downloads, with an increase of up to 1500 percent in wallet recharges. The lack of cash influx has resulted in local vendors and hawkers opting mobile wallets. The numbers might seem impressive but would it be correct to assume demonetisation was the sole factor for such popularisation of cashless transactions?

Digital wallet for digital payment

An argument in favour of mobile wallets is “penetration of cards being very low,” says Umeed Kothavala, CEO and Co-Founder, Extentia Information Technology. And rightly so, we had a plan for getting people to use bank accounts, but we didn’t have the provision of issuing similar number of cards. Add this to the easy availability of smartphones and you have the recipe for a successful wallet that you carry all the time. Smartphones are such an integral part of our lives that we didn’t even realise we were already doing many of our transactions via these pocket wonders. Want to pay your electricity bill, tap and pay. Running low on balance, just one click is all it takes. So, how do they do it?

The numbers look promising as well

Mobile wallet segment now covers a very wide range of e-commerce, couponing/cashback, financial inclusion services and daily grocery shopping as well. The areas that are seeing an increase in the recent past are money transfer, mobile recharge, bill payments and utility applications. In Tier-I cities such as Delhi Mumbai, Bengaluru and Chennai the mobile wallets have seen a growth by 110 percent since 2014-15. However, what do you say about rural regions with lesser smartphone coverage?

A mobile wallet stores digital currency in your name. Online merchants are required to use an API provided by 3rd party payment gateway providers to process transactions. An API is basically a code that merchants can embed on their platforms that allows their website to communicate with the payment gateway provider’s servers as they process their customer’s transactions for them. Paypal, PayUmoney and CCAvenue are the popular ones in the Indian subcontinent for the moment whereas Braintree, a subsidiary of Paypal is also popular outside.

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Mobile wallets gaining momentum

Ease of usage has been one of the biggest factors for the success of mobile wallets. Just tap and you are done. Mobile wallets work using third party payment gateways to ensure authentication. The money in a Paytm account can’t be transferred to Freecharge and vice versa, which becomes a problem in some cases when the shopkeeper does not have the same wallet as you. A question in this case comes up is, why not use the same payment gateways to transact between different wallets? Despite this limitation, mobile wallets continue to grow at a rapid rate. A lot more wallets are becoming increasing popular owing to some very lucrative offers. We now have Oxigen wallet, Mobikwik and Citrus pay among others, vying for the top spot.

How does a payment gateway work?

Once an order for a transaction is placed, the customer’s web browser encrypts the information to be sent between the browser and the merchant’s server. This can also be done using Secure Socket Layer (SSL) encryption. The payment gateway may allow transaction data to be sent directly from the customer’s browser to the gateway, bypassing the merchant’s systems in certain cases. This reduces the merchant’s Payment Card Industry Data Security Standard (PCI DSS) compliance obligations, without redirecting the customer away from the website. The merchant then forwards the transaction details to their payment gateway.

There is another security encrypted layer connection to the payment server hosted by the payment gateway. The information is then forwarded over to the merchant bank, from where it gets redirected to the card issuer who again redirects it to the card issuing bank. Once the transaction is approved or denied depending on the OTP or the pin code, the details are again sent back via the same route.

USSD is an unappreciated transaction method

For people, unaccustomed to smartphones there are still ways to make a digital payment. Unstructured supplementary service data or USSD, allows you the possibility of checking your bank account via dialling a number over phone itself. This only needs global system for mobile communication (GSM) service on a mobile handset to get the task done. So why is such an ingenious system underrated?

The idea of using only GSM to transact might seem very simple, but the process is a bit odd. And begins with registering your number with your bank. Realistically speaking, banks are a hassle and once you do get it registered, there is a limit of Rs. 5000 per transaction. Also, several forums raise doubts about security of transactions done entirely over GSM. The idea maybe noble, but should be about easing the users not familiar with smartphones.


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